Guide, not advice
Malta's refundable tax credit system: how the 6/7ths refund is applied
Updated
The famous fraction is narrower than the shorthand: six-sevenths of a specific tax, on a dividend from specific accounts, claimed by a specific person. Each qualifier decides whether it arrives.
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How this calculator works
- The company rate is 35 cents on every euro of chargeable income for every company and body corporate, article 56(6) of the Income Tax Act (Cap. 123). There is no reduced Maltese company rate; the relief is entirely at shareholder level.
- The refund fractions are those in article 48(4) and 48(4A) of the Income Tax Management Act (Cap. 372). Six-sevenths of the Advance Company Income Tax applies on a dividend from the Maltese taxed account or the foreign income account.
- Five-sevenths where the profits are passive interest or royalties, or dividends from a participating holding that fails the article 12(1)(u) conditions. Two-thirds of the Malta tax where the dividend comes from the foreign income account and the company claimed relief of double taxation. A full refund where foreign income account profits derive from a participating holding or its disposal.
- The calculator applies the fraction to the tax pertaining to the profits actually distributed. Retained profits generate no refund until they are distributed, which is why the distribution percentage changes the answer.
- A statutory cap applies in both sub-articles: the refund shall in no case exceed the amount of tax actually paid by the company to the Commissioner on the distributed profits. Where double taxation relief reduced the tax paid, this tool's two-thirds figure can overstate the entitlement. Treat the 2/3rds line as an upper bound; have it computed on real numbers.
- The refund is a shareholder entitlement, claimable only by a person registered for the purpose in the prescribed manner. The Commissioner pays it not later than the fourteenth day after it becomes due. That can be extended by twelve months where further due diligence verification is required (article 48(8)).
- Not modelled: the company's own tax computation, allocation of profits between the five tax accounts, and tax accounted for under the investment income provisions. Nor the tax the shareholder pays in their own country of residence, or the EU global minimum tax for large groups. This tool computes a statutory fraction; not whether you qualify for it.
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 covers a dividend from a Malta-registered company, paid from profits allocated to its Maltese taxed account or its foreign income account. The person receiving it may 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. It is set off against future tax payments on the same profits.
- 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.
- 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.
- 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.
- 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.
Is Malta a refundable tax credit system?
That is the usual shorthand; the Acts never use the phrase. The Malta Tax and Customs Administration describes it as an imputation system. When a company taxed at 35% distributes dividends, shareholders are entitled to a refund of part or all of the tax the company paid. So company profits are taxed at corporate level only.
In the statute, the dividend carries the tax the company paid, shown on the article 59(5) certificate. Article 48 of the Income Tax Management Act refunds a fraction of that tax. The shareholder claims it; nothing is credited to the company.
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
- 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. Then 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. If the refund was actually paid, they must repay it with additional tax of seven per cent per month or part of a month until repayment.
That is why the registration and certificate machinery exists, and why the refund is not something to claim on an assumption.