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Posted By: Beppe Muscat | 27 Jun 2016

Malta Tax Refund System: 6/7ths Refund

The Malta tax refund system includes a particular scheme called the 6/7ths refund. This scheme results in an effective tax rate of just 5%. It is 100% legal and has been audited and accepted by the E.U.

How does it work?

We normally recommend the creation of a structure which will involve 2 companies: a trading company and a holding company (Holding Company will be the shareholder of the trading company). This structure is not obligatory (i.e.: you can setup the trading company alone) but the reason for such a structure is to avoid having dividends sent to the shareholders personally. It is through this structure that the refunds system works best and most effectively.

Throughout the year, the trading company will trade and generate a profit. Tax has to be paid on that profit at 35% (Malta corporate tax rate) up to 9 months after year end.

Once the tax is paid, the non-resident shareholders can claim back a refund equal to 6/7ths of the tax paid. The end result is an effective tax rate of 5%. As for timelines, as per law the refund should be sent within 15 days.

The most important point for one to be eligible for the tax refund system is that the shareholder is NOT resident in Malta (does not spend more than 183 days in Malta)

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