Malta has become a leading innovator in the blockchain and cryptocurrency industry, providing a reputable, supportive and trustworthy environment for digital entrepreneurs. The small Mediterranean island stands out as being the first country globally to draft three crypto and blockchain legislations, which are expected to come into force in October 2018. However, other jurisdictions have also adopted a progressive position in terms of distributed ledger innovation making them a potential jurisdiction of choice for fintech companies.
Notwithstanding the above, an important factor to consider when deciding where to relocate your business to is the corporate tax system. So, let’s have a look at how Malta stands up against some of the other leading blockchain jurisdictions on this matter.
Malta offers an extremely competitive tax regime for companies based on a full imputation system. In terms of Maltese law, a company which is resident and domiciled in Malta is taxable on its worldwide income, that is, on any income arising in Malta or outside of Malta, and on any capital gains derived from Malta or elsewhere as defined in the Income Tax Act.
Such a company is taxed in Malta based on its accounting profits, subject to any adjustments that are required to be made under tax or other legislations. The standard corporate tax rate is 35%, however it may be substantially reduced by means of the operation of double taxation relief and, where applicable, tax refunds granted to the shareholders. A person, in receipt of a dividend paid by a company resident in Malta, may claim a refund of the Malta corporate tax paid by that company in respect of those profits distributed to him by way of such dividend. Depending on the type of income the available refunds are 100%, 6/7th, 5/7th and 2/3rd tax refunds.
Moreover, disposals of cryptocurrencies of a capital nature would fall outside the scope of capital gains provisions, since cryptocurrencies do not have features of a security, and are not included in the list of capital gains, the disposal of which will trigger a tax liability.
Malta does not levy any withholding tax on outbound payments of dividends to a non-resident shareholder and on interest and royalty payments to persons not resident in Malta.
Gibraltar is a reputable offshore jurisdiction which has a number of aspects that make it an attractive choice when looking to establish a company. Gibraltar companies are taxed on income that is accrued in or derived from Gibraltar at the standard rate of 10%. There is no withholding tax on dividends or interest paid by a Gibraltar company to non-resident recipients, unless paid to resident companies. While the low flat tax rate of 10% may seem attractive to many, there is a huge uncertainty of what will happen to the country’s economy post-Brexit.
Estonia provides for 0% corporate tax on profits which are retained in the resident company, or in the permanent establishment of foreign entities. However, upon a dividend distribution, Estonian companies are subject to corporate tax at the flat rate of 20% of the profits distributed. With effect from 2019, companies will have the possibility to apply for a reduced rate of 14%, provided that the dividends distributed do not exceed the average taxable dividend amount distributed during the prior three years.
Lithuania companies are subject to tax on their worldwide income at the standard corporate tax rate of 15%, however small entities can apply for a reduced rate of 0% or 5% provided that certain conditions are satisfied. Inbound or outbound payment of dividends to/from a Lithuanian resident entity are subject to 15% tax, unless the participation exemption applies, which in turn requires to meet certain criteria. The rate can be also reduced under a tax treaty, where applicable.
Swiss legal entities with either a registered office or an actual administration in Switzerland are subject to unlimited tax liability. Corporations are subject to corporate income tax as well as tax levied on equity at the cantonal and municipal level. The federal Swiss corporate tax rate is a flat rate of 8.5 %, whereby the Swiss cantonal and municipal tax rates vary considerably depending on the canton and the community where the entity is established. In Switzerland all taxes paid by legal entities are deductible for tax purposes reducing the applicable tax base, however the lowest effective income tax rate that can be achieved by an ordinarily taxed company is about 12%.
At a time when many countries around the world are having mixed feelings about cryptocurrencies and blockchain, Malta has not only created the first legal framework regulating and providing peace of mind to the industry, but also offers an extremely competitive tax regime for companies with one of the lowest corporate tax rates within the European Union, making the country the most beneficial jurisdiction to setup and run your blockchain business.
If you would like to learn more on what Malta has got to offer, please do not hesitate to contact us on [email protected].