Understanding Company Taxation in Malta: What New Business Owners Need to Know

Malta has earned a strong reputation as one of Europe’s most business-friendly jurisdictions for company formation. Its appeal goes beyond its strategic Mediterranean location and being part of the EU, having a highly efficient and business-focused tax system.

At a first glance, Malta’s standard corporate tax rate of 35% might appear to be on the high side compared to other EU jurisdictions however this rate rarely tells the full story. With Malta’s unique full imputation system and foreign shareholder refund mechanism, the actual tax paid by businesses can be dramatically reduced, often bringing the effective tax rate down to 5%.

For business owners, understanding how Malta’s tax framework operates is crucial. Understanding this framework not only ensures full compliance but allows entrepreneurs to structure their business efficiently and benefit from these tax incentives.

Corporate Tax in Malta: The Basics

• Corporate Income Tax Rate: flat rate 35% corporate tax on worldwide income.
• Residency rules: A company incorporated in Malta is automatically considered tax resident. Foreign companies may also be resident if their management and control are exercised in Malta
• Tax year: The default year runs from 1 January to 31 December, unless the company applies for a different financial year.

Malta’s corporate tax rate may appear uncompetitive when compared to other EU jurisdictions such as Ireland and Cyprus, both applying a flat rate 12.5% corporate tax rate. This comparison, however, does not consider one of Malta’s powerful advantages being a corporate tax refund system, reducing the effective tax rate to a minimum of 5%.

The Full Imputation System

Malta operates a full imputation system of taxation, specifically designed to prevent double taxation on corporate profits and dividends, and it’s one of the country’s biggest competitive advantages as very few jurisdictions apply this system.

Here’s how it works in practice:

1. A company pays 35% corporate tax on its profits.
2. When profits are distributed, the company imputes the 35% tax already paid at company level as a credit to the shareholder.
3. Shareholders can claim these credits against their personal income tax.

Malta Tax Refunds Explained

Malta offers several corporate tax refund mechanisms, tailored to the type of income earned

• 6/7 Refund: Typically applies to trading income. Reduces the effective tax rate to approximately 5%.
• 5/7 Refund: Applies to passive interest and royalties. Reduces the effective tax rate to approximately 10%.
• 2/3 Refund: For income that has benefited from double taxation relief.
• 100% Refund: For income derived from a qualifying participation holding

The bottom line is that these refund mechanisms make Malta a highly compelling jurisdiction for any type of corporate structure seeking tax efficiency within the EU.

Participation Exemption

Malta’s participation exemption takes tax efficiency a step further by allowing certain income to be completely exempt from taxation.

Under this regime, qualifying dividends and capital gains received from subsidiary companies may be exempt, provided that certain conditions are met, such as minimum shareholding or holding period.

The participation exemption is a key reason Malta is widely regarded as a prime jurisdiction for holding companies, particularly those managing complex international and cross-border structures.

By combining EU credibility with highly efficient tax outcomes, Malta continues to attract groups looking for a strategic base for their global investments.

Double Taxation Relief

Malta has in place over 70 double taxation treaties, preventing the same income from being taxed in multiple jurisdictions. Relief is available through:

• Double Tax Treaties (DTTs).
• Unilateral Relief (where no treaty exists).
• Flat Rate Foreign Tax Credit (FRFTC).

This ensures Malta remains competitive for companies with international operations.

Ongoing Tax Obligations

For companies incorporated in Malta, tax obligations include:

• Filing annual tax returns with the Commissioner for Revenue based on the annual audited financial statements, deadlines will vary depending on the year end of the business
• Provisional tax payments in April, August, and December of each financial year.
• Corporate tax payments are due within 9 months after year end unless certain criteria apply which will grant a further 9-month extension for payment of tax

Practical Example: Tax in Action

• A Maltese trading company earns €100,000 in profit.
• The company pays €35,000 in corporate tax (35%).
• The company distributes the profits of €65,000 as dividends to shareholders.
• Shareholders may claim a 6/7 refund on the €35,000 tax paid, i.e., €30,000 refund. Tax refund can only be applied for if certain criteria is met, non-Malta domiciliation.
• Net tax paid = €5,000. Effective tax rate = 5%.

This example illustrates how Malta’s system is more tax-efficient than it appears at first glance.

Frequently Asked Questions (FAQ)

Q1: Do all companies benefit from refunds?
Tax refunds apply when profits, taxed in Malta, are distributed as dividends. Tax refund is dependent on the income that has been taxed. Certain conditions need to be met in order to benefit from a tax refund.

Q2: Can non-resident shareholders benefit from the refund system?
 Yes. Tax refunds can be made available to both residents, through foreign holding companies, and non-resident shareholders however these are not applicable to Maltese domiciled shareholders.

Q3: Is there withholding tax on dividends in Malta?
No. Malta does not impose withholding tax on dividend distributions to shareholders, whether resident or non-resident unless dividends are being distributed from the Untaxed account, profits that have not been taxed at corporate level, to Maltese resident shareholders, in which case a 15% withholding tax is applied.

Q4: What if my company operates outside Malta?
Malta taxes worldwide income for companies’ resident in Malta, but relief is available through participation exemptions and double taxation treaties.

Malta’s corporate tax system is about far more than the 35% headline tax rate. The real advantage lies in the tax refund mechanisms and participation exemptions, which can reduce effective taxation to competitive levels within the EU.

For new and growing businesses, this translates to greater flexibility, improved returns, and a competitive advantage when operating within the EU market.

At NOUV, we guide you through these opportunities by helping you structure efficiently, apply the available tax benefits and remain fully compliant with Maltese law at every step.

NOUV: Your Business Incorporation Partner

We ensure your company in Malta is both compliant and tax-efficient:

• Corporate tax registration and advisory
• Shareholder refund claims and optimisation
• VAT registration and reporting
• Participation exemption planning
• Double taxation relief and treaty guidance
• Preparation and filing of annual tax returns

Whether you’re running a local startup or an international holding company, we’ll help you leverage Malta’s tax regime to its fullest.

Discover our Corporate Services: https://nouv.com/corporate/
Discover our Tax Services: https://nouv.com/services-category/tax/
Get in touch: https://nouv.com/contact-us/