Published on and written by Cyril Jarnias
Incorporating a company in Malta is as intriguing as it is appealing. On paper, the country has the highest corporate tax rate in the European Union, 35%. Yet, many international groups and entrepreneurs achieve, in practice, an effective tax level that can drop to 5%, and even 0% for certain holding activities. The gap is explained by a very specific mechanism: the full imputation system and tax refunds at the shareholder level.
Malta applies VAT aligned with the European directive (standard rate of 18% with several reduced rates) and offers an attractive regime for dividends and holdings through a participation exemption. This atypical tax environment remains compliant with EU and OECD requirements.
This article provides a comprehensive overview of the taxation of a company in Malta, focusing on three pillars: corporate tax, VAT, and treatment of dividends.
A Unique but Regulated Tax System
Malta does not have a standalone “corporate tax”: legally, companies are taxed under the same income tax as individuals, but at a fixed rate of 35%. This rate applies to the chargeable income, which includes operating profits and capital gains.
Resident and domiciled companies in Malta are taxed on their worldwide income, while non-resident companies are taxed only on Malta-source income, subject to international tax treaties. The legal framework is based on the Income Tax Act (Cap. 123) and the Income Tax Management Act (Cap. 372), under the oversight of the Commissioner for Revenue (CFR).
Before joining the EU, the country had to demonstrate the compatibility of its system with the EU Code of Conduct for Business Taxation and with OECD standards. A 2006 agreement with the European Commission allowed the core of the full imputation system to be preserved while opening it up to all Maltese companies, not just internationally oriented structures. The current rules are therefore the result of a compromise: a highly competitive system, but formally compliant with EU law and state aid rules.
The Key Principle: Full Imputation of Tax
The Maltese specificity lies in its full imputation system applied to profits distributed as dividends. In practice, the company first pays 35% tax on its profits. When it distributes these profits to its shareholders, the tax already paid becomes a tax credit attached to the dividend.
Under the Maltese system, profits are taxed at the company level at 35%, but the shareholder receives a full imputation credit for this tax paid. Since this rate corresponds to the top marginal rate for individuals, the dividend is generally not subject to additional tax, thereby eliminating economic double taxation.
This mechanism applies to dividends distributed from profits held in certain internal “tax accounts” (Maltese Taxed Account, Foreign Income Account, etc.), which track the nature and origin of profits. The structure of these accounts is important, as it conditions the right to a refund.
How a Maltese Company’s Tax Accounts Work
To make refunds manageable, Malta requires companies to allocate their taxed profits into different accounts:
| Tax Account | Main Content | Shareholder’s Right to Refund |
|---|---|---|
| Maltese Taxed Account (MTA) | Profits taxed at 35% from Maltese source or not allocated elsewhere | Yes (6/7, 5/7, or 2/3 depending on income type) |
| Foreign Income Account (FIA) | Foreign-source income (dividends, interest, royalties, capital gains) | Yes (6/7, 5/7, 2/3, or 100%) |
| Final Tax Account (FTA) | Income already subject to a withholding or final tax regime | No (no credit or refund) |
| Immovable Property Account (IPA) | Income related to property situated in Malta | No refund under the international regime |
| Untaxed Account (UA) | Profits not yet taxed in Malta | No credit or refund, but possible withholding rules |
Dividends taken from the MTA and FIA accounts are treated as profits taxed at 35% and qualify for the full imputation mechanism, and then potentially for partial or full refunds.
The Refund System: 35% “Theoretical,” 5% “Effective”
The main appeal of Malta for international companies stems from this: after the company pays tax at 35%, shareholders can request a significant portion of this tax to be refunded when dividends are distributed. This refund is paid in cash by the Commissioner for Revenue, usually within two weeks of filing a complete application.
The refund rate depends on the nature of the income distributed and the possible use of international tax credit mechanisms. In practice, three levels dominate:
| Nature of Distributed Income | Fraction Refunded to Shareholder | Net Maltese Tax on Profit | Approximate Effective Rate |
|---|---|---|---|
| Trading income (business profits) | 6/7 of 35% | 1/7 of 35% | 5% |
| Passive interest and royalties | 5/7 of 35% | 2/7 of 35% | 10% |
| Profits covered by an international tax credit | 2/3 of 35% | 1/3 of 35% | ~12.5% (before treaty credit) |
For certain qualified participating income, or when the participation exemption applies, the effective rate can be brought to 0%, either through direct exemption or through a full refund of the 35%.
