B. Taxes on corporate income and gains
Corporate income tax. Companies that are considered to be ordinarily resident and domiciled in Malta are subject to income tax on their worldwide income. Companies incorporated in Malta are considered ordinarily resident and domiciled in Malta. In addition, companies incorporated outside Malta, the management and control of whose business are exercised in Malta, are considered to be ordinarily resident but not domiciled in Malta and are subject to tax in Malta under the remittance basis of taxation.
Rates of corporate tax. Income tax is the only tax imposed on the chargeable income of companies. The standard rate of income tax is 35%.
Global Anti-Base Erosion. For 2024, Malta has exercised the derogation contained in Article 50 of Council Directive 2022/2523 (the Minimum Tax Directive), such that it has not switched on the Global Anti-Base Erosion (GloBE) Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR) and has also not introduced a Qualified Domestic Top-Up Tax (QDTT). Malta did transpose Chapters I, VIII, IX and X of the Minimum Tax Directive via Legal Notice 32 of 2024, published on 20 February 2024. These chapters are regarded as the minimum measures that are of relevance to ensure the proper functioning of the system of global minimum level tax for multinational enterprise groups and largescale domestic groups.
Tax incentives. Tax incentives are offered in the Malta Enterprise Act and in regulations to the act, as well as in the Income Tax Act.
The Malta Enterprise Act contains several incentives for the promotion and expansion of business, covering a wide range of sectors and activities. The incentives available under the act may be divided into six categories, which are described in the following six subsections. Other tax incentives available in Malta are discussed in the subsequent subsections.
Research and development and innovation programs. Fiscal incentives and cash grants are offered to stimulate innovative enterprises to engage in research and development.
Patent box regime. Effective from 1 January 2019, Malta introduced a patent box regime that grants the option to eligible persons deriving qualifying income from qualifying intellectual property (IP) to benefit from a super deduction. The maximum super deduction, which may be available after applying the nexus ratio, is equal to 95% of the net income or gains derived from the qualifying IP, resulting in an effective tax rate of 1.75%. Taxpayers wishing to benefit from the patent box regime must request a determination from Malta Enterprise.
Enterprise support. Assistance is offered to businesses to support them in developing their international competitiveness, improving their processes and networking with other businesses.
Employment and training. The Employment and Training Corporation (ETC) administers the employment and training incentives. Enterprises are supported in recruiting new employees and training their staff. These incentives help generate more employment opportunities and training activities.
Aviation income. Income derived from the ownership, lease or operation of aircraft and aircraft engines used in the international transport of passengers or goods (aviation income) is deemed to arise outside Malta regardless of whether the aircraft is operated from Malta. Consequently, a company that is incorporated outside Malta but managed and controlled in Malta (resident but not domiciled for income tax purposes, or a “non-dom co”) must pay tax on income derived from its aviation income on a remittance basis. Aviation income that is not received in Malta is not taxed in Malta.
Notional interest deduction. The notional interest deduction (NID) is an optional deduction that may be applied by companies or partnerships resident in Malta, as well as by nonresident companies or partnerships having a permanent establishment located in Malta. The NID may only be claimed against profits that stand to be allocated to the company’s Foreign Income Account or Maltese Taxed Account, or to profits that would have been so allocated in the case of undertakings other than companies (Eligible Profits). The NID may be claimed only if it is demonstrated that all shareholders or owners of the undertaking approve the claim of such deduction with respect to the particular year of assessment. The NID for a year of assessment is calculated as follows:
Y = A x B
Y represents the NID that may be claimed in the relevant year of assessment.
A represents the reference rate that is equivalent to the risk-free rate plus a premium of 5%. The risk-free rate is determined by the current yield to maturity on Malta government stocks with a remaining term of approximately 20 years.
B represents the risk capital of the undertaking at the end of the accounting period ending in the year preceding the year of assessment less the invested risk capital to the extent of either of the following:
• Such invested risk capital is not employed by the undertaking in producing any income in the year preceding the year of assessment and if any income been produced, it could have been exempt from tax under the terms of the Income Tax Act.
• Such invested risk capital is employed in producing income in the year preceding the year of assessment that is exempt from tax under the terms of the Income Tax Act.
For companies and partnerships resident in Malta, risk capital consists of the following:
• Share or partnership capital of the undertaking
• Any share premium
• Positive retained earnings
• Loans or other debt borrowed by the undertaking that do not bear interest
• Any other reserves resulting from a contribution to the undertaking
• Any other positive balance that is shown as equity in the undertaking’s financial statements
Rollover relief for assets used in business is also available if the asset has been used in the business for at least three years and if it is replaced within one year by an asset used only for a similar purpose.
