Income Tax Act (Cap. 123), article 2

2. (1) In this Act, and in any rules made under this Act, unless the subject or contex t otherwise requires - "a company registered in Malta" shall mean a company which is resident in Malta or a company which, although not resident in Malta, carries on any activity in Malta and in the case of a company which is neither incorporated nor resident in Malta shall mean a company that is registered for t his purpose with the Commission er in such manner as may be prescribed; "body of persons" means any body corporate, including a company, and any fellowship, society or other association of persons, whether corporate or unincorporate, and whether vested with legal personality or not; "bonus shares" means and includ es the paid-up value of shares distributed by a company to its shareholders to the extent to w hich the paid-up value represents a capitalization of profits; "certified public auditor" means an individual who holds a warrant to act as auditor issued under the Accountancy Profession Act, or a partnership of auditors d uly registered under the said A ct, provided such individual is not d isqualified and in the case of a partnership none of the partners is an individual who is disqua lified for appointment as auditor or from holding such appointment on any of the grounds mention ed in article 153 of the Companies Act ; "chargeable income" means the total income of any person for any year; Cap. 370. "collective investment sch eme" means any scheme or arrangement which is licensed under the Investment Services Act or notified in terms of the Inve stment Services Act (List of No tified AIFs) Regulations; "Commissioner" means the Comm issioner for Tax and Customs; "Commonwealth" has the same meaning as is assigned to it in article 124 of the Constitution of Malta; "company" means - Cap. 386. Cap. 168. (a) (i) a limited liability company constituted under the Companies Act or under the Commercial Partnerships Ordinance; or (ii) any other company constituted as such under any other law in force in Malta; (iii) (1) any partnership en nom collectif and any INCOME TAX [CAP. 123. 3 partnership en commandite constituted under the Companies Act or under the Commercial Partner ships Ordinance; Cap. 16. (2) any partnership regul ated by the applicable provisions of the Civil Code and registered in such manner as may from time to time be provided in terms of the Second Schedule to the Civil Code; S.L. 386.08 (3) any European Economic Interest Grouping (EEIG) formed pursuant to the provisions of the Companies Act (European Economic Interest Grouping) Regulations; S.L. 370.53. (4)* any Special Limited Partnership Fund established in accordance with the Investment Services Act (Special L imited Partnerships Funds) Regulations ; Cap. 372. and which partnership or EEIG as the case may be, has elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act and for as long as such election remains in force: Cap. 386. Cap. 386. Provided that in the case of a cell company as defined in any regulations made in terms of the Companies Act (hereinafter in this proviso referred to as "the Regulations") as these may be amended from time to time, or in any other law or regulations replacing the Regulations, for all intents and purposes of the Income Tax Acts, every cell of a cell company and that part of a cell company in which non-cellular assets are held, shall each be deemed to be a separate company and any words and expressions in the Income Tax Acts which are relevant to a company shall be construed accordingly. The interpret ation of such words and expressions insofar as applicable to a cell company shall be made on the basis of the relevant provisions of the Companies Act and of the Regulations: Cap. 372. Provided further that a partnership en commandite with its capital divided into shares constituted prior to the 1st of January, 2015 shall be deemed to have elected to be treated as a company in ter ms of article 27(6) of the Income Tax Management Act and for as long as such election remains in force; (b) (i) any body of persons constituted, incorporated or registered outside Malta, and of a nature similar to a company referred to in sub-paragraphs (i) or (ii) of paragraph ( a) above; *Applicable from year of assessment 2026. Vide Article 13(2) of Act III of 2026 . 