The 6/7 Refund on Trading Profits
The most common case concerns trading activities: service provision, e-commerce, industry, etc. The company pays its tax at the nominal rate of 35% on net profit. Once a dividend is distributed, the non-resident (or resident but not domiciled) shareholder can claim a refund of six-sevenths of the Maltese tax attributable to those profits.
A simple example illustrates the result well
– A Maltese company realizes 100 units of trading profit.
– It pays 35 units of tax in Malta.
– It distributes the balance (65 units) to its shareholder.
– The shareholder files a refund claim and receives 6/7 of 35, i.e., 30 units.
– Ultimately, the tax retained by the Maltese Treasury is 5 units out of 100, i.e., 5%.
Practical cases from international practice show the scale of the mechanism. A Maltese IT services company generating €500,000 in profit theoretically pays €175,000 in tax. After distribution and a 6/7 refund to its non-resident shareholder, the net tax cost in Malta drops to €25,000, or 5% of €500,000.
For companies held by holdings in other countries (e.g., a Cypriot holding), the pattern is similar: the Maltese subsidiary pays the 35%, the holding claims a 6/7 refund, and the net Maltese tax remains 5% of the profit.
5/7 Refund for Passive Interest and Royalties
When profits come primarily from passive income such as interest or royalties (e.g., intellectual property licenses or financial investments not related to operational activity), the refundable fraction is limited to 5/7 of the tax paid in Malta. The remainder represents a net tax of approximately 10%.
This regime prevents purely financial structures from being taxed at the same level as substantive economic activities, while maintaining competitiveness compared to other European jurisdictions where such income is taxed at the standard rate.
2/3 Refund in Case of International Tax Credit
When the Maltese company has already used a double taxation relief mechanism (unilateral tax credit, treaty credit, Flat Rate Foreign Tax Credit, etc.), the refund to the shareholder is capped at two-thirds of the Maltese tax. The aim is to prevent the same income fraction from benefiting from both a foreign tax credit and an overly generous refund in Malta.
In this case, on 100 of profit:
– the company pays 35 in Maltese tax (after possible application of the foreign credit),
– the shareholder can recover 2/3 of 35, i.e., just over 23,
– the net tax retained by Malta stands at around 12.5% of profit, even before the effect of the foreign credit in the shareholder’s country of residence.
Participation Exemption: Holdings and 0% Effective Rate
Beyond operational companies, Malta is also positioned as a holding hub. The participation exemption regime allows full exemption on dividends and capital gains received from a qualifying subsidiary (participating holding), either at the company level or, equivalently, at the shareholder level through a full refund.
For a holding to qualify, several conditions are cumulative or alternative. First, the Maltese company must hold at least 5% of the shares of the subsidiary (voting rights, profit rights, or asset rights upon liquidation, as applicable), and the holding must be of a durable nature, not held as mere trading stock.
No safety valve is mentioned for dividends in the provided content
– the subsidiary is resident or incorporated in an EU Member State;
– the subsidiary is subject in its country to a tax of at least 15%;
– less than 50% of its income comes from passive interest or royalties.
If not, another combination of conditions applies: the holding must not be a pure portfolio investment and the passive interest or royalties of the subsidiary must be subject to a foreign tax of at least 5%.
When these criteria are met, the Maltese company can choose between:
In Malta, dividends and capital gains can be either fully exempted (0% effective rate) or subject to 35% tax then fully refunded to shareholders, achieving the same economic outcome.
If the holding does not meet all the criteria but remains a “substantial” holding, the 6/7 or 5/7 refund regimes may continue to apply, bringing the effective rate to 5% or 10%.
This regime is central for international holding structures: a Maltese holding can, for example, receive dividends from a qualified European or non-European subsidiary without tax in Malta, then redistribute these amounts to its non-resident shareholders, without local withholding tax and often without additional taxation in the intermediate holding’s country if domestic conditions are met.
