A binding tax ruling recently handed down by the Spanish General Directorate of taxes has clarified the position with regards to tax refunds received by corporate shareholders of Maltese subsidiaries.
The tax refund system in Malta grants shareholders of Maltese companies the right to receive a refund of the corporate tax paid in Malta by the Malta company when certain conditions are met. Maltese companies are subject to tax at a flat rate of 35% on their worldwide income. By virtue of the full imputation system, a tax refund of the Malta tax paid by the company is available to the shareholders upon dividend distribution to the shareholders to avoid economic double taxation. When the dividends are distributed by the Malta company to the shareholders out of its trading income, the refund paid to the shareholders by the Inland Revenue Department would be that of 6/7ths of the Malta tax paid by the company.
According to the Spanish tax ruling, all such refunds received by Spanish corporate shareholders of Maltese companies will be treated as dividends to which the Spanish participation exemption may apply. The latter regime exempts dividends and capital gains received from shareholdings if certain conditions are met, as follows:
  1. One must hold a minimum stake of 5%, directly or indirectly, in the corporate capital or shareholders’ equity of the entity. This must be held continuously for one year. Alternatively, the 5% requirement is also deemed to be met if the acquisition price of said stake exceeds 20 million Euro;
  2. The equity must have been subject to a minimum tax of 10%. This minimum level of tax is deemed to be met if the foreign subsidiary is resident in a country with which Spain has concluded a double tax treaty (such as Malta).

To find out more, please contact Ramona.Azzopardi@whpartners.eu