4 CAP. 123.] INCOME TAX Cap. 372. (ii) any body of persons con stituted, incorporated or registered outside Malta and of a nature similar to any partnership referred to in sub-paragraph (iii) of paragraph ( a) above, where such body of persons has elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act and for as long as such election remains in force; (c) any co-operative society dul y registered as such under the appropriate law for the time being in force in Malta; Cap. 535. "continental shelf" has the same meaning as is assigned to it in the Continental Shelf Act; "debenture interest" means interest payable by a company under or by virtue of a debenture or a debenture trust deed, whether in the form of a mortgage or any other instrument or document acknowledging indebtedness; "distributable profits" shall mean the total profits which are available for distribution by a company registered in Malta und er the laws for the time being in force in Malta, and the distribu table profits shall, for the purposes of this Act, be allocated to th e following accounts, that is to say, final tax account, immovabl e property account, foreign incom e account, Maltese taxed account , and untaxed account, and for the purposes of this definition th ese accounts shall comprise the distributable profits as set out in the respective definitions: Provided that in the case of a company which is neither incorporated nor resident in Malta the distributable profits sh all be the profits attributable to the activities of such company in M alta and in respect of which it has registered with the Commissioner less any of such profits which the company has distributed in previous years; "dividend" includes - (a) bonus shares (b) any distribution made by a company, to its partners or shareholders, as the case may be, and any amount credited to them as partners or shareholders as the case may be; and (c) any distribution made by a co-operative society to its members and any amount credited to them as members, including any patronage refund, bonus certificate or bonus share, made, paid or allotted in accordance with the law regul ating such societies for the time being in force in Malta; "equity holding" shall mean a holding of the share capital in a company which is not a property company, when the shareholding entitles the shareholder to at least any two of the following r ights (hereinafter referred to as "equity holding rights"): (i) a right to votes; INCOME TAX [CAP. 123. 5 (ii) a right to profits available for distribution to shareholders; and (iii) a right to assets available for distribution on a winding up of that company, and "equity shares", "equity shareholder" and "equity shareholding" shall be construed accordingly: Provided that the Commissioner shall be entitled to determine that an equity holding exists even where such holding is not a holding of the share capital in a company or does not con sist solely of such a holding of share capital, but where it can be demonstrated that in substance there is at any time an entitlem ent to at least two of the equity holding rights; Cap. 625. "exclusive economic zone area" s hall have the same meaning as assigned to it in the Exclusive Economic Zone Act ; "final tax account" shall mean the taxed account to which an amount of distributable profits which suffered tax, calculated in such manner and in such amount as may be prescribed, shall be allocated before any distributabl e profits are allocated to any other taxed account; "foreign income account" shall, with effect from the year immediately preceding the year of assessment 1996, mean any of the following categories of distributable profits arising in th at year and in subsequent years to the extent that they result from tax able income: Cap. 372. Cap. 330. (a) profits resulting from royalties and similar income arising outside Malta and from dividends, capital gains, interest, rents, income or gains derived from a participating holding or from the disposal of such holding other than a participating holding in a company resident in Malta, or in a partnership en commandite the capital of which is not divided into shares which is resident in Malta, and any other income derived from investments situated outside Malta, which are liable to tax in Malta and shown as part of the company’s chargeable income in the return made pursuant to article 10 of the Income Tax Management Act , and are receivable by a company registered in Malta not being a company registered under the Malta Financial Services Authority Act , and Cap. 330. Cap. 376. (b) profits resulting from investments, assets or liabilities situated outside Malta to a company not registered under the Malta Financial Services Authority Act , and either licensed as a bank in Malta or in possession of a licence granted under the provisions of the Financial Institutions Act : Provided that, notwithstanding the provisions of article 92(1)(b), with effect from the year of assessment 2016, this paragraph shall not be applicable to any company which is not specifically empowered to receive such profits or gains; and 6 CAP. 123.] INCOME TAX Cap. 372. (c) all profits or gains of a company registered in Malta, which are liable to tax in Malta and shown as part of the company’s chargeable income in the return made pursuant to article 10 of the Income Tax Management Act and attributable to a permanent establishment (including a branch) situated outside Malta, and for these purposes "profits or gains" shall be calculated as i f t h e p e r m a n e n t e s t a b l i s h m e n t i s a n i n d e p e n d e n t enterprise operating in similar conditions and at arm’s length; and (d) profits resulting from dividends paid out of the