Guide to calculate market value of shares for tax purposes

Calculating the Market Value of Shares

Identify the Percentage of the Market Value

The market value of shares for capital gains purposes is a percentage of the total market value of the company for tax purposes.

Listed Companies

For companies listed on a recognized stock exchange, the market value of shares is determined by the last quoted price on the exchange prior to the date of the transfer.

Non-Listed Companies

The market value of shares in non-listed companies is a percentage of the total market value of the company. Where a shareholder’s voting rights, shareholding, and profit entitlement percentages differ, the following formula is used:

Y=(0.4×A)+(0.2×B)+(0.4×C)

Where:

• Y = Percentage of the market value of the company attached to the shareholder’s shares
• A = Percentage of issued share capital represented by the nominal value of those shares
• B = Percentage of total voting rights represented by the shares
• C = Percentage of profits available for distribution to ordinary shareholders represented by the shareholder’s entitlement

Change in Shareholding or Voting Rights

If changes in shareholding or voting rights occurred during the 18 months preceding the transfer, the applicable market value percentage is the highest percentage over the period.

However, if such a change triggered stamp duty due to a taxable value shift, the percentage on the date of transfer applies, and there is no requirement to consider the highest percentage over 18 months.

Compute the Market Value of the Company

Calculate the Net Asset Value (NAV)

General Rule

The market value of a company is based on its net asset value from the financial statements for the financial year preceding the transfer.

Transfers or Acquisitions

Where the company has transferred or acquired:

1. Immovable property or rights over such property
2. Shares in another company representing at least 10% of its issued share capital

The NAV is based on a balance sheet prepared by an auditor as of the transfer date, rather than the last financial statements.

First Financial Year

If the transfer occurs in the company’s first financial year, the NAV equals the nominal value of issued share capital, adjusted as outlined below.

Adjust the Net Asset Value

The NAV is adjusted for the following:

1. Shares in Another Company
   • Replace the book value of shares in other companies (representing at least 10% of issued share capital) with their market value.
   • If the market value is negative, use 0.
2. Immovable Property
   • Replace the book value of immovable property with its market value, determined by an architect’s valuation.
   • No adjustment is made if the market value is lower than the book value.
3. Goodwill
   • Goodwill is calculated as two years’ average profits before tax, based on the past five financial years.
   • Exclude dividends received from companies where the shareholder owns more than 10%.
   • Negative goodwill is taken as 0.
4. Non-Equity Shares
   • Deduct the book value of shares that provide only a fixed rate of return (e.g., preference shares).
   • However, no deduction is allowed for shares issued through capitalization of reserves (other than capital redemption reserves or distributable profits).

Summary of NAV Adjustments

Net Asset Value (NAV)=Base NAV−Book Value Adjustments+Market Value Adjustments+Goodwill Adjustments 

Example Calculation:

• Base NAV: €100,000
• Adjustments:
  • Subtract book value of shares in other companies: (€6,000)
  • Add market value of shares in other companies: €8,000
  • Subtract book value of immovable property: (€70,000)
  • Add market value of immovable property: €90,000
  • Add goodwill: €25,000
  • Subtract non-equity shares: (€2,000)

Final Market Value of the Company: €145,000

Expert Valuation for Market Value

If the computed market value (based on statutory rules) exceeds the expert’s valuation by:

1. More than 10%, and
2. More than €30,000,

The expert’s valuation can be submitted to the Inland Revenue instead of the statutory valuation.

Transfer of Shares Admitted for Trading on an Alternative Trading Platform

Taxable Amount

For original shareholders transferring shares traded on an alternative trading platform, the taxable amount is determined based on the level of public participation:

For transfers to the public, the chargeable amount is calculated using the transfer value of the shares less cost of acquisition and applicable deductions. The taxable amount varies by the percentage transferred.

Definitions

• Alternative Trading Platform: A multilateral trading facility for SMEs, e.g., Prospects MTF and Alternative Companies List operated by the Malta Stock Exchange.
• Level of Public Participation: Percentage of shares held by non-original shareholders after the transfer.
• Original Shareholder: Defined as shareholders or their related parties prior to the company’s listing.

Non-Original Shareholders

If a non-original shareholder transfers shares and public participation is at least 10%, no tax is charged on capital gains from the transfer.

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