General Anti-Avoidance Rules (GAAR)
The Income Tax Act already contains a general anti-abuse provision (article 51) that empowers the Commissioner for Revenue to ignore artificial or fictitious transactions aimed to reducing the amount of tax payable by any person. The new regulations add to this anti-abuse provision. The measure applies to arrangements which are not genuine, meaning that they are not put into place for valid commercial reasons that reflect economic reality, and which have been put in place with a main purpose of obtaining a tax advantage that defeats the object or purpose of tax law.
Interest Limitation Provisions
Borrowing costs exceeding 30% of the taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA) shall not be deductible in the tax period in which they are incurred. Such limitation shall not apply whereby exceeding borrowing costs does not exceed €3,000,000. The limitation will not apply to financial undertakings, costs on loans used to fund long-term public infrastructure EU projects or loans concluded before 17 June 2016.
Controlled Foreign Companies (CFC) Rules
An entity will be considered a CFC where it is subject to more than 50% control by a parent company that is tax resident in Malta and its associated enterprises and the tax paid on its profits is less than half the tax that would have been paid had the income been subject to tax in Malta. The measure will not apply to a CFC with accounting profits of not more than €750,000 and non-trading income of not more than €75,000 or to a CFC whose accounting profits amount to not more than 10% of its operating costs for the tax period.
Exit Taxation Provisions
A taxpayer shall be subject to tax on capital gains when a company changes residence, or the moves its assets or its business to another territory. In such a case, tax is charged in the same manner as if it has disposed of its assets. The accrued gains will be calculated by reference to the market value of the asset at the time of the exit. Where the country of the new residence of the taxpayer or of the new location of the assets is another EU Member State, the payment of the tax can be deferred.
No exit tax will be chargeable in the case of a temporary movement of assets that is linked to certain financial transactions as long as the assets are set to revert to Malta within 12 months from exit of such assets. Exit taxation is applicable as from 1st January 2020.