Accounting practices and obligations in Malta

Companies with head offices in Malta must comply with the requirements of the Commercial Companies Code and must keep organized accounts, in English, and in accordance with IFRS (International Financial Reporting Standards).

The books must be maintained by an accountant.

All transactions of companies with headquarters in Malta must be correctly reflected in their accounts with original supporting documents.

Our clients must send us all originals of supporting documents: bank statements, invoices, contracts and any other document or information pertaining to any operation carried out, relative to all transactions made by the company, before the deadline for submitting statements.

If we do not receive such documents, we will assume that the corresponding activities were not carried out within the period and the respective accounting statements shall be issued and submitted accordingly.

If the aforementioned deadlines are not met or if there are changes that involve corrections of already submitted statements, then our clients shall be subject to heavy fines.

Any taxpayer that performs a commercial, business, professional and vocational activity in Malta must maintain all relevant records to determine taxable profit, namely:

• Record of all revenue and expenses of the company;
• Record of the company’s purchases and sales;
• Balance sheet and earnings statement; 
• All supporting documents.

In the case of companies registered in Malta, the balance sheet and earnings statement must comply with the Companies Code and must be audited. This requirement also applies to companies which perform some kind of activity in Malta; they must register in Malta for tax purposes, even though they are not resident in Malta.

Records must be maintained for a minimum of 9 years and kept at the company headquarters as a rule. Administrators may, however, decide otherwise. If the records are maintained abroad, at least the financial statements must be sent to and kept on company premises in Malta. These statements must clearly demonstrate the company’s financial situation at maximum intervals of six months and be used in the preparation of the company Balance Sheet and earnings statements, in accordance with applicable legislation.

The Commissioner for Revenue may ask the taxpayer for access to the company’s documentation.

Taxpayers may be required to submit additional information or any information requested by the tax authorities in cases where there are reciprocal changes regarding the exchange of tax information between Malta and the respective countries or tax authorities.

Each taxpayer must calculate his own taxation in the income tax statement, except in the case of taxpayers to whom the Commissioner for Revenue grants an exception in writing to that effect.

If the taxpayer does not submit an income tax statement, the Commissioner for Revenue may estimate his tax liability. This assessment shall automatically be cancelled if the taxpayer subsequently submits an income tax statement that includes his self-assessment.

In general, some weeks after submission of his annual income tax statement, the taxpayer receives a statement indicating the amount of tax he has to pay, in accordance with his own self-assessment. If the Commissioner for Revenue does not agree with the self-assessment of the taxpayer he may issue an income assessment. Such assessments may be issued no more than five years after the end of the year to which the statement pertains, unless the self-assessment made initially by the taxpayer has not included all the material facts or contained erroneous or misleading information. In this case, the income assessment may be submitted at any time.

If the taxpayer wishes to make changes to his self-assessment he may submit a substitution statement, provided that he has not yet received an income assessment.

If the change to the self-assessment already submitted results in a reduction in the tax payable for the year in question, the taxpayer must submit this change no later than 5 years after the year in question.

If the change arises from an application for the elimination of double taxation, this change must be submitted no later than two years after the end of the year to which the request pertains.

Objections and Appeals

If a taxpayer does not agree with the income tax assessment made for him, he may submit an objection note provided that he has submitted the respective income tax statement and paid the tax which is not in dispute. The Commissioner may accept the objection or reach an agreement with the taxpayer. Otherwise, he will issue a refusal note.

Under such circumstances, the taxpayer may submit an appeal to the Administrative Court within 30 days after the date on which the refusal note was received. The Administrative Court is an independent body created specifically to deal with these issues.

An appeal may be lodged against the decision of the Administrative Court at the Court of Appeal, but only with regard to matters of law.

Accounts must be approved by shareholders.

Any entity that receives income that is taxable in Malta must be registered with the Malta Inland Revenue Department. Registration is simple and based on information pertaining to company in question. By using the registration number, it is possible to determine whether it is an individual/natural person or a collective person.

Taxpayers that no longer earn a taxable income in Malta need only request a cancellation of their registration. This department will undertake cancellation after checking that all tax returns have been submitted and all tax debts have been settled. The taxpayer must submit all tax returns up until the time registration is cancelled, even if he does not earn any taxable income.

Tax returns must be submitted by the companies at the latest:

• 9 months after the end of the accounting period; 
• By 31 March of the year following the end of the accounting year.

If this time period coincides with a public holiday the deadline shall be the next business day.

The tax authorities usually grant deadline extensions for returns submitted online -- this option must be verified each year.

In order to submit its tax returns, the company must prepare audited financial statements, and keep all documentation on file, which will be made available to the tax office upon request.

Entities established in Malta for VAT purposes are obliged to register for VAT within 30 days after the date when they perform a taxable transaction in Malta or exempt with credit supply in Malta. Entities established abroad shall be obliged to register if they undertake transactions subject to VAT payment.

From January 2010, taxpayers who are not registered for VAT purposes in Malta and who render services in another Member State in which tax payments are exclusively the responsibility of the person receiving services are also required to register for VAT within 30 days after the date on which such services are provided. Receivers of services rendered by foreign entities, where such services are subject to VAT in Malta, must register no later than the date on which such services are rendered.

