Advisory and Structuring

Malta’s implementation of the EU Anti-Tax Avoidance Directive

12/02/2019


Following the adoption of the Anti-Tax Avoidance Directive by the European Council, as with the other European Jurisdictions, Malta has been bound to implement a number of provisions in its tax legislation to ensure compliance thereto.

Malta’s new regulation implementing the Council Directive (EU) 2016/1164 of 12 July 2016 in relation to tax avoidance practices that directly affect the functioning of the internal market (‘ATAD Implementation Regulations’) come into force on 1 January 2019.

The ATAD Implementation Regulations is meant to deter tax avoidance and associated artificial strategies, abuse and debt arrangements intended to minimise tax.

The said Regulation shall apply to all companies, trusts and similar arrangements that are subject to tax in Malta, as well as to entities that are not resident in Malta but have a permanent establishment in Malta that are subject to tax in Malta.

Some of the crucial elements introduced by the said Regulations are as follows:

  • A general anti-abuse rule also referred as GAAR Rule. The GAAR is set to regulate aggressive tax planning.
  • A Controlled Foreign Company (CFC) rule, also referred to as the CFC Rule, with the purpose of deterring profit-shifting to a low- or zero-tax country, which requires that an entity, or a permanent establishment, of which the profits are not subject to tax or are exempt from tax, shall be treated as a CFC when certain conditions are met.
  • A new tax policy that includes an interest limitation to deter artificial debt arrangements intended to minimise tax. Exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA).

In line with the EU Directive, Malta’s new Regulation also introduces an exit taxation rule directed at preventing companies from avoiding tax when relocating assets. This tax applies to capital gains at an amount equal to the market value of the transferred assets at the time of exit of the asset. This provision shall come into force on 1 January 2020.

Malta has therefore embraced the same anti-tax avoidance regimes applicable in other EU member states, but despite the adoption of such regulations, the Maltese general tax system and the current rules on the taxation of company profits, including the significant tax refunds to shareholders based on the imputation tax system, remained unchanged allowing Malta to retain its distinct advantage in terms of competitivity and efficiency.

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It has assembled a multi-disciplinary team focused on providing:

  • Tax-efficient management of your financial affairs.
  • Tax-efficient investment structures;
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