FITWI: A 15% Alternative Without Refunds
To simplify life for certain taxpayers and align with international discussions around a minimum rate of 15%, Malta introduced an alternative regime: the Final Income Tax Without Imputation (FITWI). This regime, stemming from a Legal Notice (188 of 2025), offers a “second rail” parallel to the classic system.
The principle is simple: the company opts for a final levy of 15% on its taxable income, calculated under the same rules as the ordinary system. No imputation credit attaches to dividends, no refund is possible. The tax paid at 15% is final, for both the company and its shareholders.
Several points are important:
The FITWI option is voluntary, binds the company for at least five years, requires a five-year return after abandonment, and prohibits any tax payment lower than the classic system net of refunds.
In practice, FITWI is mainly intended for groups for which the refund mechanism is less relevant or which, due to international rules (Pillar Two, minimum taxes in other states), no longer have an interest in targeting a rate below 15% in Malta. For most SMEs or internationally oriented service companies, the “35% + 6/7 refund” combination remains more advantageous.
VAT: A Fully EU-Aligned System at 18%
On the VAT front, Malta applies the European Directive (2006/112/EC) and transposes common rules on place of taxation, exemptions, and special regimes. The Value Added Tax Act (Chapter 406) sets out the rules defining taxable transactions, exemptions, and applicable rates.
The standard VAT rate is 18%, placing Malta among the countries with the lowest normal rate in the EU, while remaining within the required range. This rate applies by default to most consumer goods and common services, including digital services, consulting, hospitality (unless specially rated), electronics, etc.
Different VAT Rates in Malta
The Maltese system provides several levels of taxation:
| Rate Type | Level | Main Categories Concerned |
|---|---|---|
| Standard rate | 18% | “Ordinary” goods and services, domestic B2B services, local B2C e-services |
| Reduced rate | 7% | Accommodation in licensed hotels and tourist establishments, use of sports facilities |
| Reduced rate | 5% | Electricity, confectionery and certain foods, medical accessories, printed publications, small repairs, home care services, museum and cultural event access |
| Reduced rate | 12% | Management and custody of securities, certain credit and guarantee services, short-term rental of pleasure boats, certain body care services |
| Zero rate (0%) | 0% | Basic foodstuffs, pharmaceutical products, international or inter-island passenger transport, exports outside the EU, intra-community supplies to taxable customers |
The zero rate (0%) differs from “exempt without deduction” exemptions: zero-rated transactions allow recovery of input VAT on purchases necessary for the activity, whereas exempt transactions without credit (certain financial, health, education services, etc.) do not allow such recovery.
Exemptions and Specific Sectors
As in the rest of the EU, Malta applies many exemptions “without credit” on certain services considered of general interest or of a financial nature, notably:
– financial and insurance services (within the limits defined by law);
– healthcare provided by authorized medical personnel;
– recognized education and teaching;
– long-term residential leases;
– public postal services.
In these cases, the business providing such services does not charge VAT but cannot recover the VAT paid on its common expenses, creating a form of hidden cost.
Conversely, exports of goods outside the EU, intra-community supplies to taxable customers, and certain international services are zero-rated: no VAT collected, but full deduction right on expenses.
VAT and Digital Services
Companies based in Malta providing electronic services (SaaS, digital content, platforms, online gaming, etc.) are subject to European place-of-taxation rules. For B2C electronic services, VAT is generally due in the customer’s country. The Maltese company must therefore potentially apply the VAT rate of the customer’s EU Member State and use the One-Stop Shop regimes (OSS/IOSS) to declare and remit the tax.
For B2B services within the EU, the reverse charge mechanism generally applies at the professional customer level. Domestic B2B digital services remain subject to the Maltese rate of 18%.
Furthermore, Malta has recently clarified the classification of certain payment and transaction processing services to determine whether they are exempt as financial services or taxable at 18%, with a corresponding deduction right. The key criterion is whether the service provider acts as an essential step in a fund transfer, without ever taking possession of the amounts.