Taxable capital gains are included in chargeable income and are subject to income tax at the normal income tax rates. Capital losses may be set off only against capital gains. Trading losses may be carried forward to offset capital gains in future years.
Provisional tax of 7% of the consideration or of the value of the donation must be paid by a seller on the transfer of property if the transaction is subject to the capital gains regime. A higher rate of provisional tax applies if the property being transferred consists of securities in a property company or an interest in a property partnership. The Commissioner for Tax and Customs may authorize a reduction in the rate of provisional tax if it can be proved that the capital gain derived from the transaction is less than 20% of the consideration. Provisional tax paid is allowed as a credit against the income tax charge.
In the course of a winding up or distribution of assets, if a company transfers property to its shareholders, or to an individual related to a shareholder, who owned 95% of the share capital of the company transferring the property in the five years immediately preceding the transfer, the transfer is exempt from tax if certain conditions are satisfied.
Property transfer tax. Under Article 5A of the Income Tax Act, in general, the transfer of immovable property in Malta is taxed at a rate of 8% on the higher of the consideration or market value of the immovable property on the date of the transfer. No deductions may reduce the tax base, except for agency fees subject to value-added tax (VAT). However, different tax rates apply in certain circumstances. Broadly, from a corporate perspective, the following are the circumstances in which the different rates apply:
• If the property transferred was acquired before 1 January 2004, the seller is taxed at 10% of the transfer value.
• A 5% rate applies if the property not forming part of a project is transferred before five years from the date of acquisition or if the transferred property is a certain restored property.
• If immovable property was acquired through a donation more than five years from the date of transfer, a 12% rate applies to the excess of the transfer value over the acquisition value.
If several conditions are satisfied, companies that have issued debt securities to the public on the Maltese Stock Exchange and that are transferring immovable property forming part of a project may opt out of the above provisions and have the relevant proceeds brought to charge under Article 27G of the Income Tax Act.
Securitization. The total income or gains of a securitization vehicle is realized or deemed to arise during the year in which such income or gains are recognized for accounting purposes. For purposes of calculating the chargeable income or gains of the securitization vehicle for income tax purposes, the following expenses are deductible:
• Relevant expenses provided under Article 14 of the Income Tax Act
• Amounts payable by the securitization vehicle to the originator or assignor
• Premiums, interest or discounts with respect to financial instruments issued or funds borrowed by the securitization vehicle
• Expenses incurred by the securitization vehicle with respect to the day-to-day administration of the securitization vehicle
Tax is chargeable on any remaining total income of the securitization vehicle, although a further deduction of an amount equal to the remaining total income may be claimed at the option of the securitization vehicle, subject to certain provisos and anti-abuse provisions.
Administration. The year of assessment is the calendar year. Income tax for a year of assessment is chargeable on income earned in the corresponding basis year, which is generally the preceding calendar year. A company may adopt an accounting period other than the calendar year, subject to approval by the Commissioner for Tax and Customs.
Companies with a January to June accounting year-end must file their income tax returns by 31 March (extended if filed electronically) of the year of assessment. Companies with other accounting year-ends must file their income tax returns within nine months after the end of their accounting year (extended if filed electronically).
A self-assessment system applies in Malta. The Commissioner for Tax and Customs issues an assessment only if it determines that a greater amount of income should have been declared or that the company omitted chargeable income from its tax return.
Companies must make three provisional payments of tax, generally on 30 April, 31 August and 21 December. The provisional payments are equal to specified percentages of the tax due as reported in the last income tax return filed with the Commissioner for Tax and Customs on or before 1 January of the year in which the first provisional tax payment is due. The percentages are 20% for the first payment, 30% for the second and 50% for the third. Companies must pay any balance of tax payable on the due date for submission of the income tax return for that year of assessment.
Penalties are imposed for omissions of income, and interest is charged for late payments of tax. The Commissioner for Tax and Customs pays interest on certain late refunds.
Advance Revenue Rulings. Advance Revenue Rulings may be obtained from the Commissioner for Tax and Customs on certain transactions, activities and structures. Rulings survive any change in legislation for a period of two years. In all other circumstances, rulings are binding for five years. Renewals may be requested.
