Ultimate Guide to Tax in Malta

This Ultimate Guide to Tax in Malta will provide all necessary general information about key tax rates in Malta for business.

Estimated reading time: 10 minutes

Malta country profile

Economy & forms of business: Although Malta is a small country, its economic development is progressive and stable. – as of 2020, Malta is placed 25th among the richest countries in the world.

Malta is an excellent destination to invest or start a company. Because of the islands’ position, businesses can easily trade and interact with a wide range of nations and areas. The country offers beneficial tax regime, trained workforce, modern infrastructure, and access to European and other markets.

Malta provides business opportunities in a variety of industries, such as Financial Services, Information and Communication technology, iGaming and online gaming licences, import and export business & much more.

Malta’s corporate income tax rate is 35%, which applies for all enterprises incorporated in Malta and is paid on company’s worldwide revenue. Shareholders may be eligible to a return of 1/6th or 1/7th of the tax paid to Malta by the firm. Companies in the electronics, plastics, pharmaceuticals, and electrical equipment industries can also take advantage of industry-specific tax relief. Such advantages include tax rebates that begin at 5% for the first seven years and increase to 15% after that.

Malta Enterprise plan of 2022 is to offer a tax benefit for firms who invest in qualified initiatives within their own company or in other companies.

Malta has 45 favourable trade agreements as a member of the EU. With 639 EU-mandated nontariff measures in place, the trade-weighted average tariff rate (common across EU countries) is 3%. The financial sector is small but stable, and it has gotten increasingly competitive in recent years. 

Most popular company types in Malta for business:

• Private Limited Liability Company in Malta: this type of company is most commonly used by investors and entrepreneurs in Malta. A minimum of two (2) and a maximum of fifty (50) shareholders are required, as well as a minimum registered share capital of EUR 1,164.69, of which at least 20% must be paid up. The company bears suffix ‘Limited’ or ‘Ltd’. A ‘Single Member Company’ is a type of private limited company that is founded with only one shareholder. The nationality, residency, or domicile of a Maltese company’s directors, company secretary, or shareholders is unrestricted.
• Public Limited Liability Company in Malta: This form of corporation can sell shares or bonds to the general public. A minimum of two directors and a natural person company secretary are required for Public Company. The company bears suffix ‘PLC’. The company’s directors may or may not be shareholders of the company. A authorized and issued share capital must be at least EUR 46,588, where 25% of the amount has to be paid upon registration. This company can be holding or trading company.
• Other: Under Maltese law, trusts, partnerships and foundations are also available. A securitization vehicle and a collective investment scheme (CIS) can be set up in a variety of ways.

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Malta Double Tax treaties:

Full list of DTT’s of Malta and their contents can be found here.

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Tax Residency in Malta

A corporation is considered tax resident of Malta if it was formed in Malta or if its management and control are exercised there. If a corporation was formed in Malta, it is said to be domiciled there (i.e. Maltese company law applies to it).

If the company is not incorporated in Malta but manages and controls its operations in Malta, it is considered a resident of Malta.

A person is considered to be a Maltese resident if he or she lives in Malta, with the exception of brief absences that the Commissioner for Revenue considers acceptable and not inconsistent with the claim of residence. An individual is usually considered a resident of Malta if he or she spends at least six months in the country in a calendar year and plans to establish residence in Malta.

The extent of a person’s tax liability is determined by their domicile and tax residence status in Malta, and a factual determination is required to determine whether the person is ordinarily resident and domiciled in Malta, resident but not domiciled in Malta, not ordinarily resident but domiciled in Malta, and so on.

Companies resident and domiciled in Malta are subject to taxation on their worldwide income.

Companies that are resident but not domiciled in Malta are taxed on Maltese source income and foreign source income received in Malta (tax on remittance basis). Same applies for companies that are domiciled in Malta, but are not resident. Such corporations are exempt from taxation on income generated outside Malta that is not received in Malta, as well as on capital gains earned outside Malta.

Non-resident corporations are solely subject to Maltese taxation on their Maltese source revenue.

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Key Tax rates in Malta to consider: CIT and VAT

Corporate income tax: The standard CIT rate in Malta is 35%. Certain categories of investment income are taxed at 15% or 10%. Certain categories of rental income are taxed at 15%.

Corporate Income Tax	35%
Branch Tax	35%
Capital Gains Tax	35%

The standard rate for investment income can be reduced to 0 – 6.25 percent by using double taxation relief, and the full imputation method. (Except for income obtained from immovable property located in Malta)

The adoption of the full imputation and refund mechanism ensures relief from economic double taxation on the distribution of taxable earnings by businesses. This approach allows a shareholder to obtain a refund of all or a portion of the Malta tax paid on the qualifying earnings from which the dividend was given, potentially lowering the effective tax rate in Malta to 0% -10%.

In regard of underlying tax on dispersed firm earnings, both resident and non-resident shareholders are entitled to the same tax refunds.

Taxable income examples in Malta: Gains or profits from a trade or business; profession or vocation; employment or office; dividends, interest, or discounts; pensions, annuities, or annual payments; rents, royalties, premiums, and any other profits arising from property; and certain chargeable capital gains.

