Cap. 123 Art. 2Interpretation.

(1) In this Act, and in any rules made under this Act, unless the subject or context otherwise requires -

"a company registered in Malta" shall mean a company which is resident in Malta or a company which, although not resident in

Malta, carries on any activity in Malta and in the case of a company which is neither incorporated nor resident in Malta shall mean a company that is registered for this purpose with the Commissioner in such manner as may be prescribed;

"body of persons" means any body corporate, including a company, and any fellowship, society or other association of persons, whether corporate or unincorporate, and whether vested with legal personality or not;

"bonus shares" means and includes the paid-up value of shares distributed by a company to its shareholders to the extent to which the paid-up value represents a capitalization of profits;

"certified public auditor" means an individual who holds a warrant to act as auditor issued under the Accountancy Profession

Act, or a partnership of auditors duly registered under the said Act, provided such individual is not disqualified and in the case of a partnership none of the partners is an individual who is disqualified for appointment as auditor or from holding such appointment on any of the grounds mentioned in article 153 of the Companies Act;

"chargeable income" means the total income of any person for any year;

"collective investment scheme" means any scheme or arrangement which is licensed under the Investment Services Act or notified in terms of the Investment Services Act (List of Notified AIFs) Regulations;

"Commissioner" means the Commissioner for Tax and Customs; "Commonwealth" has the same meaning as is assigned to it in article 124 of the Constitution of Malta; "company" means -

(a) (i) a limited liability company constituted under the Companies Act or under the Commercial

Partnerships Ordinance; or

(ii) any other company constituted as such under any other law in force in Malta;

(iii) (1) any partnership en nom collectif and any partnership constituted en commandite under the Companies Act or under the Commercial Partnerships Ordinance;

(2) any partnership regulated by the applicable provisions of the Civil Code and registered in such manner as may from time to time be provided in terms of the Second Schedule to the Civil Code;

(3) any European Economic Interest Grouping

(EEIG) formed pursuant to the provisions of the Companies Act (European Economic

Interest Grouping) Regulations;

*

(4) any Special Limited Partnership Fund established in accordance with the Investment Services Act (Special Limited Partnerships Funds) Regulations; and which partnership or EEIG as the case may be, has elected to be treated as a company in terms of article 27(6) of the Income Tax

Management Act and for as long as such election remains in force: Provided that in the case of a cell company as defined in any regulations made in terms of the

Companies Act (hereinafter in this proviso referred to as "the Regulations") as these may be amended from time to time, or in any other law or regulations replacing the Regulations, for all intents and purposes of the Income Tax Acts, every cell of a cell company and that part of a cell company in which non-cellular assets are held, shall each be deemed to be a separate company and any words and expressions in the Income Tax Acts which are relevant to a company shall be construed accordingly. The interpretation of such words and expressions insofar as applicable to a cell company shall be made on the basis of the relevant provisions of the Companies Act and of the Regulations:

Provided further that a partnership en commandite with its capital divided into shares constituted prior to the 1st of January, 2015 shall be deemed to have elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act and for as long as such election remains in force;

(b) (i) any body of persons constituted, incorporated or registered outside Malta, and of a nature similar to a company referred to in sub-paragraphs (i) or

(ii) of paragraph (a) above;

*Applicable from year of assessment 2026. Article 13(2) of Act III of 2026. Vide

(ii) any body of persons constituted, incorporated or registered outside Malta and of a nature similar to any partnership referred to in sub-paragraph

(iii) of paragraph (a) above, where such body of persons has elected to be treated as a company in terms of article 27(6) of the Income Tax

Management Act and for as long as such election remains in force;

(c) any co-operative society duly registered as such under the appropriate law for the time being in force in Malta; "continental shelf" has the same meaning as is assigned to it in the Continental Shelf Act; "debenture interest" means interest payable by a company under or by virtue of a debenture or a debenture trust deed, whether in the form of a mortgage or any other instrument or document acknowledging indebtedness; "distributable profits" shall mean the total profits which are available for distribution by a company registered in Malta under the laws for the time being in force in Malta, and the distributable profits shall, for the purposes of this Act, be allocated to the following accounts, that is to say, final tax account, immovable property account, foreign income account, Maltese taxed account, and untaxed account, and for the purposes of this definition these accounts shall comprise the distributable profits as set out in the respective definitions: Provided that in the case of a company which is neither incorporated nor resident in Malta the distributable profits shall be the profits attributable to the activities of such company in Malta and in respect of which it has registered with the Commissioner less any of such profits which the company has distributed in previous years;

