Israel – Malta Tax Treaty

Business Activity in Malta

Malta has successfully developed constructive diplomatic ties with numerous countries globally, promoting cooperation and collaboration. Being an engaged participant in the European Union and United Nations, Malta holds a significant position in both regional and global matters. Notably, Malta has strong relations with neighboring European nations, the United Kingdom, France, Italy, and Germany, creating an environment of friendship and collaboration. By having diplomatic channels, trade agreements, cultural exchanges, and international cooperation, Malta diligently cultivates stronger relationships and fosters mutual understanding with nations worldwide.

Malta has a thriving business environment characterized by diverse economic activity. With its ability to attract substantial foreign investments, Malta has emerged as a prominent center for key industries including finance, tourism, manufacturing, and technology. The presence of well-known international companies, along with advantageous tax incentives, and access to a skilled workforce, has made Malta a desirable location for entrepreneurs and businesses seeking prosperous ventures. Additionally, the government’s efforts to promote entrepreneurship and innovation further stimulate business activity in the country.

Bilateral Agreements Between Malta and Israel

Double Taxation Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Malta regarding the avoidance of double taxation was signed on July 27, 2011, and entered into force on the first of December 31, 2013.

To read the agreement in English, click here.

Applicability of the MLI

Both Malta and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Malta, on the other hand, affixed its signature to the MLI on the 7th of June 2017, and its provisions became effective as of the 1^st of April, 2019.

Residency for Tax Purposes in Malta

Residence of an Individual

1. If a person stays in Malta for more than 183 days in a year, they are considered a tax resident for that year.
2. A person living in Malta permanently or regularly becomes ordinarily resident. Even frequent, long-term visits become a resident for tax purposes in Malta.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

All companies registered in Malta are considered both domiciled and resident in Malta. Foreign companies or other entities are considered residents in Malta if their business is controlled and managed from Malta.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Malta

Malta Tax Authority is called the Commissioner for Revenue (CFR).

Income Taxation: 0% to 35%

Taxation of Companies and Branches: 35%

VAT: 18%

Capital Gains Tax: NA

Withholding Tax

Inheritance Tax in Malta

NA

Relocation to Malta

Malta offers several tax benefits for individuals and businesses, which can make it an attractive destination for relocation. Individuals interested in residency in Malta have several options to choose from.

The Malta Residence and Visa Program, commonly referred to as the “Malta Golden Visa,” is a popular choice. It enables non-EU individuals and their families to reside, work, and study in Malta. Another option is the Malta Global Residence Program (GRP), allowing non-EU individuals to acquire a residence permit by fulfilling specific requirements such as property investment or leasing.

Moreover, Malta provides specialized residency programs customized to different sectors, including the Malta Residence Program for High-Net-Worth Individuals and the Malta Startup Visa Program for entrepreneurs. The Global Residence Programme is specifically created for individuals who are not currently residing in Malta but desire to establish their residency in the nation. This program allows eligible individuals to be taxed solely on their income derived from Malta and income from abroad that is brought into Malta. Income from foreign sources that is not brought into Malta is not subject to taxation.

In 2023, Malta was home to about 100 Jews, mostly of Sephardic origin. The Jewish community lives peacefully on the island, with a recent revival of Jewish traditions. Most Maltese Jews reside in or near Valletta, the capital.

Real Estate Taxation in Malta

Stamp duty tax in Malta applies to listed transactions and property transfers (real property, shares, and insurance policies). For property transfers, stamp duty is applied to inherited immovable property to the extent of 5%, when the transfer of property is for residential purposes from parents to their children, and donations to children of immovable property from parents to their children are applied to an extent of 3.5% for a value of more than €250,000, but exempt in the case of half of the donated value to children over the €250,000 in residential property.

First-time buyers are also duty exempt for the first €200 000 of the property’s value if the property is their only residence, on condition that the transfer takes place before 31 December 2024. Furthermore, transfers of Gozo real estate registered as conditions of sale up to 31 December 2023 are subject to a lower percentage of tax (2%.

Exemptions for properties rented under Housing Authority schemes and a duty refund on the first €86,000 of the value of a replacement property sold to purchase another property for the first €86,000 of the replacement property’s value until 31 December 2024 are a special condition. The goods transferred by 31 December 2024 may be duty-free, if vacant for a minimum of 7 years, constructed at least 20 years prior, situated in an Urban Conservation Area, or if traditional Maltese elements are present, with respective Customs Duty exemption up to €750,000 (750,000).

The rate of transfer from estate, the rate of 1.5%, applies to family property/shares representing family commitments transferred to family members (spouse, child, and sibling) until 31 December 2024. Exemptions are also provided for transfers to a surviving spouse or cohabitant, disabled person, or child following death. The late payment interest rate is 4% per annum for inheritance transfers and 0.33% every 30 days for unpaid stamp duty. Overall, Malta’s stamp duty is made up of normal and reduced rates and certain exemptions, which are most applicable for family-related transferences and first-time purchase transfers.

Transfer of Funds from Israel to Malta

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in Malta

Private Limited Liability Company: This is the most common and widely used business entity in Malta. It offers limited liability protection to its shareholders, meaning their assets are separate from the company’s liabilities. A private limited liability company requires a minimum share capital of €1,165. It is suitable for small to medium-sized businesses and can be formed by one or more shareholders.

Public Limited Liability Company: A public limited liability company is similar to a private limited liability company, but it has additional requirements and can offer shares to the public. Public Limited Liability Companies are typically used for larger companies that intend to be publicly listed on the Malta Stock Exchange. They require a minimum share capital of €46,587.47.

Partnership: Partnerships can be formed as either general partnerships or limited partnerships. In a general partnership, two or more partners join together to carry out a business. Each partner has unlimited personal liability for the partnership’s obligations. In a limited partnership, there are general partners (with unlimited liability) and limited partners (with liability limited to their capital contributions). Partnerships are governed by a partnership agreement.

Sole Proprietorship: A sole proprietorship is a business owned and operated by a single individual. The proprietor has unlimited personal liability for the business’s debts and obligations. It is the simplest form of business entity and does not require any specific capital requirements or formal registration.

Branch of a Foreign Company: Foreign companies can establish a branch in Malta to conduct business operations. The branch operates under the foreign company’s name and retains its legal identity. It is required to register with the Malta Business Registry and provide certain documentation from the parent company.

Incentive Laws in Malta

Malta provides many tax advantages to international investors and enterprises. Individuals can claim a foreign tax credit that can be offset against Maltese tax liability. Funds from foreign investment can be readily repatriated with returns. As a result of the tax reforms instituted in January 2020, exit taxation on capital gains became applicable on the transfer of overseas assets and on the relocation of tax residency abroad. Incentives to inbound investment are available in tax and grant forms as well as reduced rates for eligible activities such as production, pharmaceuticals, and research.

These are available through Malta Enterprise with support for SMEs and startups, such as the Seed Investment Scheme providing tax relief to investors backing start-ups. Special initiatives, such as the Start-up Residence Permit, facilitate stay in Malta while setting up a company from outside the EU. Malta, moreover, has a neutral tax environment with respect to some sectors, e.g., aviation, shipping, and collective investment schemes, and provides tax relief for R&D activities. The Micro Invest Scheme offers tax credits to SMEs and the tax credit is enhanced for family-owned businesses or businesses based in Gozo.

Malta Double Tax Treaties