The Office of Malta’s Commissioner for Revenue has updated guidelines in relation to the Notional Interest Deduction rules.

The NID regime was introduced to equalize the tax environment for businesses who choose to finance their operations with equity rather than debt.

Companies or partnerships are allowed to avail themselves of a notional interest deduction, being a percentage of total equity at the end of the financial year, calculated based on the risk-free rate, set by reference to the yield to maturity on Malta Government Stocks with a remaining term of approximately 20 years plus a premium of five percent.

The deduction for the notional interest may not exceed 90 percent of the company’s chargeable income for the relevant year before taking into account the notional interest deduction. Any excess amount may, at the option of the company or partnership, be carried forward for deduction in the following years.

The remaining income is subjected to tax at the standard corporate rate of 35 percent.

Malta has added to the guidelines on the rules, as follows, to provide that: “Where a shareholder is the only shareholder of a company that holds no more than 0.2 percent of the nominal value of the risk capital of such company and, in accordance with the Memorandum and Articles of Association, such holding is devoid of any rights to vote, to receive any dividends from the company and to particpate in the profits of the company, no deemed interest income shall be attributable to such shareholder, and the share of the deemed interest income that would have been attributable to such shareholder […] shall
be attributable to the other shareholders of the company in proportion to the nominal value of
the risk capital of the company pertaining to each shareholder.”

“In order to apply the above, a request in writing must be made to the Commissioner for
Revenue […].”