Corporate taxable persons are taxable on their chargeable income. The term chargeable income is defined as a persons total income, a term which is in its own turn is defined as meaning in broad terms all income and certain capital gains less deductions. Thus the Maltese Income Act charges to tax in principle, all income and specific capital gains as listed in the law. The main sources of income that are taxable are the following:

Gains or profits from any trade or business
Dividends, premiums, interest or discounts
Any charge, annuity or annual payment
Rents, royalties, premiums, and any other profits arising from property
Certian capital gains
Any other gains or profits not falling under any of the above.

Once it is estbalished that a particular gain or profit is of an income in nature, one would have to catergorise the income into one of the 5 categories listed above. This exercise is essential for reporting and computation purposes.

Gains or Profits from any Trade or Business

A gain or profit is brought to charge under Article 4 (1) (a) of the ITA if it is derived in the course of a trading activity. The existance of a trade is detemined via the badges of trade. It is importatnt to distinguish between business which is a general term embracing all commercial activity and the more restricted meaning of trade, which embraces only certian kinds of business. The fundamental distinction classifying income into the above 5 categories is that trade includes every trade, manufacture, adventure or concern in the nature of trade meaning that for tax purposes trade has to be taken as a buying and selling activity implying that a certain frequency has to exist and such. The term business as included above was included not only to complement or replace the word trade but it lay to rest the question that income from isolated transactions were not taxable, for all trades are businesses but not all business are trades

The profit-making motive is important in determing whether a trade or business exists. However, it is not conclusive, and connot be stated in a pre determind formulae. No Court in Malta has ever attempted to define such a definition and most tribunals have always tried to restrict themselves to the case at hand and to decide whether, in that particular case, a trade existed or not. The variety of circumstances which may lead to problems as to whether a trade exists have been dealt with in numerous judgements in their own merits according to each case and over the years have yielded certain principles which are invaluable in suggesting what features one must look for in determinig whether a trade does exist or not. These have been defined as “Badges of Trade”. The below are a few from a non-exchaustive list adopted by the Maltese Revenue Authorities in determining if gains or profits are generated from a trade for purposes of taxation.

That the transaction in question was a one-off transaction. Although a one-off transaction is in law capabale of being an undertaking in the nature of a trade, may not be a trade as the element of frequency as to the transactions does not exist, which may indicate that it might be something else.
Is the transaction in question related or ancillary to the main trade of the taxpayer that without it the taxpayer cannot fullfiull his transactions.
The nature of the subject matter. Can transaction containing the subject of the goods being traded would be of a nature that it can be considered of more as an enjoyment rather than a transaction in the nature of a profitable activity.
The manner in which the transaction is carried out. Was the transaction carried out in a way similar to how one would carry out in normal circumstances.
Source of the finance is also another pointer in determing if a trade exists or not. In the sense that was the finance provided with the intention of exploiting it.
If an item was purchased, was it resold as it stood or was work done on it for the purpose of resale. Again if work was done with the intention for sale then that again is a pointer that such sale was done in the nature of trade and as consequence taxable. However this would warrant further investigation to see if such good was sold as one lot or in different saleable lots.

In order to arrive at a logical conclusion as to whether or not a trade exists, one must analyse the badges of trade and factors such as the nature of goods in question, processing for resaleability, timing intervals, finance, methods of acquistions, frequency of transactions, destination of proceed and any other ancillary activities connected with the main trade.

Dividends, Premiums, Interest and Discounts

Dividends not described in this chapter shall be further descried in the chapter dealing with exemptions and incentives.

Premiums are charged to tax twice under Article 4(1)(c) and under Article 4 1(e). Premimus connected with article 4(1) (c) are connected with immovbale property.

Interest is a very wide term and includes interest taxed under special provisions called the investment income provisions. Interet that does not fall within the investment income provisions must be reported gross and added to the residents total income and taxed as if it was trading income.

Investment Income Provisions

The investment income provisions are dealt with in articles 32A-42A both inclusive. These provisions deal with the mechanism which is applicable in respect of certain payments including interest on capital gains and dividends emanating from certain defined sources. These provisions were designed in order to provide the opportunity for tax mitigation as a means to incite the repatriation of money held my residents outside the country.These provisions are linked to the terms payor and recipient as each one will determine the tax treatment applicable in respect of the income generated and the recipient of such income. The definition of income contemplated in these provisions is twofold

Interest Income
- Interest income payable by a person carrying on the business of banking under the Banking Act, in respect of sums of money in whatever currency deposited with it.
- Interest, discounts or premiums payable by the Government of Malta, or by any agency thereof.
- Interest, discounts or premiums payable by a corporation or authority established by law.
- Interest discounts or premiums paybale in respect of
  - A public issue by a company, entity or other legal person howsoever constituted and whether resident in Malta or otherwise.
  - A private issue by a company, entity or otherwise and resident in Malta paid to a Collective Investment Scheme (CIS).
Capital Gains
- Capital gains arising on the redemption, cancellation, disposal, transfer of units or shares in CIS.
- Capital gains arising on the surrender or maturity of units and such like instruments relating to linked long-term business of insurance where the benefits are at least 85% determined by reference to the value of units or shares in or income derived from CISs
- Capital gains arising on the redemption, liquidation or cancellation of securities not referred to in terms of the above not being shares in a company.

The Remittance Basis of Taxation

Companies that are incorporated in Malta are taxable on their worldwide income as the Incorporation test presupposes that the Company is both resident and domiciled in Malta. The residence of a company is established by reference to judge-made rules which refer to the complex principle of central management and control, but the domicle of a company is determined, conclusively by reference to the body’s place of incorporation. A company is domiciled in its place of incorporation.

The definition contained in Article 2 of the ITA applies both an incorporation test and a management and control test. Whereas the incorporation test is applied to companies that have been incorporated in Malta, the management and control test is applied to companies incorporated outside Malta. A company that is incorporated outside Malta is considered as resident BUT not domiciled if its management and control is in Malta.

Article 4 dealing with jurisdiction to tax makes it clear that persons (being individuals or companies) who are resident but not domiciled in Malta are subject to tax on income arising in Malta or income arising outside Malta but remitted to Malta.Hence companies incorporated outside Malta but managed and controlled form Malta are only subject to tax on income received in Malta. In a tax treaty scenario based on the OECD Model, the tie-breaker will allocate tax residence to Malta. Hence, unless a permanent establishment exists in the country of incorporation, income not received in Malta will not be subject to tax in neither Malta (because it is not remitted to Malta), nor the other Contracting State (because the income accrues to a Malta resident company without a PE in that other State).

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