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Old 12-08-2014, 08:28 PM
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Tax liability of Malta-based company for US-taxpayer

Hi,

I'm planning to register a company in Malta. The company is going to provide online service for clients around the world. As a US taxpayer I have the following assumption:

Malta is in the list of countries that have an income tax treaty with United States and meets requirements of section 1(h)(11)(C)(i)(II), so that dividends paid to US shareholders of Malta-based companies can be treated as "qualified dividends". Considering 5 percent effective corporate income tax rate on active income for Malta companies, my assumption is that overall tax liability for US shareholder of Malta-based company is 25%. Is my assumption correct or not?

Thanks!



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Old 12-11-2014, 02:52 PM
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Quote:
Originally Posted by kpelykh View Post
Hi,

I'm planning to register a company in Malta. The company is going to provide online service for clients around the world. As a US taxpayer I have the following assumption:

Malta is in the list of countries that have an income tax treaty with United States and meets requirements of section 1(h)(11)(C)(i)(II), so that dividends paid to US shareholders of Malta-based companies can be treated as "qualified dividends". Considering 5 percent effective corporate income tax rate on active income for Malta companies, my assumption is that overall tax liability for US shareholder of Malta-based company is 25%. Is my assumption correct or not?

Thanks!
I believe so ASLONGAS THE FIRM REGISTERED IN Malta is a qualified firm. A foreign corporation is a qualified foreign corporation which is eligible for the benefits of a comprehensive income tax treaty with the US that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program.however, A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends.
The subject of foreign dividend taxation treatment is a very complex one. In US, the IRS imposes taxes to all income, whether it was obtain in US or in another country.An income tax treaty is an agreement between two countries under which each country agrees to limit the application of its domestic tax laws for residents of the other country. Therefore, if you go to a foreign country with which the U.S. has an income tax treaty in effect, you should check the provisions of the treaty to see if any of your income is exempt from U.S. tax under the treaty, or is subject to a reduced rate. A treaty provision will generally override U.S. statutory law; as the chargeable income of a company which is domiciled in Malta is considered to encompass all earnings of the company, arising in any world-wide jurisdiction, and whether or not the earnings are remitted to Malta, the us entity which has shares in the malta company will have no malta tax liability on the dividend. The malta company will have paid malta corporation tax on its profits. I guess you can talk to an intl tax specialist at the intl tax dept in the IRS



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