【From CFTInet, Beijing 09/01/2000】　CORPORATE TAXES SIGNIFICANT DEVELOPMENTS 1. As of January 1, 1999 a value-added tax is levied at the standard rate of 15%. 2. A new Insurance Business Act and a new tax system for insurance companies have been introduced. 3. Exchange controls have been liberalized. TAX ON CORPORATE INCOME Income tax/Companies are subject to tax at a flat rate of 35%. There is no corporation tax structure separate from income tax. Petroleum profits tax/Petroleum profits tax is levies as income tax, but the taxable profits are computed in a special way, including a production-sharing basis. Profits in respect of production-sharing contracts signed after January 1, 1996 are taxed at 35%. Other petroleum profits are taxed at 50%. Insurance profits tax/Insurance profits tax is levied as income tax and imposed at the same rate as other corporate profits, but it is computed in a special way. In the case of nonresident companies the computation is applied with reference only to business carried on in or from Malta. (Until year of assessment 1999 (year of income 1998) the income of nonresident insurance companies was computed as the portion of worldwide income referable to Malta premiums.) CORPORATE RESIDENCE All companies registered in Malta are considered to be both domiciled and resident in Malta.Other bodies of persons (including companies incorporated overseas )are considered to be resident in Malta when the control and management of their business are exercised in the country. OTHER TAXES There are no other corporate taxes. Value-added tax/Supplies of goods and services in Malta are subject to VAT at the standard rate of 15% (5% on hotel and holiday accommodation) with effect from January 1, 1999. Exports, food, healthcare, education, and certain other goods and services are exempt with credit. Customs and excise duties/Many goods imported from outside the European Union are subject to customs duties at rates of not less than 8.1%. Excise duties are chargeable on certain petroleum oils and gases, alcoholic drinks and tobacco products. Employer's social security contributions/Employers are obliged to pay social security contributions at the rate of 10% of the individual employee's salary and at fixed rates of Lm11.09 per week for annual salaries exceeding Lm6,410. Stamp duty/Stamp duty is charged on, inter alia, transfers of immovable property (7%; 10% for nonresidents), marketable securities (2%), issue of shares in Maltese companies (0.4%), and assignment of debts and other rights (2.6%). BRANCH INCOME The tax rate on branch income is the same as that for resident companies ,Other than the tax charged on a branch' income ,no tax is withheld on transfers of profits to head office. INCOME DETERMINATION Inventory valuation/Stock valuations are generally made at the lower of cost or market value. LIFO is not accepted for taxation purposes. In general, the book and tax methods of inventory valuation will conform. Obsolescence is accepted where proved, but there are no provisions to take account of monetary inflation on the inventory valuation. Capital gains/Tax is chargeable on capital gains realized on the transfer of immovable property (real estate), shares and other securities (excluding securities listed on the Malta Stock Exchange and investments that yield a fixed rate of return), business goodwill, copyrights, patents, trade names, and trademarks. If the asset is transferred between group companies, no loss or gain will be deemed to arise from the transfer. Gains realized from the transfer of other assets fall outside the scope of the tax. Gains arising outside Malta and derived by a company that is either not domiciled or not ordinarily resident in Malta are not subject to tax. There are also a number of exemptions provided in the law. Capital gains realized by nonresidents on disposals of units in collective investment schemes, similar investments relating to linked long-term insurance business and shares or securities in companies (except companies whose assets consist solely or mainly of Maltese immovable property) are exempt from tax. Rollover relief/Group relief and reorganization relief are granted. Intercompany dividends/Dividends received by one company from another, whether or not a subsidiary, are taxable on the gross amount in the recipient's hands. If the distributed profits have been taxed, no further tax should be chargeable to the recipient company. However, for resident shareholders, if there are changes in the rates of tax between the year when the profits are earned and the year in which they are distributed, an amount equivalent to the difference in rates (topping up) is payable. If the distribution is made from untaxed income, the dividend would be tax free in the hands of the recipient company. Foreign income/A company is taxable in its worldwide income when it is ordinarily resident and domiciled in Malta. A company that is either not ordinarily resident or not domiciled in Malta is taxable on its foreign income only insofar as such income is remitted to Malta. Foreign tax is relieved by way of tax credits. This may occur under the terms of a double taxation treaty. Where no treaty exists, the foreign tax can be relieved. through a system of unilateral relief. Relief for underlying tax is also granted, either in terms of a double taxation treaty or as unilateral relief in the case of a Maltese company controlling at least 10% in voting power of the company distributing the dividend. Such relieves may be available if, inter alia, evidence of tax paid abroad is produced. As from year of assessment 1996 (basis tax year 1995), profits of Malta-resident companies are subdivided for tax purposes into three accounts, namely the Maltese Taxed Account, the Untaxed Account and the Foreign Income Account. The last of these includes, among other things, taxable profits of Maltese-resident companies resulting from foreign investments; profits of a foreign permanent establishment; and profits resulting from foreign investments, assets or liabilities of an onshore bank licensed in Malta. Income in the Foreign Income Account for which no evidence of