Companies making intra-community acquisitions exceeding €10 000 per year and non-resident entities involved in distance selling to Malta, exceeding €35 000 per year, must also register for VAT purchases.

Any entity registered for VAT purposes must submit a VAT Return for each tax period, by the 15th day of the month following the month in which the tax period ends.

As a rule, each tax period consists of a period of three calendar months beginning on the first day of the month following the end of the previous tax period. The first tax period begins on the date on which the entity has been registered for VAT purposes.

VAT returns must be filled in and submitted to the tax authorities even for inactive companies.

Maltese legislation includes provisions and rules on tax payments during the year in which the taxable income is generated. Accordingly, companies and self-employed workers must make provisional tax payments on 30 April, 31 August and 21 December.

Taxes not settled in accordance with this system must be paid on the date on which income tax returns are made. Late payment of taxes shall be subject to a 0.75% fine per month in arrears.

The amount of the provisional tax payment owed for each year corresponds to the amount calculated in the self-assessment, which must be submitted before the end of the calendar year when the first instalment of the provisional tax payment is due.

20% of the tax amount payable must be paid during the first instalment of the provisional tax payment on account, 30% during the second instalment and the remaining 50% shall be paid during the third and final instalment.

The amount of provisional tax paid shall be credited against the total tax payable by the taxpayer.

The Commissioner for Inland Revenue is entitled to increase the amount of the payment on account. However, the taxpayer is entitled to reduce the amount on account to be paid, and must fill in and submit the respective form. Nonetheless, the taxpayer must pay additional tax if it has been established that such a reduction is not justified.

Exceptions

As a rule, any tax payable must be paid within the scope of the provisional tax payment system or if additional payment is due, on the date of the income tax return. There are, however, some exceptions to this rule:

• Foreign income account profits: in this case the tax must be paid within the 18 months following the end of accounting period in which the profits were generated or when such profits are distributed (whichever occurs first);
• Profits from companies benefitting from stamp duty exemptions under Article 47 (3) (e) of the Duty on Documents and Transfers Act: in this case, tax is paid on the date of the income tax return if profits are distributed before this date, or failing this on the first of two dates:
  • Within the 18 months following the end of the accounting period in which the profits were generated;
  • 14 days after the end of the month in which such profits are distributed.

Under Art. 48 (4) of the Income Tax Management Act (ITMA) shareholders wishing a refund of some of the tax paid by the company on distributed profits must fulfil some administrative requirements, one of which is to be registered as shareholders in the company distributing profits.

The company, distributing dividends that form the basis of the shareholder’s refund application, must fill out a Shareholder Registration Form and need to submit it with the appropriate supporting documentation to the tax authorities only once, unless there is a share transfer or a change in the Capital Structure of the Company.

If the shareholder is a company with direct or indirect shareholdings in a company registered in Malta, has shares issued by it or in its name, and is listed on a stock exchange, then a Notification Form must also be submitted, in addition to the Shareholder Registration Form.

The Shareholder Registration Form must be submitted on the first of two dates: when first payment of the tax is due or when the first tax payment is made by the company, distributing profits for the year being assessed, on profit distribution for the year in which the refund application will be submitted.

The refund request can only be submitted after the profits have been distributed.

In practical terms, the tax refund claim process functions as follows:

• The company prepares its annual accounts (for example, for the year ended 31 December of the year x) and conducts the audit;
• Upon finalisation of the audit, the client is advised on the amount of the tax payment to be made and the tax return of the company is prepared accordingly;
• The tax return shall be filed (with respect to the year that ends on 31 December of the year x):
  • Physically or manually by 30 September of the year x+1;
  • Electronically by 30 November of the year x+1.
• The tax return is submitted to the Tax Authorities and the tax is paid. Income tax is to be paid in the same currency as the company’s share capital, which is also the currency in which the company prepares and submits its audited financial statements;
• For companies with a duty exemption (DDT), the tax settlement date is 30 June of the year x+2 (18 months after the end of the financial year).
• The Tax Refund Claim form is drawn up and submitted to the Tax Authorities;
• The Tax Authorities review the company’s tax return, together with the tax refund claim. Once both applications are found to be in order by the Tax Authorities, the tax refund is issued. The tax refund is also paid in the same currency, thus eliminating any currency exchange risks.

Tax Year

The tax year coincides with the calendar year. It may, however, be changed upon request submitted to the Commercial Registry.

Income Statement

Tax returns must be submitted by the companies at the latest:

• 9 months after the end of the accounting period; or
• By 31 March of the year following the end of the accounting year.

If this time period coincides with a public holiday the deadline shall be the next business day. The tax authorities usually grant deadline extensions for returns submitted online -- this option must be verified each year.

Examples of deadlines for submission of income statements:

Vat Returns

As a rule, entities registered for VAT purposes must submit a quarterly statement. The deadline for submitting a VAT return is the 15th day of the second month after the end of the quarter to which it pertains.

VAT returns must be filled in and submitted to the tax authorities, even for inactive companies.

Provisional Tax Payments on Account of Tax

Companies and self-employed workers must make provisional tax payments on account on 30 April, 31 August and 21 December.

Examples of provisional tax payments on account for 2018: