Tax on transfer of shares
Capital gains tax applies on the transfer of certain capital assets including shares in a company.
As a general rule, the taxable capital gain/(loss) will be computed by deducting the cost of acquisition of the asset sold from the transfer value. Other deductions such as capital losses brought forward and trading losses are also allowable. This article applies to the transfer of shares which does not constitute a trading activity.
Transfer value
The transfer value depends on whether the transfer of the shares is a transfer of a controlling interest or otherwise. If the transfer is deemed to be a transfer of a controlling interest, the transfer value is the higher of the market value and the consideration. If the transfer is not deemed to be a transfer of a controlling interest, the transfer value will be equal to the consideration. The consideration is typically the selling price of the shares.
Controlling interest
A transfer is a transfer of a controlling interest when any one of the following criteria apply to the shares held by the transferor at any time during the 18 months preceding the transfer:
- The aggregate nominal value represents at least 25% of the nominal value of the issued share capital
- The total voting rights attached to the shares represent at least 25% of the total voting rights
- The total rights attached to the shares entitle the holder to be appointed or to nominate/elect or to withhold the appointment of a director
- The holder was entitled to at least 25% of the total rights to profits available for distribution to the ordinary shareholders of the company
Market value
When determining the market value of shares, certain adjustments to the net asset value of the company must be made. The net asset value is computed by deducting the total liabilities from the total assets. The adjustments to the net asset value include:
- Replacing the book value of any immovable property held by the company with the market value,
- Replacing the book value of any investments (10%+) held in other companies with the market value,
- Add an amount representing goodwill, being equivalent to 2 year’s average profits (before tax) of the company’s last 5 years immediately preceding the year of transfer, and
- Deduct the book value of any preference shares held
Once the adjusted net asset value is computed, the % of the market value of a company attached to a transferor must be determined in accordance with a weighted average formula as per below:
The percentage computed from the above formula is multiplied by the adjusted net asset value of the company in order to arrive at the market value of the shares transferred.
Exemptions
There are a number of share transfers that are exempt from tax and these include amongst others:
- Gains or profits derived by any person not resident in Malta on a transfer of shares in a company which is not a property company
- Gains or profits derived by a company registered in Malta from a participating holding
- Transfer of shares listed on a stock exchange recognized by the Commissioner for Revenue
- Transfer of securities listed on a recognised stock exchange being shares in a collective investment scheme held in a prescribed fund
- Shares assigned between spouses as a result of a judicial or a consensual separation
Provisional tax
A provisional tax amounting to 7% of the transfer value is to be paid upon the transfer of the shares.
Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, financial or professional advice. While every effort has been made to ensure accuracy, the writer assumes no liability for any errors or omissions. Readers are encouraged to seek professional advice before making any business or financial decisions based on this content.