"dividend" includes -

(a) bonus shares

(b) any distribution made by a company, to its partners or shareholders, as the case may be, and any amount credited to them as partners or shareholders as the case may be; and

(c) any distribution made by a co-operative society to its members and any amount credited to them as members, including any patronage refund, bonus certificate or bonus share, made, paid or allotted in accordance with the law regulating such societies for the time being in force in Malta;

"equity holding" shall mean a holding of the share capital in a company which is not a property company, when the shareholding entitles the shareholder to at least any two of the following rights (hereinafter referred to as "equity holding rights"):

(i) a right to votes;

(ii) a right to profits available for distribution to shareholders; and

(iii) a right to assets available for distribution on a winding up of that company, and "equity shares", "equity shareholder" and "equity shareholding" shall be construed accordingly: Provided that the Commissioner shall be entitled to determine that an equity holding exists even where such holding is not a holding of the share capital in a company or does not consist solely of such a holding of share capital, but where it can be demonstrated that in substance there is at any time an entitlement to at least two of the equity holding rights; "exclusive economic zone area" shall have the same meaning as assigned to it in the Exclusive Economic Zone Act;

"final tax account" shall mean the taxed account to which an amount of distributable profits which suffered tax, calculated in such manner and in such amount as may be prescribed, shall be allocated before any distributable profits are allocated to any other taxed account;

"foreign income account" shall, with effect from the year immediately preceding the year of assessment 1996, mean any of the following categories of distributable profits arising in that year and in subsequent years to the extent that they result from taxable income:

(a) profits resulting from royalties and similar income arising outside Malta and from dividends, capital gains, interest, rents, income or gains derived from a participating holding or from the disposal of such holding other than a participating holding in a company resident in Malta, or in a partnership the capital en commandite of which is not divided into shares which is resident in Malta, and any other income derived from investments situated outside Malta, which are liable to tax in Malta and shown as part of the company’s chargeable income in the return made pursuant to article 10 of the Income

Tax Management Act, and are receivable by a company registered in Malta not being a company registered under the Malta Financial Services Authority Act, and

(b) profits resulting from investments, assets or liabilities situated outside Malta to a company not registered under the Malta Financial Services Authority Act, and either licensed as a bank in Malta or in possession of a licence granted under the provisions of the Financial

Institutions Act: Provided that, notwithstanding the provisions of article 92(1)(b), with effect from the year of assessment 2016, this paragraph shall not be applicable to any company which is not specifically empowered to receive such profits or gains; and

(c) all profits or gains of a company registered in Malta, which are liable to tax in Malta and shown as part of the company’s chargeable income in the return made pursuant to article 10 of the Income Tax Management Act and attributable to a permanent establishment (including a branch) situated outside Malta, and for these purposes "profits or gains" shall be calculated as if the permanent establishment is an independent enterprise operating in similar conditions and at arm’s length; and

(d) profits resulting from dividends paid out of the foreign income account of another company registered in Malta; and

(e) profits or gains resulting to a company registered in Malta authorised under article 7 of the Insurance Business Act, not being a company registered under the Malta Financial Services Authority Act, from the business of insurance in relation to risks situated outside Malta: Provided that this provision shall apply exclusively to companies which allocated profits to the foreign income account on the basis of this paragraph for any year of assessment up to and including year of assessment 2007, and such companies shall only be entitled to continue allocating profits on the basis of this paragraph up to and including year of assessment 2011:

Provided that in the case of a company referred to in paragraph (e) of this definition, any profits or gains which would, in accordance with the above provisions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated unless such profits or gains arise in the year immediately preceding the year of assessment 2000 and in subsequent years: Provided further that in the case of a company which is licensed as a bank in Malta or which forms part of a banking group as defined below, any profits which would, in accordance with the above provisions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated unless:

(a) more than ninety-five per cent of its average daily deposits throughout the financial year are taken from persons who are not residents in Malta; and

(b) where the company forms part of a banking group, such group meets, on a consolidated basis, the requirement specified in paragraph (a) above. For the purposes of this proviso:

(a) "banking group" shall comprise only Maltese registered companies, at least one of which must be a bank licensed in Malta, and which companies are members of a banking group of companies. Two companies shall be deemed to be members of a banking group of companies if one is the ten per cent affiliate of the other or both are ten per cent affiliates of a third company. For this purpose, a company shall be deemed to be a ten per cent affiliate of another company (parent company):

(i) if and so long as more than ten per cent of its ordinary share capital and more than ten per cent of its voting rights are owned directly or indirectly by the parent company; or

(ii) the parent company is beneficially entitled either directly or indirectly to more than ten per cent of any profits available for distribution to the ordinary shareholders of the affiliate company; or

(iii) the parent company would be beneficially entitled either directly or indirectly to more than ten per cent of any assets of the affiliate company available for distribution to its ordinary shareholders on winding up: Provided that notwithstanding the above provisions, a company which has been acquired by a bank in satisfaction of a debt and which does not otherwise form part of the bank’s business shall be deemed not to form part of a banking group;

(b) ''average daily deposits'' shall be computed by taking the total deposits at the end of each day for the financial year and dividing such amounts by the number of days in that financial year and average daily deposits taken from persons who are not resident in Malta shall be computed in like manner. The word ''deposits'' shall have the meaning assigned to it in the Banking Act;

(c) the amount of the consolidated average daily deposits of a banking group shall include only deposits accepted by companies forming part of the banking group placed by persons other than such companies: Provided further, that in the case of an international trading company, the profits which would, in accordance with the above provisions, stand to be allocated to the foreign income account will, for any financial year, not be so allocated: Provided further that notwithstanding anything contained in this Act or in any rules made thereunder any profits derived up to the 31 December 2010 by a company which was resident in Malta prior to the 1 January 2007 (other than a company which has exercised its option in terms of paragraph (i)(2) of the proviso to article 48(4A)(b) of the Income Tax Management Act) which would have been allocated to the foreign income account had such profits been brought to charge to tax in the year of assessment 2007 shall be allocated to the foreign income account; "immovable property account" shall mean the taxed account to which distributable profits which have suffered tax and which are not allocated to the final tax account calculated in such manner as may be prescribed, shall be allocated before any distributable profits are allocated to the other taxed accounts;

"income" except for the purposes of article 4(1) and Part IV shall include capital gains as defined in article 5;

"the Income Tax Acts" shall collectively mean this Act and the Income Tax Management Act;

"industrial building or structure" includes a building used as a hotel or a car park or offices, as may be prescribed. For the purpose of this definition:

(a) the word "hotel" includes any number of constructions suitably furnished and equipped, with accommodation in single or double bedrooms, provided that such constructions are grouped together and have in common ancillary hotel services and amenities within a single and defined parcel of land and are operated by a common management for the accommodation and for the use of guests against payment;

(b) the word "car park" refers to a structure of a commercial nature available to the general public, which is the main income generating activity of any person claiming any deductions in its respect under article 14(1)(f) or (j), or whose operation by any such person involves substantial activity, having regard to the capital employed, the organisation of the operation and the income that it generates, and which is first used for this purpose after the 1st January 2012;

"international trading company" means a company registered in Malta by not later than 31 December 2006 which is engaged solely in carrying on trading activities with persons outside Malta who are not resident in Malta and which has its objects expressly limited to such trading activities as well as to such acts and activities as are necessary for the conduct of its operations from Malta. The following activities shall be allowable activities of an international trading company:

(a) purchases for export of goods manufactured, assembled or processed in Malta provided that such purchases are not made from a person who owns directly or indirectly more than fifteen per cent of the ordinary share capital of the said international trading company;

(b) trading with companies registered in Malta under the

Malta Financial Services Authority Act;

(c) trading with other international trading companies; and

(d) the management of companies resident in Malta whose business is restricted to affiliated insurance and where such business is carried on exclusively with non-residents;

(e) the provision of management, administration or other services to collective investment schemes resident in Malta where such schemes are marketed exclusively outside Malta and are licensed or exempt from licensing under the Investment Services Act; and

