The Malta 6/7ths tax refund: how the fraction is actually applied

This page describes statutory machinery. It is not tax advice, and nothing here says whether a refund is available to you. Whether a structure works, and what it costs you where you live, needs a licensed Maltese tax practitioner on your actual facts.

What the six-sevenths is a fraction of

Article 48(4A)(a) of the Income Tax Management Act gives a person in receipt of a dividend from a company registered in Malta, paid out of profits allocated to its Maltese taxed account or its foreign income account, the right to claim a refund of six-sevenths of the Advance Company Income Tax pertaining to those distributed profits.

Advance Company Income Tax is defined in article 42B: on payment of a dividend from the foreign income account or the Maltese taxed account, it is the tax the company is entitled to deduct under article 59 of the Income Tax Act in respect of that dividend, plus any additional tax under article 44(1)(a), after deducting tax credits relating to the profits out of which the dividend is paid but excluding credits for double taxation relief. The company pays it within sixty days of the end of the month following that in which the dividend is paid, and it is set off against future tax payments on the same profits.

1. The company is charged 35% on its chargeable income under article 56(6) of the Income Tax Act, and allocates its distributable profits between the five tax accounts.
2. A dividend is paid from the Maltese taxed account or the foreign income account, with a certificate under article 59(5) of the Income Tax Act showing the profits distributed and the tax borne.
3. The shareholder, already registered for the purpose in the prescribed manner, claims six-sevenths of the Advance Company Income Tax pertaining to that dividend, within four years of the date the tax becomes eligible for refund.
4. The Commissioner pays on being satisfied as to the correctness of the claim and on receipt of the article 59(5) certificate, not later than the fourteenth day after the refund becomes due, with a possible twelve-month extension for due diligence verification.

The three qualifiers people skip

• It is not the company's money. The refund is due to the person who received the dividend, and article 48(6) makes payment conditional on the article 59(5) dividend certificate. There is no refund without an actual distribution.
• It is capped at tax actually paid. The final proviso to article 48(4A)(a) says the refund shall in no case exceed the amount of tax actually paid by the company on the profits distributed out of the Maltese taxed account or foreign income account.
• One refund per parcel of tax. Article 48(7)(a) blocks any further refund under those sub-articles, or under any other provision of the Income Tax Acts, on the same distributed profits once a claim has been made.

When it is five-sevenths instead

The proviso to article 48(4A)(a) reduces the fraction to five-sevenths where the dividend is paid out of profits consisting of passive interest or royalties, or of dividends received from a participating holding in a body of persons that does not satisfy the conditions in the proviso to article 12(1)(u) of the Income Tax Act. It also bars a claim under that sub-article altogether where the profits are allocated to the foreign income account and the company has claimed relief of double taxation on them, in which case the two-thirds route in article 48(4) is the relevant one.

What a wrong claim costs

Article 48(10) is unusually blunt: a person who claims a refund when not entitled to it is liable to a penalty equal to the amount claimed, and if the refund was actually paid, to repay it with additional tax of seven per cent per month or part of a month until repayment. This is the reason the registration and certificate machinery exists, and the reason the refund is not something to claim on an assumption.