Allocation and distribution of profits. The distributable profits of a company are allocated to the following five tax accounts:
• Final Tax Account
• Immovable Property Account
• Foreign Income Account
• Maltese Taxed Account
• Untaxed Account
The Final Tax Account contains distributable profits that have been subject to a final tax. The Immovable Property Account contains profits connected with immovable property located in Malta. The Foreign Income Account contains, broadly, foreignsource passive income and foreign-source active income attributable to a permanent establishment located outside Malta. The Maltese Taxed Account contains profits that are not included in the Final Tax Account, Immovable Property Account or Foreign Income Account. The Untaxed Account contains an amount of profits or losses that is calculated by deducting the total sum of amounts allocated to the other accounts from the total amount of profits shown in the profit-and-loss account for that year.
The Full Imputation System applies to distributions from the Immovable Property Account, Foreign Income Account and Maltese Taxed Account. Under this system, the tax paid by the company is imputed as a credit to the shareholder receiving the dividends. Profits allocated to the Foreign Income Account and the Maltese Taxed Account result in tax refunds under the Refundable Tax Credit System (see Refundable Tax Credit System).
Refundable Tax Credit System. In 2007, the Maltese House of Representatives passed a law that implemented an agreement with the EU relating to a refundable tax credit system for all companies distributing dividends out of taxed profits to shareholders. The imputation system under which the tax paid by a company is essentially treated as a prepayment of tax on behalf of the shareholder was retained but this refundable tax credit system was introduced. The refundable tax credit system applies both to profits allocated to a company’s Maltese Taxed Account and to profits allocated to its Foreign Income Account and is available both to residents and nonresidents.
A person receiving a dividend from a company registered in Malta from profits allocated to its Maltese Taxed Account or its Foreign Income Account that do not consist of passive interest or royalties may claim a refund of six-sevenths of the tax paid by the distributing company on the profits out of which the dividends were paid. As a result of the introduction of the new system, the dividend recipient receives a full imputation credit plus a refund of six-sevenths of the tax paid by the distributing company.
Distributions of profits derived from passive interest or royalties or dividends derived from a participating holding in a body of persons that does not satisfy the anti-abuse provision (see Participation exemption and participating holding system) do not qualify for the six-sevenths refund. Instead, they qualify for a refund of five-sevenths of the tax paid by the company.
In addition, the five-sevenths refunds apply to distributions made by companies that do not claim any form of double tax relief. Dividends paid out of profits allocated to the Foreign Income Account with respect to profits for which the distributing company has claimed any form of double tax relief (double tax treaty
relief, unilateral relief or the flat-rate foreign tax credit; see Foreign tax relief) are entitled to a refund equal to two-thirds of the tax that was imposed on the distributing company gross of any double tax relief. However, for the purposes of this calculation, the amount of tax imposed on the company is limited to the actual tax paid in Malta by the distributing company.
The refundable tax credit system is extended to shareholders of foreign companies that have Maltese branches. Tax paid in Malta by branches on profits attributable to activities performed in Malta is refunded when such profits are distributed.
Persons must register with the Commissioner for Tax and Customs to benefit from the tax refunds described above.
Participation exemption and participating holding system. The Maltese income tax system grants companies registered in Malta the option to exempt from income tax dividends received from a participating holding or capital gains derived from the disposal of such holding. This exemption is referred to as the participation exemption.
A holding in another company is considered to be a participating holding if any of the following circumstances exist:
• A company holds directly at least 5% of the equity shares of a company whose capital is wholly or partly divided into shares, and such holding confers an entitlement to at least 5% of any two of the following:
— Right to vote
— Profits available for distribution
— Assets available for distribution on a winding up The Commissioner for Tax and Customs may determine that the above provisions are satisfied if the minimum level of entitlement exists in the circumstances referred to in the proviso to the definition of “equity holding.” See below for the definition of “equity holding.”
• A company is an equity shareholder in another company, and the equity shareholder company may at its option call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held.
• A company is an equity shareholder in a company, and the equity shareholder company is entitled to first refusal in the event of a proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company.
• A company is an equity shareholder in a company and is entitled to either sit on the board or appoint a person to sit on the board of that company as a director.
• A company is an equity shareholder that holds an investment representing a total value, as of the date or dates on which it was acquired, of a minimum of EUR1,164,000 (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days.
A holding of a company in certain partnerships, certain bodies of persons or collective-investment vehicles that provide for limited
liability of investors constituted, incorporated or registered outside Malta is deemed to constitute a participating holding if it satisfies the provisions of any of the six bullets above.
