Taxes in Malta for Businesses in 2024: What You Need to Know

Malta is a well-established financial and business hub in Europe, known for its favorable tax regime and extensive network of international treaties. The Maltese government has introduced several updates in 2024 to align with global tax standards and promote compliance. This article provides a detailed analysis of Malta’s tax environment, including corporate tax rates, VAT regulations, compliance obligations, and strategic considerations for businesses.

Overview of the Corporate Tax System in Malta

Malta operates a complex corporate tax system with one of the highest statutory rates in the EU at 35%. However, its full imputation system and participation exemption make the effective tax rate significantly lower for eligible businesses:

• Corporate Tax Rate: The standard corporate income tax rate is 35%. Foreign companies carrying out business activities in Malta are taxed on income arising in Malta, while local companies are taxed on their worldwide income.
• Full Imputation System: This system ensures that tax paid at the corporate level is credited to shareholders when dividends are distributed, reducing the tax burden on shareholders.
• Tax Refunds: Non-resident shareholders may claim a refund of up to six-sevenths (6/7) of the corporate tax paid, effectively reducing the tax rate to as low as 5%. This system is designed to encourage foreign investment and provide tax neutrality.
• Notional Interest Deduction (NID): Malta offers a NID scheme to incentivize the capitalization of companies. It allows companies to deduct a notional interest on equity from their taxable income, promoting equity over debt financing​(CFR.gov.mt)​(CFR.gov.mt).

Value Added Tax (VAT) and Compliance Requirements

The VAT regime in Malta is in line with EU directives and is applied to most goods and services:

• Standard VAT Rate: The standard VAT rate is set at 18%. Certain items, such as pharmaceuticals and medical equipment, are subject to a reduced rate of 5%, while other goods like financial services and real estate transactions are exempt from VAT.
• VAT Registration Threshold: Businesses with an annual turnover exceeding EUR 35,000 must register for VAT. Entities providing certain exempt services may choose to register voluntarily.
• VAT Compliance Requirements: VAT-registered businesses must file quarterly returns and remit the tax collected to the Commissioner for Revenue. The VAT e-Services platform allows for electronic filing and submission of VAT returns​(CFR.gov.mt).

Recent Developments and Compliance Requirements

In 2024, Malta introduced several amendments to its tax legislation to ensure compliance with EU and OECD regulations. Key developments include:

• Implementation of Anti-Tax Avoidance Directives (ATAD): Malta has adopted the ATAD, which includes regulations on controlled foreign companies (CFC), interest limitation rules, exit taxation, and anti-hybrid mismatch rules.
• Country-by-Country Reporting (CbCR): Malta requires multinational enterprises (MNEs) with consolidated revenues exceeding EUR 750 million to file CbCR annually, providing detailed information on the allocation of income and taxes paid across jurisdictions.
• Transfer Pricing Rules: New transfer pricing guidelines were issued to ensure that transactions between related parties are conducted at arm’s length, in line with the OECD’s recommendations​(CFR.gov.mt)​(CFR.gov.mt).

Industry-Specific Tax Incentives and Support Schemes

Malta provides a range of incentives aimed at promoting investment in key sectors, such as financial services, gaming, and manufacturing:

• Participation Exemption: Companies can benefit from a participation exemption on dividends and capital gains from qualifying investments. This exemption is applicable to holding companies that meet specific conditions regarding equity participation and holding period.
• Tax Credits for Employment Creation: To support job creation, companies can claim tax credits based on the number of new employees hired. This incentive is particularly beneficial for firms expanding their operations in Malta.
• Incentives for Startups and Innovators: Malta Enterprise, the national development agency, offers grants, tax credits, and financial support to startups and businesses engaged in innovation or research and development (R&D) activities​(CFR.gov.mt).

Historical Context and Evolution of Malta’s Tax System

Malta’s tax regime has evolved significantly over the past decades to transform the country into a competitive and compliant jurisdiction. Historically, Malta was perceived as a low-tax destination, but recent reforms have shifted the focus to transparency and compliance with international standards. This transformation was driven by Malta’s commitment to the EU and the OECD’s BEPS framework, resulting in stricter reporting obligations and the introduction of anti-abuse measures.

International Tax Considerations and Treaty Network

Malta has an extensive network of double taxation treaties with over 70 countries, based on the OECD Model Tax Convention. These treaties provide mechanisms for the elimination of double taxation and reduce withholding tax rates on cross-border payments. Companies operating in Malta can leverage these treaties to optimize their international tax position and minimize overall tax liabilities.

Strategic Considerations for Businesses

To navigate Malta’s complex tax environment effectively, businesses should consider the following strategies:

1. Leverage the Tax Refund System: Companies with non-resident shareholders should structure their operations to maximize the benefits of the tax refund system, reducing the effective tax rate significantly.
2. Optimize Use of Participation Exemption: For holding companies, the participation exemption can be a powerful tool to achieve tax neutrality on dividends and capital gains. Ensure that qualifying conditions are met to avoid disqualification.
3. Comply with Transfer Pricing and ATAD Rules: MNEs should regularly review their transfer pricing documentation and ensure that their intercompany transactions are compliant with the latest ATAD and OECD guidelines.
4. Utilize Notional Interest Deduction (NID): Companies can benefit from the NID scheme to reduce taxable income through deemed interest deductions on equity, promoting capital investments.

Pros and Cons of Doing Business in Malta

Pros:

• Competitive corporate tax rates, particularly after refunds and incentives.
• Extensive network of double taxation treaties and EU membership.
• Robust regulatory framework and commitment to international standards.
• Strategic location in the Mediterranean, serving as a gateway to Europe and North Africa.

Cons:

• High statutory corporate tax rate of 35% before applying refunds or deductions.
• Complex compliance requirements due to multiple tax incentives and obligations.
• Potential reputational risks due to past associations as a low-tax jurisdiction.
• Increasing regulatory burden as Malta aligns with EU and OECD standards.

Conclusion

Malta’s tax system continues to evolve, with new regulations aimed at promoting compliance while maintaining its attractiveness as a business hub. Companies operating in Malta must stay informed about these changes and strategically plan their operations to optimize tax efficiency and ensure compliance with local and international requirements.