Insight
Malta taxes income and certain capital gains, but the extent of that taxation depends on the connection between the taxpayer and Malta. For both individuals and companies, residence and domicile determine whether taxation applies on a worldwide, remittance or source basis.
Malta's Scope of Taxation: What Is Taxed and Who Is Taxed?
Before considering tax rates, exemptions or incentives, there is a more fundamental question:
Does Malta have the right to tax the income or gain in the first place?
This is the scope, or basis, of taxation.
What does Malta tax?
Broadly, Maltese income tax applies to:
income, including profits from a trade, profession or business, employment income, investment income and rents; and
certain capital gains specifically brought within the scope of the Income Tax Act.
This distinction is important. Not every receipt is income and not every capital gain is taxable.
Once the nature of the amount has been established, the next question is who Malta taxes and to what extent.
The connecting factors: residence and domicile
Malta's basis of taxation is principally determined by residence and domicile.
For an individual, residence in Malta is mainly determined by the person's circumstances and connection with the country. Spending more than 183 days in Malta during a year will generally mean that the individual is resident in Malta for that year.
Ordinary residence looks beyond the number of days spent in Malta. It considers whether living in Malta forms part of the person's regular and settled way of life.
An individual may therefore be considered ordinarily resident in Malta even if they spend fewer than 183 days here in a particular year, especially where they spend time in Malta regularly over several years and maintain meaningful economic and social ties with the country.
In other words, ordinary residence is based on the overall facts and circumstances, rather than on a strict day-count test alone.
Domicile is a separate and more permanent legal concept. Broadly, it identifies the country regarded as the individual's permanent home. A person may therefore be resident, and even ordinarily resident, in Malta without necessarily being domiciled here.
For a company, the analysis is more straightforward.
A company incorporated in Malta is considered resident and domiciled in Malta. A foreign-incorporated company may nevertheless become resident in Malta where its management and control are exercised in Malta; such a company would generally remain non-domiciled because it was incorporated elsewhere.
These connecting factors determine the extent of Malta's taxing jurisdiction.
Worldwide basis
The worldwide basis represents the broadest scope of Maltese taxation.
For individuals, it generally applies where the person is ordinarily resident and domiciled in Malta.
For companies, it generally applies to a company that is resident and domiciled in Malta, including a company incorporated in Malta.
Under the worldwide basis, Malta taxes income and taxable capital gains regardless of where they arise or whether they are received in Malta.
Remittance basis
The remittance basis generally applies where a person is resident in Malta but does not satisfy both connecting factors required for worldwide taxation.
For individuals, this generally includes persons who are not domiciled in Malta or not ordinarily resident in Malta.
For companies, it can apply to a foreign-incorporated company that is resident in Malta because its management and control are exercised here.
Broadly, under the remittance basis:
Malta-source income is taxable;
foreign-source income is taxable only if received in Malta; and
foreign capital gains are not taxable in Malta, even if the proceeds are received in Malta.
The distinction between foreign income and foreign capital gains is therefore particularly important.
Source basis
Where an individual or company is not resident in Malta, Malta generally taxes only income and taxable gains having a Maltese source or sufficient connection with Malta.
For a foreign company, this may include profits attributable to activities carried on through a Maltese permanent establishment.
The scope is therefore significantly narrower than under the worldwide or remittance basis.
The three bases at a glance
Basis | Individuals | Companies | General Maltese tax scope |
|---|---|---|---|
Worldwide | Ordinarily resident and domiciled in Malta | Resident and domiciled in Malta | Worldwide income and taxable capital gains |
Remittance | Not domiciled or not ordinarily resident in Malta | Resident in Malta but not domiciled here | Malta-source income and gains + foreign income received in Malta; foreign capital gains excluded |
Source | Not resident in Malta | Not resident in Malta | Generally Malta-source income and taxable gains |
Scope comes before the tax calculation
Residence and domicile establish the starting point, but Malta's taxing rights may still be affected by specific exemptions, double taxation relief and applicable double tax treaties.
The logical sequence is therefore:
What is the amount? → Where does it arise? → Who receives it? → What are the relevant connecting factors? → Which basis of taxation applies?
Only after establishing the scope should the actual tax liability be calculated.
The basis of taxation can have a significant impact on how income and gains are treated in Malta, particularly where foreign income, investments or cross-border activities are involved.
If you would like to understand how Malta's scope of taxation applies to your circumstances, contact us to discuss your position.
