Tax Advantages of Establishing a Company in Malta

In recent years, Malta has emerged as an attractive destination for companies seeking to benefit from favorable tax regulations. One of the primary reasons is the effective corporate tax rate of just 5%, allowing businesses to achieve substantial savings. Here, we take a closer look at Malta’s tax system and the advantages it offers to companies.

Overview of the Maltese Tax System

Officially, Malta applies a corporate tax rate of 35% on company profits, one of the highest in the EU. However, shareholders can apply for significant tax refunds under certain conditions. This unique arrangement results in an effective tax rate of just 5% when profits are distributed to shareholders.

The mechanism is based on a tax credit system designed to avoid the double taxation of profits. Under Maltese law, shareholders are entitled to a tax refund of up to 6/7 of the corporate tax paid, significantly reducing the effective tax burden.

How the Tax Mechanism Works

1. Corporate Tax Collection : Companies in Malta initially pay the full 35% tax rate on their profits.
2. Dividend Distribution : When profits are distributed to shareholders, they can claim a tax refund.
3. Tax Refund : Shareholders can receive a refund of up to 6/7 of the paid tax, reducing the effective tax rate to about 5%. For specific types of income, such as royalties or passive interest, the refund may be limited to 5/7 or 2/3.

This system makes Malta particularly appealing for holding companies and international businesses operating globally, enabling them to leverage the benefits of Malta’s tax policies.

Additional Tax Advantages in Malta

Beyond the 5% effective corporate tax rate, Malta offers several other tax benefits:

1. No Withholding Tax : Dividends, interest, and royalties paid to non resident shareholders are exempt from withholding tax.
2. Double Taxation Treaties : Malta has an extensive network of over 70 double taxation agreements, ensuring income is not taxed twice.
3. EU Membership : As a full EU member, Malta provides access to all benefits of the European single market.
4. Exemption on Capital Gains : Profits from the sale of shares may be exempt from tax under certain conditions.
5. Attractive VAT System : Depending on the sector, companies may benefit from reduced VAT rates or exemptions.

Types of Companies and Industries That Benefit

Certain industries and corporate structures are particularly well suited to benefit from Malta’s tax advantages:

Holding Companies : Dividend and capital gains from qualifying holdings are tax exempt under the participation exemption.
Financial Services : Banks, insurance companies, and investment funds benefit from regulatory stability and tax advantages.
iGaming and Tech Firms : Malta, a hub for iGaming and digital innovation, offers tax incentives and modern infrastructure for these sectors.
Shipping Industry : With one of the world’s largest shipping registries, Malta provides substantial tax benefits for maritime companies.

How to Set Up a Business in Malta

Setting up a company in Malta is relatively straightforward. The key steps include:

1. Choosing a Legal Structure : The most common form is a Private Limited Company (Ltd).
2. Company Registration : Register with the Malta Business Registry (MBR).
3. Tax Registration : Obtain a Maltese tax identification number.
4. Opening a Bank Account : A local bank account is required to deposit the minimum capital.

Regulatory Requirements and Compliance

Businesses in Malta must adhere to strict compliance and reporting obligations, including:

Annual Tax Returns : Companies must file tax returns and pay taxes on time.
Accounting Standards : Detailed bookkeeping is required, and financial statements must be audited by a Maltese auditor.
Economic Substance : To qualify for tax benefits, companies must demonstrate genuine economic activity in Malta.

Criticism and International Perspectives

While Malta offers attractive tax conditions, it has faced international scrutiny. Critics argue that the system enables large corporations and wealthy individuals to significantly reduce their tax burdens. However, the Maltese government emphasizes that its tax system is fully compliant with international standards and promotes transparency.

In combination with other EU countries like Spain (Beckham Law, flat tax rate of 24%), Portugal (NHR status, flat tax rate of 20%), and Italy (Non Dom scheme, flat tax rate of €100,000), Malta serves as an ideal location. By relocating residency to one of these EU nations, individuals can take advantage of local tax friendly regulations while benefiting from Malta’s low effective corporate tax rate of 5% on business profits.

Conclusion

Malta’s effective corporate tax rate of 5% positions it as one of Europe’s most attractive business hubs. The combination of a favorable tax environment, political stability, and a well developed regulatory framework offers significant advantages for international companies. However, it is essential to comply with regulatory requirements and monitor potential legal developments. Businesses interested in leveraging Malta’s tax benefits should seek professional advice to ensure compliance with all legal and tax obligations.

Our experienced team is here to assist you in establishing the optimal corporate structure, including operational and holding companies in 2025 in Malta. Contact us for a consultation today.

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5% Effective Rate - Tax Advantages of Establishing a Company in Malta