Malta is an EU Member State with an Exceptionally Advantageous Tax Regime

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Guidelines on Profit Participating Loans (PPLs)

The EU Code of Conduct Group had recommended a guideline concerning Profit Participating Loans (PPLs) whereby a hybrid loan arrangement is to be deemed as a financial instrument that has characteristics of both debt and equity. In as far as payments under a hybrid loan arrangement are qualified as a tax deductible expense for the debtor in the arrangement, Member States shall not exempt such payments as profit distributions under a participation exemption.

Pursuant to the approval of the aforesaid guidelines by Ecofin, the Maltese Commissioner of Inland Revenue has issued guidelines stating that interest received from sources situated outside Malta is taxable in Malta and do not benefit from an exemption related to income from participating holdings under the Income Tax Act or under any other law.

It is hereby being clarified that income from a loan, including a loan that has characteristics of both debt and equity e.g. where the lender is entitled to voting rights, to profits etc;  shall be considered to be interest for the purposes of Article 4(1)(c) of the Income Tax Act and is not considered to be income from share capital or from an equity holding for the purposes of the Income Tax Act.

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