tax paid abroad is required can qualify for a flat-rate foreign tax credit of 25%. Depending on the nature of the income distributed by the company, nonresidents receiving distributions from the Foreign Income Account will be entitled to a two-thirds or full refund of tax paid on such profits by the company. Stock dividends/A Maltese company can distribute bonus shares from profits, whether of an income or of a capital nature, and from share premium and capital redemption reserves. When bonus shares represent a capitalization of profits, they are deemed to be dividends for tax purposes. Such bonus shares are subject to tax in the recipients' hands, gross of any tax paid at the corporate level on the relative profits, but tax credits equivalent to the grossing-up made are then available to stockholders. DEDUCTIONS Depreciation and depletion/Depreciation is generally computed by the reducing-balance method, but in the case of buildings that qualify for an allowance the straight-line basis applies. The rate of depreciation on machinery and equipment varies according to the category of the equipment in question. The rate on industrial buildings and structures (including hotels-with effect from year of assessment 1997 (year of income 1996)) cannot exceed 2% per annum, increased from 1% as from year of assessment 1997 (year of income 1996). New acquisitions are entitled to a concurrent extra 20% allowance in the year of acquisition (or a 10% allowance in the case of industrial buildings or structures). Tax depreciation is not required to conform to book depreciation. The total allowances over the asset's useful life cannot exceed 100% of its cost. If on disposal of a tax-depreciated asset a surplus arises, it is either added to the year's income or utilized to reduce the cost of any replacement. If the asset has been under depreciated, a balancing allowance is granted. No deduction is available for the depletion of natural resources. Net operating losses/Net operating losses can be carried forward indefinitely until absorbed. There is no carryback of losses, not even in terminal years. Unabsorbed capital allowances can be carried forward only against the same underlying source of income. Where the source ceases to exist, any remaining balance is lost. Payments to foreign affiliates/There are no restrictions on the deductibility of royalties, interest and service fees paid to foreign affiliates, provided the transactions are carried out at arm's length. Interest and royalties derived by nonresidents are exempt from tax, subject to respecting the applicable statutory requirements. Taxes/Taxes of an income tax nature are not deductible (though a credit against the Maltese tax charge may be obtained-See“Income determination, Foreign income” above). Other taxes form part of expenses and are deductible in full. Other significant items/Expenditure on scientific research is allowable as a deduction spread over six years, commencing with the year in which the expense is incurred. GROUP TAXATION Provisions relating to group relief were introduced in Maltese legislation in 1994.Two companies that for tax purposes are resident exclusively in Malta and one of which is a 51% subsidiary of the other or both are 51% subsidiaries of a third Malta-resident company qualify as members of a group of companies ,Allowable losses may be surrendered by a company to another company within the group where both companies have concurrent accounting periods and form part of such group throughout the entire basis year for which this relief is claimed .Each company makes a separate tax return ,and no combined grouping or consolidated returns are possible TAX INCENTIVES Inward investment/Investment by foreigners may be readily repatriated together with profits. The Industrial Development Act provides a comprehensive package of incentives, including the following. 1. Ten-year tax holidays for export-oriented new industries. 2. Exemption of increased export profits for established industries. 3. Exemption of increased export profits, depending on the level of new investment. 4. Reduced rate of tax on profits reinvested in the business for certain approved projects. 5. Distribution tax free of tax-free profits to the shareholders; this benefit is extended to amount granted by way of investment allowances (see below). 6. Deduction for tax purposes at 120% for training costs and research and development expenses. Export promotion costs incurred are deductible at 140% for tax purposes. 7. Deduction for costs of feasibility studies. 8. Reduction of tax on dividends under double taxation treaties is carried back to the appropriate portion of the company's profits. 9. Deductions in respect of research and development expenses are, in cases where the company is enjoying a tax holiday, deferred to the first year after the tax holiday expires. 10. Carry forward without limitation into taxable years of residual losses made during a tax holiday period. Capital investment/In the case of companies qualifying for benefits under the Industrial Development Act an investment allowance of 30% on plant and machinery and of 15% on industrial buildings and structures is available, bringing the total allowances granted during the lifetime of the asses up to 130% and 115%, respectively. Accelerated depreciation of 25% and of 4% per annum (calculated by the straight-line method) is granted on plant and machinery and on industrial buildings and structures, respectively. Shipping profits/Under the Merchant Shipping Act, ships can be registered with the Minister of Finance to obtain exemption for shipping profits. These profits can be distributed tax free. The related company shares are exempt from the provisions of the Duty on Documents and Transfers Act (stamp duties). International business profits/Tax benefits are given to shareholders in onshore companies as regards distributions by such companies of specified types of income. Special tax incentives are also granted as regards collective investment schemes and investment services companies. Trusts registered with the Malta Financial Services Centre are taxed at a fixed annual rate of Lm200.