Exit Taxation
A taxpayer shall be subject to tax on capital gains that are to be calculated at an amount equal to the market value (the amount for which an asset can be exchanged, or mutual obligations can be settled between willing unrelated buyers and sellers in a direct transaction) of the transferred assets, at the time of exit of the assets, less their value for tax purposes, in any of the following circumstances:
- A taxpayer transfers assets from its head office in Malta to its permanent establishment in another EU Member State or in a third country in so far as Malta no longer has the right to tax capital gains from the transfer of such assets due to the transfer;
- A taxpayer transfers assets from its permanent establishment in Malta to its head office or another permanent establishment in another EU Member State or in a third country in so far as Malta no longer has the right to tax capital gains from the transfer of such assets due to the transfer;
- A taxpayer transfers its tax residence from Malta to another EU Member State or to a third country, except for those assets which remain effectively connected with a permanent establishment in Malta;
- A taxpayer transfers the business carried on by its permanent establishment from Malta to another EU Member State or to a third country in so far as Malta no longer has the right to tax capital gains from the transfer of such assets due to the transfer.
A taxpayer may however defer the payment of an exit tax by paying it in instalments over five (5) years, in any of the following circumstances:
- A taxpayer transfers assets from its head office in Malta to its permanent establishment in another EU Member State or in a third country that is party to the Agreement on the European Economic Area (EEA Agreement);
- A taxpayer transfers assets from its permanent establishment in Malta to its head office or another permanent establishment in another EU Member State or a third country that is party to the EEA Agreement;
- A taxpayer transfers its tax residence from Malta to another EU Member State or to a third country that is party to the EEA Agreement;
- A taxpayer transfers the business carried on by its permanent establishment in Malta to another EU Member State or a third country that is party to the EEA Agreement.
The deferral of payment shall be immediately discontinued, and the tax debt becomes recoverable in the following cases:
- The transferred assets or the business carried on by the permanent establishment of the taxpayer are sold or otherwise disposed of;
- The transferred assets are subsequently transferred to a third country;
- The taxpayer's tax residence or the business carried on by its permanent establishment is subsequently transferred to a third country;
- The taxpayer goes bankrupt or is wound up;
- The taxpayer fails to honor its obligations in relation to the instalments and does not correct its situation over a reasonable period of time, which shall not exceed twelve (12) months.
Where a taxpayer defers the payment in accordance with this rule, interest shall be charged.
Where assets, tax residence or the business carried on by a permanent establishment is transferred to Malta from another EU Member State, the starting value of the relevant assets for tax purposes in Malta shall be that established by that other EU Member State, unless the Commissioner determines through an enquiry and assessment made in accordance with the provisions of the Income Tax Management Act that such value does not reflect the market value. For the purposes of the said determination, the Commissioner shall engage an independent person that is an expert in the field.