(f) the provision of ship management services by companies whose activities and objects solely comprise the management of ships which are of not less than one thousand nett tons and which are engaged in the carriage of goods or passengers: Provided that a company shall not be, in the year immediately preceding a year of assessment, an international trading company if it claims a benefit under any provision of a law, other than the Income Tax Acts, which has the effect of reducing its chargeable income or its rate of tax for the said year of assessment, and in such case, notwithstanding the provisions of article 52(8)(a), any ruling which had been notified under the provisions of article 52(5) shall become void. This proviso shall have effect notwithstanding that the relevant law deems that such benefit is granted under any of the provisions of the Income Tax Acts: Provided that the company has not opted to cease to be an international trading company pursuant to article 48(4A)(b)(i)(1) of the Income Tax Management

Act: Provided further that notwithstanding any other provisions of this Act or any other law including the provisions of article 52(8) of this Act no company shall be an international trading company with effect from 1 January 2011; "loss" in relation to a trade, business, profession, or vocation means loss computed in like manner as profits; "Malta" means the Island of Malta, the Island of Gozo and the other islands of the Maltese Archipelago, including the territorial waters thereof, the continental shelf and any exclusive economic zone area;

"Maltese taxed account" means any of those profits of a company that are not included in the foreign income account and:

(a) which have suffered tax; or

(b) which have been exempt from tax under the provisions of any Maltese law and where the distribution of such profits by the company is also exempt from tax in the hands of the shareholders: Provided that this paragraph shall cease to apply with effect from year of assessment 2008;

"married" refers to any of the spouses or partners in a married couple; "married couple" refers to two spouses who contracted marriage or two partners who have registered their partnership as a civil union, in accordance with the legal provisions of the country where the marriage or civil union was executed;

"participating holding" shall mean a holding which arises where:

(a) a company holds directly at least five percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least five percent of any two of the following:

(i) right to vote;

(ii) profits available for distribution; and

(iii) assets available for distribution on a winding up: Provided that the Commissioner shall be entitled to determine that the provisions of this paragraph are satisfied even where the said minimum level of entitlement exists in the circumstances referred to in the proviso to the definition of "equity holding";

(b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or

(c) a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or

(d) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or

(e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; or

(f) a company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade:

Provided that a holding of a company in –

(a) a partnership or EEIG referred to in sub-paragraph (iii) of paragraph (a) of the definition of "company" in sub-article (1) of article 2 of the Act, not being a property partnership, and which has not elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act; or

(b) a body of persons referred to in sub-paragraph (ii) of paragraph (b) of the definition of "company" in sub-article (1) of article 2 of the Act, not being a property partnership, and which has not elected to be treated as a company in terms of article 27(6) of the Income Tax Management Act; or

(c) a collective investment vehicle constituted, incorporated or registered outside Malta and which is not resident in Malta, where the liability of investors in such scheme is limited to the amount invested by them, shall be deemed to constitute a participating holding if it satisfies the provisions of any of paragraphs (a) to (f) above which shall apply to such mutatis mutandis holding. For the purposes of this the terms proviso, "equity shares" or "shares" shall be construed as referring to the capital in the said partnership, EEIG, body of persons or collective investment scheme as the case may be which entitles the holder to at least two of the following rights:

(i) a right to vote;

(ii) a right to profits available for distribution; and

(iii) a right to assets available for distribution on a winding up of the said body of persons, and the term "equity shareholder" shall be construed accordingly and the reference to "company" in this definition and in the provisos thereto shall be deemed to include also such partnership, EEIG, body of persons or collective investment scheme as the case may be. Provided that the Commissioner shall be entitled to determine that an equity holding exists even where the particular company does not have a holding in the share capital in a company or does not consist solely of such a holding of share capital, but it can demonstrate that in substance it holds an entitlement to at least two of the equity holding rights:

Provided further that in the case of a holding falling within the purport of paragraph (a) above, the provisions of the said paragraph shall be deemed to be satisfied even where the minimum level of entitlement referred to in that paragraph exists at any time by reference to the circumstances referred to in the proviso to the definition of "equity holding"; "passive interest or royalties" shall mean interest or royalty income which is not derived, directly or indirectly, from a trade or business, where such interest or royalties have not suffered or suffered any foreign tax, directly, by way of withholding, or otherwise, at a rate of tax which is less than five per cent (5%); "person" includes -

(a) a body of persons; and

(b) a responsible spouse in accordance with article 49;

"petroleum" means crude oil of whatever density, natural gas and other hydrocarbons and substances that may be extracted therefrom;