For the purposes of the above rules, an “equity holding” is a holding of the share capital in a company that is not a property company and which shareholding entitles the shareholder to at least any two of the following rights (equity holding rights):
• Right to vote
• Right to profits available for distribution to shareholders
• Right to assets available for distribution on a winding up of the company
The terms “equity shares,” “equity shareholder” and “equity shareholding” are construed in accordance with the above definition.
The Commissioner for Tax and Customs may determine that an equity holding exists even if such holding is not a holding of the share capital in a company or does not consist solely of such a holding of share capital, provided that it can be demonstrated that at any time an entitlement to at least two of the equity holding rights exists in substance.
A “property company” is a company that owns immovable property located in Malta or any rights over such property, or a company that holds, directly or indirectly, shares or interests in a body of persons owning immovable property located in Malta or any rights over such property.
A company or body of persons carrying on a trade or business that owns immovable property located in Malta or rights over such property is treated as not owning the immovable property or rights over such property if all of the following conditions are satisfied:
• The property consists only of a factory, warehouse or office used solely for the purpose of carrying on such trade or business.
• Not more than 50% of its assets consist of immovable property located in Malta.
• It does not carry on an activity from which income is derived directly or indirectly from immovable property located in Malta.
The application of the participation exemption is subject to an antiabuse provision. The participation exemption applies to participating holdings if the body of persons in which the participating holding is held satisfies any one of the following three conditions:
• It is resident or incorporated in a country or territory that forms part of the EU.
• It is subject to a foreign tax of at least 15%.
• It does not derive more than 50% of its income from passive interest or royalties.
If none of the above conditions is satisfied, both of the following two conditions must be fulfilled:
• The equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment. For this purpose, the holding of shares by a company registered in Malta in a company or partnership not resident in Malta that derives more than 50% of its income from portfolio investments is deemed to be a portfolio investment.
of a replacement asset. To the extent sales proceeds are less than the asset’s depreciated value, an additional allowance is granted. Groups of companies. A company that is part of a group of companies may surrender tax-trading losses to another member of the group. Two companies are deemed to be members of a group of companies for tax purposes if they are resident in Malta and not resident in any other country for tax purposes, and if one of the companies is a 51% subsidiary of the other or both are 51% subsidiaries of a third company that is resident in Malta. A company is considered to be a 51% subsidiary of another company if all of the following conditions exist:
• More than 50% of the subsidiary’s ordinary shares and more than 50% of its voting rights are owned directly or indirectly by the parent company.
• The parent company is beneficially entitled to receive directly or indirectly more than 50% of profits available for distribution to the ordinary shareholders of the subsidiary.
• The parent company is beneficially entitled to receive directly or indirectly more than 50% of the assets of the subsidiary available for distribution to the ordinary shareholders of the subsidiary in the event of a liquidation.
The group company surrendering the losses and the group company receiving the losses must have accounting periods that begin and end on the same dates, except for newly incorporated companies and companies in the process of liquidation.
Tax consolidation rules. With effect from accounting periods starting on or after 1 January 2019, the Consolidated Group (Income Tax) Rules allow groups to elect to form a “fiscal unit” and bring to charge the income derived by the companies within the fiscal unit on a consolidated basis of taxation. For the purposes of these rules, the term “company” includes any entity that is treated as a company, including a partnership that has elected to be treated as a company but excludes securitization vehicles and licensed finance leasing companies.
A “fiscal unit” is formed through the submission of an election made by the parent company for itself and its 95% subsidiaries to form such a fiscal unit. A 95% subsidiary is a company in which the parent company’s shareholding therein satisfies any two of the following conditions:
• The parent company holds at least 95% of its voting rights.
• The parent company is beneficially entitled to at least 95% of any profits available for distribution to its ordinary shareholders.
• The parent company would be beneficially entitled to at least 95% of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding-up.
All companies forming part of the fiscal unit must have their accounting periods beginning and ending on the same dates.
Once such a fiscal unit is formed, the parent company is treated as the principal taxpayer and is required to submit the income tax return for the whole fiscal unit. The 95% subsidiaries are treated as transparent subsidiaries and are not required to submit any income tax returns. To be in a position to submit the consolidated
income tax return, the principal taxpayer is required to prepare an audited consolidated balance sheet and profit-and-loss account covering the fiscal unit in accordance with the relevant requirements contained in the Companies Act.