foreign income account of another company registered in Malta; and Cap. 403. Cap. 330. (e) profits or gains resulting to a company registered in Malta authorised under article 7 of the Insurance Business Act , not being a company registered under the Malta Financial Services Authority Act , from the business of insurance in relation to risks situated outside Malta: Provided that this provision shall apply exclusively to companies which allocated profits to the foreign income account on the basis of this paragraph for any year of assessment up to and including year of assessment 2007, and such companies shall only be entitled to continue allocating profits on the basis of this paragraph up to and including year of assessment 2011: Provided that in the case of a company referred to in paragraph ( e) of this definition, any profits or gains which would, in accordance with the above provi sions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated unless such profits or gains arise in the year immedi ately preceding the year of assessmen t 2000 and in subsequent years: Provided further that in the case of a company which is licensed as a bank in Malta or which forms part of a banking gr oup as defined below, any profits which would, in accordance with t he above provisions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated unles s: (a) more than ninety-five per cent of its average daily deposits throughout the financial year are taken from persons who are not residents in Malta; and (b) where the company forms part of a banking group, such group meets, on a consolidated basis, the requirement specified in paragraph (a) above. For the purposes of this proviso: (a) "banking group" shall comprise only Maltese registered companies, at least one of which must be a bank licensed in Malta, and which companies are m e m b e r s o f a b a n k i n g g r o u p o f c o m p a n i e s . T w o companies shall be deemed to be members of a INCOME TAX [CAP. 123. 7 banking group of companies if one is the ten per cent affiliate of the other or both are ten per cent affiliates of a third company. For this purpose, a company shall be deemed to be a ten per cent affiliate of another company (paren t company): (i) if and so long as more than ten per cent of its ordinary share capital and more than ten per cent of its voting rights are owned directly or indirectly by the parent company; or (ii) the parent company is beneficially entitled either directly or indirectly to more than ten per cent of any profits available for distribution to the ordinary shareholders of the affiliate company; or (iii) the parent company would be beneficially entitled either directly or indirectly to more than ten per cent of any assets of the affiliate company available for distribution to its ordinary shareholders on winding up: Provided that notwithstanding the above provisions, a company which has been acquired by a bank in satisfaction of a debt and which does not otherwise form part of the bank’s business shall be deemed not to form part of a banking group; Cap. 371. (b) ''average daily deposits'' shall be computed by taking the total deposits at the end of each day for the financial year and dividing such amounts by the number of days in that financial year and average daily deposits taken from persons who are not resident in Malta shall be computed in like manner. The word ''deposits'' shall have the meaning assigned to it in the Banking Act; (c) the amount of the consolidated average daily deposits of a banking group shall include only deposits accepted by companies forming part of the banking group placed by persons other than such companies: Provided further, that in the case of an international trading company, the profits which would, in accordance with the above provisions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated: Cap. 372. Provided further that notwithstanding anything contained in this Act or in any rules made th ereunder any profits derived up to the 31 December 2010 by a company which was resident in Malta prior to the 1 January 2007 (other than a company which has exercised its option in terms of paragraph (i)(2) of the provis o to article 48(4A)( b) of the Income Tax Management Act ) which would have been allocated to the foreign income account had such prof its been brought to charge to tax in the year of assessment 2007 sh all be allocated to the fo reign income account; "immovable property account" s hall mean the taxed account to 8 CAP. 123.] INCOME TAX which distributable profits which have suffered tax and which a re not allocated to the final tax account calculated in such manne r as may be prescribed, shall be alloc ated before any distributable profits are allocated to the other taxed accounts; "income" except for the purposes of article 4(1) and Part IV sh all include capital gains as defined in article 5; "the Income Tax Acts" shall collectively mean this Act and the Income Tax Management Act ; "industrial building or structure" includes a building used