The six-sevenths (6/7) refund
This refund may be claimed when profits are paid by way of dividends out of profits allocated to the Maltese taxed account and/or the foreign income account to shareholders who are registered with the DGIR for this purpose.
The 6/7th refund does not apply to the following distributions:
a. Dividends paid out of passive interest and royalties
b. Dividends paid out of dividends received from a participating holding and the holding does not satisfy the conditions for the participation exemption to apply
c. Dividends paid out of the foreign income account and in respect of which profits the company claimed any form of relief of double taxation.
The five-sevenths (5/7) refund
This refund is claimed on the following distributions:
a. Dividends paid out of passive interest and royalties
b. Dividends paid out of dividends received from a participating holding and the said holding does not satisfy the conditions for the participation exemption to apply.
Tax refund where double taxation relief has been claimed
This special rule applies where profits allocated to the foreign income account were subject to tax in the hands of the company in the year of assessment 2008 and later years, and, double taxation relief by way of Treaty and/or unilateral relief (but not flat rate foreign tax credit) was claimed.
In such cases, the shareholder is entitled to claim a refund of two-thirds (2/3) of the total tax credit (that is in- cluding Malta tax relieved by double taxation relief) of the dividend such that the refund is limited to the actual Malta tax paid.
Illustration
| Example 1 | Example 2 | Example 3 | |
| Profits | 100 | 100 | 100 |
| Tax – foreign tax | 5 | 10 | 15 |
| Malta tax | 30 | 25 | 20 |
| 35 | 35 | 35 | |
| Max tax refund of 2/3 (i) | 23.33 | 23.33 | 23.33 |
| Actual refund (ii) | 23.33 | 23.33 | 20 |
(i) The maximum tax refund claimable is 2/3rd of the total tax credit of 35
(ii) The actual refund is 23.33 for both examples 1 and 2 as this amount is less that the Malta tax of 30 and 25 respectively. In example 3, the actual refund is reduced to 20 as the Malta tax credit is lower than the maximum allowable refund.
The two-thirds (2/3) refund – others
The 2/3rd refund also applies to tax refunds claimed on dividends distributed from the foreign income account and the company claimed flat rate foreign tax credit on these profits.
In this case, the refund is calculated on the Malta tax only.