In determining the chargeable income of the fiscal unit, the following rules apply:
• The principal taxpayer must bring forward in its consolidated income tax return any tax attributes carried forward by the transparent subsidiaries, such as unabsorbed capital allowances, tax trading losses and/or tax credits, and profits carried forward by the transparent subsidiaries in their respective taxed accounts other than the untaxed account in their income tax returns covering the previous year of assessment.
• The principal taxpayer is deemed to have derived all income earned by the transparent subsidiaries and entitled to claim a deduction of the expenses incurred by the transparent subsidiaries.
• Any transactions between the companies forming part of the fiscal unit must be ignored, and exemptions should remain available.
• Income derived by a transparent subsidiary that is not tax resident in Malta is deemed income attributable to a permanent establishment, which the principal taxpayer has outside Malta.
• If the principal taxpayer is a company that is not incorporated in Malta but tax resident in Malta, the principal taxpayer is subject to tax on the following:
— All income and capital gains derived by a transparent subsidiary incorporated in Malta
— All income and capital gains arising in Malta that are derived by a transparent subsidiary incorporated outside Malta
— All foreign-source income derived by a transparent subsidiary incorporated outside Malta but tax resident in Malta that is either received in or remitted to Malta
In determining the tax liability of the fiscal unit, the principal taxpayer is entitled to claim double taxation relief with respect to any tax incurred by any of the transparent subsidiaries outside Malta. The chargeable income derived by the fiscal unit is taxed at a rate that is determined by deducting from the applicable corporate tax rate the result of dividing the total amounts claimable by all members of the fiscal unit and/or persons entitled to receive distributions from the principal taxpayer by the chargeable income of the fiscal unit.
If the parent company’s shareholding in a subsidiary satisfies the relevant conditions with a percentage of 100%, the tax payment by the fiscal unit is determined in a manner that the principal taxpayer deems fit. Otherwise, the tax due by the fiscal unit may also be apportioned to a transparent subsidiary that is a 95% subsidiary but not a 100% subsidiary, in accordance with an agreement agreed to by the principal taxpayer and all the other minority shareholders.
Certain anti-abuse provisions are envisaged.
Relief for losses. Tax losses incurred in a trade or business may be carried forward indefinitely to offset all future income.
associated enterprises, including notional arrangements with permanent establishments, to make sure that these are at arm’s length. Certain carve-outs are available, such as arrangements consisting of securitization transactions and cross-border arrangements for which the aggregate arm’s-length value of the income and expenditure does not exceed the de minimis thresholds. These thresholds are currently EUR6 million for income and expenditure of a revenue nature and EUR20 million for income and expenditure of a capital nature.
The Transfer Pricing Rules also put into place unilateral transferpricing rulings (Unilateral TPRs) that are requested from the Commissioner for Tax and Customs, and bilateral or multilateral advance pricing agreements (APAs) with competent authorities of other states in agreement with the Malta competent authority. Both rulings are binding for a maximum period of five years, provided that there were not material changes. An application for a Unilateral TPR is subject to a nonrefundable fee of EUR3,000, and an application for an APA is subject to a nonrefundable fee of EUR5,000. A Unilateral TPR and an APA can also be renewed, subject to the payment of a nonrefundable fee of EUR1,000 and EUR2,000, respectively.
Whether an APA is issued is conditional on the Maltese competent authority coming into agreement with the other competent authorities, while the issuance of a Unilateral TPR is chiefly at the discretion of the Commissioner for Tax and Customs. The Commissioner for Tax and Customs is empowered to refuse the issuance of a Unilateral TPR if either the applicant is not up to date with its tax filings or, in the Commissioner for Tax and Customs’ view, the Malta Income Tax Act clearly provides sufficient certainty with regard to the tax treatment of the crossborder arrangement.
The Transfer Pricing Rules also provide a procedure allowing any directly interested party who has submitted an application for a Unilateral TPR to refer any matter relating to it, including the Commissioner for Tax and Customs’ refusal to issue a Unilateral TPR, to the Administrative Review Tribunal.
F. Treaty withholding tax rates
Under Maltese domestic tax law, dividends, interest, discounts, premiums and royalties paid to nonresidents are not subject to withholding tax. Interest and royalties paid to nonresidents are exempt from income tax in Malta if they are not effectively connected with a permanent establishment in Malta through which the nonresidents engage in a trade or business.
Under Malta’s tax treaties, the maximum tax rates applicable to dividends paid by Maltese companies to persons resident in the other treaty jurisdictions do not exceed the tax rate payable by the recipient companies in Malta.
Malta has also signed and transposed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument, or MLI). The MLI entered into force on 1 April 2019.