as a hotel or a car park or offices, as may be prescribed. For the p urpose of this definition: (a) the word "hotel" includes any number of constructions suitably furnished and eq uipped, with accommodation in single or double bedrooms, provided that such constructions are grouped together and have in common ancillary hotel services and amenities within a single and defined parcel of land and are operated by a common management for the accommodation and for the use of guests against payment; (b) the word "car park" refers to a structure of a commercial nature availabl e to the general public, which is the main income generating activity of any person claiming any deductions in its respect under article 14(1)(f) or (j), or whose operation by any such person involves substantial activity, having regard to the capital employed, the organis ation of the operation and the income that it generates, and which is first used for this purpose after the 1st January 2012; "international trading company" means a company registered in Malta by not later than 31 December 2006 which is engaged solel y in carrying on trading activities with persons outside Malta wh o are not resident in Malta and which has its objects expressly limit ed to such trading activities as well as to such acts and activities as are necessary for the conduct of its operations from Malta. The following activities shall be allowable activities of an international trading company: (a) purchases for export of goods manufactured, assembled or processed in Malta provided that such purchases are not made from a person who owns directly or indirectly more than fift een per cent of the ordinary share capital of the said international trading company; Cap. 330. (b) trading with companies registered in Malta under the Malta Financial Services Authority Act ; (c) trading with other international trading companies; and (d) the management of compani es resident in Malta whose business is restricted to aff iliated insurance and where such business is carried on exclusively with non- INCOME TAX [CAP. 123. 9 residents; Cap. 370. (e) the provision of management, administration or other services to collective investment schemes resident in Malta where such schemes are marketed exclusively outside Malta and are licensed or exempt from licensing under the Investment Services Act ; and (f) the provision of ship management services by companies whose activities and objects solely comprise the management of ships which are of not less than one thousand nett tons and which are engaged in the carriage of goods or passengers: Provided that a company shall not be, in the year immediately preceding a year of assessment, an international trading comp any if it claims a benefit under any provision of a law, other than the Income Tax Acts, which has the effect of reducing its chargeable income or its rate of tax for the said year of assessment, and in such case, notwithstanding the provisions of article 52(8)( a), any ruling which had been notified under the provisions of article 52(5) shall become void. This proviso shall have effect notwithstanding that the rel evant law deems that such b e n e f i t i s g r a n t e d u n d e r any of the provisions of the Income Tax Acts: Cap. 372. Provided that the company has not opted to cease to be an international trading company pursuant to article 48(4A)( b)(i)(1) of the Income Tax Management Act: Provided further that notwithstanding any other provisions of this Act or any other law including the provisions of article 52(8) of this Act no company shall be an international trading company with effect from 1 January 2011; "loss" in relation to a trade, business, profession, or vocatio n means loss computed in like manner as profits; "Malta" means the Island of Malta, the Island of Gozo and the o ther islands of the Maltese Archipelago, including the territorial w aters thereof, the continental shelf and any exclusive economic zone area; "Maltese taxed account" means an y of those profits of a company that are not included in the foreign income account and: (a) which have suffered tax; or (b) which have been exempt from tax under the provisions of any Maltese law and where the distribution of such profits by the company is also exempt from tax in the hands of the shareholders: Provided that this paragra ph shall cease to apply with effect from year of assessment 2008; "married" refers to any of the s pouses or partners in a married couple; 10 CAP. 123.] INCOME TAX "married couple" refers to two spouses who contracted marriage or two partners who have registered their partnership as a civi l union, in accordance with the leg al provisions of the country w here the marriage or civi l union was executed; "participating holding" shall m ean a holding which arises where : (a) a company holds directly a t least five percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least five percent of any two of the following: (i) right to vote; (ii) profits available for distribution; and (iii) assets