Taxation of dividends: A firm that receives dividend income is taxed on it, with the potential of relief for any underlying taxes. The participation exemption could apply to dividend income from a participating holding. To determine the exemption, please contact our tax specialists directly – store@eulawfirm.eu.

Capital gains tax: Gains on the sale of capital assets are combined with a company’s other revenue, and income tax is applied to the total income and capital gains. Capital gains arise in case of transfers of: immovable property; securities, business goodwill, business permits, copyrights, patents, trademarks, trade names, and any other intellectual property; partnership interests; beneficial interests in trusts that hold the above-mentioned property. In the case of a firm transferring immovable property located in Malta, final income tax is due at a rate of 8% on the transfer value;. Additional rates (mostly 2%, 5%, 7%, 10%, and 12%) may apply in certain circumstances.

Non-resident companies in Malta are exempt from paying tax on gains or profits realized on the sale of CIS unit: units relating to long-term insurance policies, partnership interests, and company shares or securities. Unless, the partnership’s or company’s assets are entirely or primarily immovable property is located in Malta.

VAT in Malta:

Standard VAT rate is 18 %. Lower rates of 7%, 5%, and 0% are available in particular circumstances; and some transactions are excluded (e.g., banking and insurance services and the sale and leasing of immovable property).

VAT is charged on the provision of products and services in Malta, intracommunity purchases of goods in Malta, and imports of goods from outside the EU.

Every person who makes taxable and/or exempt-with-credit supplies of goods and services in Malta in the course of a trade or profession is required to register for VAT in Malta, to charge VAT that may be relevant, and to recover input VAT incurred for the purpose of such supplies. Small businesses can register under a simplified registration category, which means they won’t have to charge or recover VAT. Businesses that provide and receive services in a cross-border environment are subject to additional registration requirements.

CFC Rules & Anti-Avoidance rules in Malta

New Controlled Foreign Company (CFC) laws went into effect on January 1, 2019 in Malta, being a part of the EU Anti-Tax Avoidance Directive’s implementation.

When applicable? CFC regulations apply if the CFC is subject to low taxes in its residence country.

• Low tax clause: Thus, if the actual corporate tax paid by the company or PE is less than half of the tax that would have been levied on the company or partnership under Malta’s Income Tax Act. The Maltese CFC laws do not apply to a PE of a CFC that is not taxed or is tax-exempt in the CFC’s country.
• Control test: The CFC laws apply to entities in which Maltese firms own more than 50% of the voting rights, capital, or profit rights (directly or indirectly, and either alone or collectively with affiliated firms).

CFC income only includes non-distributed income of the CFC arising from non-genuine arrangements put in place for the purpose of obtaining a tax advantage, provided that the CFC would not have owned the assets or taken the risk that generates such income if the parent company did not have significant people functions.

Exclusion from CFC rules in Malta: Companies/Permanent Establishments are exempt from the CFC regulations in case:

1.) Their accounting profit is less than EUR 750,000 and non-trading income is less than EUR 75,000;

or,

2.) Accounting profits are less than 10% (included) of operational expenditures for the tax period.

Withholding tax rates in Malta (company)

Type of Payment	Resident	Non-resident
Dividends	0%	0%
Interest	0% (15% if interest income qualifies as investment income)*	0%
Royalties	0%	0%
Technical services	0%	0%
Branch witholding tax	0%	0%

*Dividends paid to a resident individual are normally exempt from withholding tax. However, earnings transferred to a resident individual from the payer company’s “untaxed account” may be subject to a 15% withholding tax. Outbound dividends are not subject to a withholding tax in Malta (except for certain untaxed dividends where a non-resident person is owned and controlled by, or acts on behalf of, an individual ordinarily resident and domiciled in Malta).

General Anti-Avoidance rules (GAAR) in Malta

The Maltese laws contain a number of broad anti-avoidance measures. In general, taxpayers must disregard any arrangement or series of arrangements put in place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, according to the EU’s general anti-abuse provision, as transposed into Malta law.

Holding Company Regimes in Malta

There is no special holding company regime in Malta. Nonetheless, the participation exemption may apply in certain cases. (the participation exemption however will not apply where the dividends were deductible for the subsidiary).

Dividend received from resident/non-resident subsidiaries: When derived from a participating holding, dividends received from a resident subsidiary benefit from the imputation system, but dividends received from a non-resident subsidiary benefit from a 100% participation exemption.

Taxation period & general information

Companies are taxed on the income they earn throughout the fiscal year. The fiscal year is usually the same as the financial year, ending on December 31, however it can be modified if necessary and the consent from the Commissioner for Revenue is granted.

Tax returns for corporations must be filed within nine months after the end of the fiscal year or by March 31 of the following year, whichever occurs. 

Companies must keep accurate and sufficient records of their revenue and spending and must present a balance sheet and income statement together with their tax return, as well as a report prepared by a qualified public auditor.

Upon company registration in Malta through EU LAW FIRM it is possible to appoint a qualified public auditor for your company in Malta.

Contact our lawyers for tax consulting in Malta:

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Want to know about Tax guide in Cyprus – Check this Ultimate Guide to Tax in Cyprus