What is Participation Exemption?
Income and gains of a Maltese company from a participating holding, or its transfer, are exempt from tax. A participating holding generally needs at least 5% of the equity.
Finn does your books in Malta
AccountsOS runs full accounting for Malta businesses, tax, deadlines and invoicing, in plain English. Ask Finn about yours, no signup needed.
Current Rate (Applies per holding)
Exempt income and gains on qualifying participating holdings
Example
A Maltese holding company owns 10% of an EU subsidiary and receives a dividend. If the conditions are met, the dividend is exempt, and any shareholder refund on distribution can be 100%.
How Participation Exemption works in Malta
A holding qualifies with at least 5% of the equity and at least two of votes, profits and assets rights. Alternatives include an investment of at least €1,164,000 held for 183 days or more, an option over the balance, a right of first refusal or a board seat.
Anti-abuse conditions apply to dividends. The payer must be EU-resident, or subject to at least 15% foreign tax, or have no more than 50% passive income.
The rule is in article 12(1)(u) of the Income Tax Act, Cap. 123. Finn flags it as a special regime and does not decide eligibility. Route specifics to a practitioner.
Related terms
Under full imputation, shareholders receiving a dividend can claim a refund of part of the Malta tax paid by the company. The refund is 6/7ths on trading profits, 5/7ths on passive interest or royalties, 2/3rds on foreign-income-account profits and 100% on participating holding profits.
Maltese corporate income tax is 35% on the worldwide income and capital gains of Maltese companies. Under the full imputation system, shareholders can reclaim part of it on distribution, so the effective rate is often far lower.
Confused by Malta accounting jargon?
AccountsOS explains Malta terms in plain English and applies the right rules to your books automatically.
Try Free