available for distribution on a winding up: Provided that the Commissioner shall be entitled to determine that the provisions of this paragraph are satisfied even where the said minimum level of entitlement exists in the circumstances referred to in the proviso to the definition of "equity holding"; (b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or (c) a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or (d) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of tha t company as a director; or (e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an unint errupted period of not less than 183 days; or (f) a company is an equity shareholder in a company and where the holding of such shares is for the furtherance o f i t s o w n b u s i n e s s a n d t h e h o l d i n g i s n o t h e l d a s trading stock for the purpose of a trade: Provided that a holdi ng of a company in – INCOME TAX [CAP. 123. 11 Cap. 372. (a) a partnership or EEIG referred to in sub- paragraph (iii) of paragraph (a) of the definition of "company" in sub-article (1) of article 2 of the Act, not being a property partnership, and which has not elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act ; or Cap. 372. (b) a body of persons referred to in sub- paragraph (ii) of paragraph (b) of the definition of "company" in sub-article (1) of article 2 of the Act, not being a property partnership, and which has not elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act ; or (c) a collective investment vehicle constituted, incorporated or registered outside Malta and which is not resident in Malta, where the liability of investors in such scheme is limited to the amount invested by them, shall be deemed to constitute a participating holding if it satisfies the provisions of a ny of paragraphs (a) to (f) above which shall apply mutatis mutandis to such holding. For the purposes of this proviso, the terms "equity shares" or "shares" shall be construed as referring to the capital in the said partnership, EEIG , body of persons or collective investment scheme as the case may be which entitles the holder to at least two of the following rights: (i) a right to vote; (ii) a right to profits available for distribution; and (iii) a right to assets available for distribution on a winding up of the said body of persons, and the term "equity shareholder" shall be construed accordingl y and the reference to "company" in this definition and in the provisos thereto shall be deemed to include also such partnership, EEIG , body of persons or collective investment scheme as the case may be. Provided that the Commissioner shall be entitled to determine that an equity holding exists even where the particul ar company does not have a holding in the share capital in a compa ny or does not consist solely of such a holding of share capital, but it can demonstrate that in substance it holds an entitlement to at least two of the equity holding rights: Provided further that in the cas e of a holding falling within the purport of paragraph ( a) above, the provisions of the said paragraph shall be deemed to be s atisfied even where the minimu m 12 CAP. 123.] INCOME TAX level of entitlement referred to in that paragraph exists at an y time by reference to the circumstances referred to in the proviso to the definition of "equity holding"; "passive interest or royalties" shall mean interest or royalty income which is not derived, directly or indirectly, from a tra de or business, where such interest o r royalties have not suffered or suffered any foreign tax, directly, by way of withholding, or otherwise, at a rate of tax whic h is less than f ive per cent (5 %); "person" includes - (a) a body of persons; and (b) a responsible spouse in accordance with a rticle 49; "petroleum" means crud e oil of whatever density, natural gas an d other hydrocarbons and substances that may be extracted therefr om; "portfolio investment" is an investment in securities such as shares, bonds, and such like instruments and which is held as o ne of many such investments for the p urpose of investment by risk spreading where such an investme nt is not a strategic investmen t and is made with no interest in and without the intention of influencing the management of the company invested in and in addition is made only to follow th e share price and dividend po licy of the company invested in to maximise investment returns and t o sell the investment as soon as it appears that the shares may l ose value; "prescribed" means prescrib ed by rule under this Act; "property company'' shall mean a company which owns immovable property situated in Malta or any real rights thereon or a company which holds, directly or indirectly, shares or other interests in any entity or person, which owns immovable property situated in Malta or any real rig hts thereon where five percent or more of the total value of the said shares or other interests s o held is attributable to such im movable property or rights: Provided that where a company, entity or person