New Income Tax Update – Three new exemptions from income tax

Amendments to the Income Tax Act announced in the Budget Speech in November 2012 have been approved by Maltese Parliament in May 2013. The amendments include three new exemptions.

The first exemption refers to income and gains derived by a Maltese company which are attributable to a permanent establishment (PE), including a branch situated outside Malta and to gains derived from the transfer of such a permanent establishment. Any profits or gains attributable to the PE shall be calculated as if the PE is an independent enterprise operating under similar conditions and at arm’s length. Specific anti-abuse provisions will apply in respect of cases where a series of transactions is effected with the sole or main purpose of reducing the amount of tax payable.

The Income Tax Act includes an exemption for gains or profits derived from the transfer of a qualifying participating holding in a company registered in Malta. This exemption has now also been extended to include holdings in partnerships ‘en commandite’, the capital of which is not divided into shares, which are resident in Malta.

The third exemption refers to royalty income derived from trademarks which complements the exemption currently afforded to royalty income derived from registered patents and copyrights. Guidelines for the application of the exemption for trademarks and copyrights have not yet been issued.

For more details please contact the firm’s tax partner Stephen Balzan on sbalzan@emd.com.mt.