Malta Taxation of Collective Investment Funds

Dr. Jean-Philippe Chetcuti | 08 May 2018

Ccmalta Default

Taxation of Collective Investment Funds

The Malta tax treatment of the income of investment funds hinges on the differentiation made by Maltese law between ‘Prescribed’ and ‘Non-Prescribed’ funds.  In this paper the term ‘Funds’ refers to entities  or arrangements  which have been established to perform the function of a ‘Collective Investment Schemes’ (hereafter referred to as ‘CISs’). 
 

 

Default CIF Taxation

By way of summary, a ‘Malta Fund’  which is ‘Prescribed’ (defined hereunder) is subject to tax in Malta on its profits.  On the other hand, a Malta fund which is ‘Non-Prescribed’  (referred to hereafter as ‘non-prescribed funds’ ) is not subject to tax its profits.  However, non-prescribed funds are subject to tax on gains they have made from immovable property/real estate situated in Malta. 

Prescribed v. non-Prescribed funds

A ‘Prescribed Fund’ is considered to have been established under a Malta based scheme,  and:-
1. holds at least 85% of the value of its total declared assets in Malta;  and
2. is subsequently classified as a prescribed fund by the Commissioner for Revenue by a notice in writing; 
A Malta fund which does not satisfy one or more of the above 2 characteristics,  or a fund which is established outside Malta is classified considered to be a non-prescribed fund. 

Taxation of Investment Income of Prescribed Funds

The tax rate at which a prescribed fund which is a company is taxable is, by default, at the rate of 35%.  However other rates of tax apply depending on the fund’s income streams.

4.1. Withholding tax rates

Moreover, tax should be withheld on Investment Income  to which a CIS is entitled by the ‘Payor’ of the income.  A payor should withhold as tax 15% on investment income which classifies as ‘Bank Interest Income’.   Otherwise a withholding tax of 10% applies to every other form of investment income.   Income which is derived from other CISs, whether prescribed or non-prescribed, or received by a non-prescribed fund is not considered to be investment income.   
To an extent the smooth operation of the system relies on a fund notifying all parties from whom investment income is due of their status.   In this regard a CIS should do so in terms of Maltese law. 

4.2. Income of prescribed funds not charged to tax 

1. Investment Income which is derived from a source not linked to Malta;  
2. Investment Income received from other CISs; 
3. Capital gains derived from the disposal of securities or units in a prescribed fund or a non-prescribed (foreign) fund (and not paid through the services of an AFI ) are not subject to tax; 

Tax Treatment of Non-Prescribed Funds

The income which is derived by a non-prescribed fund is exempt from Malta tax.   This general rule is without prejudice to income derived from immovable property situated in Malta which is subject to tax at 35%.
 

 


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