carrying on a trade or business owns immovable property situated in Malta or any real rights thereon, consisting only of a factory, showroom, wa rehouse or office used solely for the purpose of carrying on such trade or business, such company, entity or person shall, for the purpose of this definition, be treated as not owning immovable property if not more then fifty percent of the value of its assets consist of immova ble property situated in Malta or any rights over such property and it does not carry on any activity the income from which is derived dire ctly or indirectly from immovable pr operty situated in Malta; "property partnership" shall m ean a partnership as defined in article 5(1)(b) which owns immovable property situated in Malta , or any real rights thereon, or a partnership which, directly or indirectly, holds shares or other proprietary interests in any entity or person, which owns immovabl e property situated in Malta, or any real rights thereon, where five percent or more of the tota l value of the said shares or othe r proprietary interests so held is attributable to such immov able property or rights: INCOME TAX [CAP. 123. 13 Provided that where a partnership, entity or person carrying on a trade or business owns immovable property situated in Malt a, or any real rights thereon, consisting only of a factory, showroom , warehouse or office used solely for the purpose of carrying on such trade or business, such partnership, entity or person shall, fo r the purpose of this definition, be treated as not owning immovable property if not more then fifty percent of the value of its assets consist of immovable property situated in Malta, or any real rights ove r such property, and it does not carry on any activity the income from which is derived directly or indirectly from immovable property situa ted in Malta; "resident in Malta" when applied to an individual means an individual who resides in Malta except for such temporary absen ces as to the Commissioner may seem reasonable and not inconsistent with the claim of such individual to be resident in Malta; when applied to a body of persons, means any body of persons the con trol and management of whose busi ness are exercised in Malta, provided that a company incorpor ated in Malta on or after 1st J uly 1994 shall be resident in Malta and any other company incorporated in Malta shall be resident in Malta from 1st Janua ry 1995 where the management and control of the business of the company is exercised outside Malta; "scholarship" includ es a bursary, an award, a grant or an endowment of a similar nature, given or established for educati onal purposes; "self assessment" has the meaning assigned to it in sub-article s (2) and (3) of article 10 of the Income Tax Management Act ; Cap. 372. "the Special Commissioners" means the Commissioners appointed by the President of Malta under article 34 of the Income Tax Management Act ; "spouse" shall include a partner registered as being in a civil union; "tax" means the income tax imp osed by the Income Tax Acts; "taxed account" and "taxed accoun ts" shall mean any or all of t he final tax account, immovable property account, foreign income account, Maltese taxed acco unt and untax ed account; Cap. 372. "tax return date" with respect t o a person for a year of assess ment means the date prescribed pursuant to article 10(1) of the Income Tax Management Act for the submission by that person of the return of income for t hat year of assessment; Cap. 372. "tax settlement date" has the meaning assigned to it in article 42(1A) of the Income Tax Man agement Act ; "total income" means the aggregat e amount of the income of any person from the sources specified in Part II of this Act, remai ning after allowing the exemption under Part III and the deductions under Part IV , and computed in accordance with the provisions o f Part V: Cap. 372. Provided that, subject to the provisions of article 12(3)( b) of the Income Tax Management Act , any income which is not 14 CAP. 123.] INCOME TAX required to be disclosed and is not disclosed i n accordance wit h the provisions of the Income Tax Acts shall not form part of total income; "untaxed account" shall consist of those profits (or losses as the case may be), which represent the total distributable profits ( a positive amount) or the total accumulated losses (a negative amount) as the case may be, and de ducting therefrom the total s um of the amounts allocated to other taxed accounts; "year of assessment" means the period of twelve months commencing on the first day of January, 1949 and each subsequen t period of twelve months. (2) Words and expressions used in this Act which are not known to the law of Malta but are known to the English Law, sha ll, so far as may be necessary to give effect to this Act and consistently with the provisions thereof, have the meaning assi gned to them in the English Law and be construed accordingly. Administration of Act. Substituted by: XXXV . 1972.2. Added by: XVII. 1994.5. Cap. 372.