Malta fully implements the provisions Parent Subsidiary Directive allowing for a complete tax exemption on any income and capital gains derived by a Participating Holding of a company registered in Malta and arising from the income of or the disposal of shares in the subsidiaries whether incorporated inside or outside of Malta. This is known as the Participation Exemption. Subject to certain conditions, when such income or gains are received, the Company has an option to completely exempt the same from tax or to have such income taxed at 35% and the shareholder apply for a 100% refund of the tax paid upon the receipt of a dividend.
A participating holding arises where:
(a) a company holds directly at least ten percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least ten percent of any two of the following:
(i) right to vote
(ii) profits available for distribution and
(iii) assets available for distribution on a winding up; or
(b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or
(c) a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or
(d) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or
(e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; or
(f) a company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.
Further conditions are imposed with respect to Dividend Income.
Income derived by a participation holding shall be exempt, if the following conditions set out in either para (i) or (ii) are satisfied:
(i) where the body of persons in which the participating holding is held satisfies any one of the following conditions, that is to say:
(ii) where none of the conditions set out in paragraph (i) are satisfied then both of the following two conditions must be satisfied:
Following recent amendments, the participation exemption regime has been improved in that the definition of participating holding has been extended. To this end the following will be treated as participating holdings:
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