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 28 November of the year x+1.
- The tax return is submitted to the Tax Authorities and the tax is paid (if profits have been distributed before that date). 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.
- Tax settlement dates are as follows (example for the financial year x):
- If dividends are distributed (e.g. as at 31 December of the year x) before the tax return date (i.e. 30 September of the year x+1), the tax settlement date will be the tax return date (i.e. 30 September of the year x+1).
- If dividends are distributed after the tax return date (i.e. 30 September of the year x+1), but within 18 months after year end, i.e. 30 June of the year x+2, which is the last day for tax payment, the tax payment will be due for settlement on the 14th of the month following the month when the dividend is distributed; for instance, if the dividends are distributed on 31 October of the year x+1 the tax settlement date is 14 November of the year x+1.
- If no dividends are distributed, 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. In terms of the provisions of the income tax legislation, a tax refund must be paid by the Inland Revenue Department within 14 days from the date the request has been processed by the tax authorities and the tax has been paid.