"portfolio investment" is an investment in securities such as shares, bonds, and such like instruments and which is held as one of many such investments for the purpose of investment by risk spreading where such an investment is not a strategic investment and is made with no interest in and without the intention of influencing the management of the company invested in and in addition is made only to follow the share price and dividend policy of the company invested in to maximise investment returns and to sell the investment as soon as it appears that the shares may lose value; "prescribed" means prescribed by rule under this Act; "property company'' shall mean a company which owns immovable property situated in Malta or any real rights thereon or a company which holds, directly or indirectly, shares or other interests in any entity or person, which owns immovable property situated in Malta or any real rights thereon where five percent or more of the total value of the said shares or other interests so held is attributable to such immovable property or rights:

Provided that where a company, entity or person carrying on a trade or business owns immovable property situated in Malta or any real rights thereon, consisting only of a factory, showroom, warehouse or office used solely for the purpose of carrying on such trade or business, such company, entity or person shall, for the purpose of this definition, be treated as not owning immovable property if not more then fifty percent of the value of its assets consist of immovable property situated in Malta or any rights over such property and it does not carry on any activity the income from which is derived directly or indirectly from immovable property situated in Malta; "property partnership" shall mean a partnership as defined in article 5(1)(b) which owns immovable property situated in Malta, or any real rights thereon, or a partnership which, directly or indirectly, holds shares or other proprietary interests in any entity or person, which owns immovable property situated in Malta, or any real rights thereon, where five percent or more of the total value of the said shares or other proprietary interests so held is attributable to such immovable property or rights: Provided that where a partnership, entity or person carrying on a trade or business owns immovable property situated in Malta, or any real rights thereon, consisting only of a factory, showroom, warehouse or office used solely for the purpose of carrying on such trade or business, such partnership, entity or person shall, for the purpose of this definition, be treated as not owning immovable property if not more then fifty percent of the value of its assets consist of immovable property situated in Malta, or any real rights over such property, and it does not carry on any activity the income from which is derived directly or indirectly from immovable property situated in Malta; "resident in Malta" when applied to an individual means an individual who resides in Malta except for such temporary absences as to the Commissioner may seem reasonable and not inconsistent with the claim of such individual to be resident in Malta; when applied to a body of persons, means any body of persons the control and management of whose business are exercised in Malta, provided that a company incorporated in Malta on or after 1st July 1994 shall be resident in Malta and any other company incorporated in Malta shall be resident in Malta from 1st January 1995 where the management and control of the business of the company is exercised outside Malta; "scholarship" includes a bursary, an award, a grant or an endowment of a similar nature, given or established for educational purposes; "self assessment" has the meaning assigned to it in sub-articles

(2) and (3) of article 10 of the Income Tax Management Act; "the Special Commissioners" means the Commissioners appointed by the President of Malta under article 34 of the Income Tax Management Act;

"spouse" shall include a partner registered as being in a civil union;

"tax" means the income tax imposed by the Income Tax Acts; "taxed account" and "taxed accounts" shall mean any or all of the final tax account, immovable property account, foreign income account, Maltese taxed account and untaxed account; "tax return date" with respect to a person for a year of assessment means the date prescribed pursuant to article 10(1) of the Income Tax Management Act for the submission by that person of the return of income for that year of assessment;

"tax settlement date" has the meaning assigned to it in article 42(1A) of the Income Tax Management Act;

"total income" means the aggregate amount of the income of any person from the sources specified in Part II of this Act, remaining after allowing the exemption under Part III and the deductions under Part IV, and computed in accordance with the provisions of Part V:

Provided that, subject to the provisions of article 12(3)(b) of the Income Tax Management Act, any income which is not required to be disclosed and is not disclosed in accordance with the provisions of the Income Tax Acts shall not form part of total income; "untaxed account" shall consist of those profits (or losses as the case may be), which represent the total distributable profits (a positive amount) or the total accumulated losses (a negative amount) as the case may be, and deducting therefrom the total sum of the amounts allocated to other taxed accounts; "year of assessment" means the period of twelve months commencing on the first day of January, 1949 and each subsequent period of twelve months.

(2) Words and expressions used in this Act which are not known to the law of Malta but are known to the English Law, shall, so far as may be necessary to give effect to this Act and consistently with the provisions thereof, have the meaning assigned to them in the English Law and be construed accordingly.