In its drive to eliminate economic double taxation, Malta has adopted a system of tax refunds to shareholders, upon a distribution of dividends by a company registered in Malta. Shareholders may claim the following tax refunds of the Malta tax charge of the distributing company:
(i) 6/7ths refund, i.e. 30% refund (6/7ths of 35%) of the taxable profits. Where double taxation relief has been claimed, the effective Malta tax after tax refunds varies from 5% to nil.
(ii) 2/3rds refund. The 6/7ths refund cannot be claimed on certain income such as profits resulting from royalties and similar income arising outside Malta and from investments, assets and liabilities situated outside Malta on which DTR has been claimed and a 2/3rds refund is claimed.
(iii)5/7ths refund. Where the distributed profits are derived from passive interest or royalties (interest and royalties are passive when they are not derived from a trade or business and have suffered a foreign tax of less than 5%), the tax refund is reduced to 5/7ths of the Malta tax charge.