Registration Options and Thresholds
Businesses with turnover below certain thresholds (€35,000 for mainly goods activities, €30,000 for services) can opt for an exemption regime (article 11). In this case, they do not charge VAT but cannot recover input VAT on their purchases. Above certain thresholds, or in case of intra-community acquisitions exceeding €10,000, specific registrations are required (articles 10 and 12).
Dividends: No Withholding and the Role of Tax Accounts
On the distribution side, one of the major advantages of the Maltese system is the almost total absence of withholding tax on dividends, whether paid to residents or non-residents. Except in very targeted cases, a dividend leaving Malta is therefore paid gross, without local deduction.
No Withholding Tax on “Standard” Dividends
The general rule is as follows: dividends distributed by a Maltese company to its shareholders, whether individuals or legal entities, resident or non-resident, are not subject to withholding tax. This absence of withholding is in addition to the fact that, thanks to full imputation, there is also, in principle, no additional taxation for Maltese residents when the dividend comes from profits already taxed at 35%.
This treatment applies to dividends from a Maltese company to a foreign holding company, subject to the internal rules of the holding’s country and applicable tax treaties.
Exception: Distributions from the “Untaxed” Account
An important exception concerns dividends distributed from the Untaxed Account (UA), i.e., profits not yet subject to Maltese tax. When these dividends are paid to certain beneficiaries, the Maltese company must withhold 15% at source.
Notably affected are:
List of categories of individuals or entities subject to specific Maltese regulations
Individuals resident in Malta, except companies.
Certain non-residents controlled by or acting on behalf of individuals domiciled and resident in Malta.
Residents of the EU/EEA declaring that at least 90% of their worldwide income comes from Malta.
Certain trusts whose beneficiaries fall into the above categories.
In contrast, dividends taken from the UA account and paid to non-resident companies, or to non-resident individuals not linked to Maltese residents under the rules, may escape this withholding.
Dividends Received by Maltese Companies
When a Maltese company receives a dividend from another Maltese company, that dividend forms part of its gross taxable income. However, if the distributed profits had already been taxed in Malta, no additional tax is due on this dividend in the hands of the receiving company. If, on the other hand, the distribution comes from untaxed profits, the dividend may be exempt, but its allocation between tax accounts must be properly managed for future distributions.
Anti-Abuse, Participation, and EU Compatibility
The Maltese system, while seemingly very generous, is accompanied by a set of anti-abuse rules inspired notably by the ATAD directive. A general anti-abuse clause (GAAR) allows the administration to recharacterize artificial or fictitious schemes primarily aimed at obtaining a tax advantage. Specific rules target the abusive use of the participation regime, foreign tax credits, or distribution orders.
Malta has implemented Controlled Foreign Company (CFC) rules that target passive income (interest, royalties, dividends) of subsidiaries located in low-tax jurisdictions. These rules apply when the subsidiary is taxed less than in Malta, unless it has a real economic activity with sufficient personnel, premises, and equipment.
These adjustments demonstrate a desire to regulate the use of the system: Malta defends its model of low effective taxation combined with a high nominal rate, but seeks to prevent purely artificial structures that could trigger European litigation.
Interaction with Personal Taxation and the Remittance Basis
Although the central subject remains corporate taxation, it is worth mentioning the interaction with individual income tax. In Malta, personal income tax is progressive from 0% to 35%, with the top rate applying above a certain annual income threshold.
Resident domiciled individuals are taxed on their worldwide income. Resident non-domiciled individuals are taxed only on Maltese income and foreign income remitted to Malta; foreign capital gains are never taxed, even if remitted. This advantageous regime attracts international entrepreneurs receiving foreign or Maltese dividends.
In this context, a non-dom shareholder can combine:
– dividends from Maltese companies taxed at 35% then subject to refund (net 5% or 0% for certain holdings);
– no additional personal taxation on these dividends in Malta;
– possibly, no taxation in their home country if they are no longer tax resident there or if domestic rules provide for exemption or full credit.
VAT and Structuring of International Activities
For companies operating internationally from Malta, VAT plays a major role in determining the place of taxation and in recovering tax on investments.
Maltese companies invoicing customers outside the EU or taxable persons in the EU benefit from zero-rated or reverse-charge transactions, while recovering VAT on their local costs (rent, services, equipment). In practice, a company selling mostly outside Malta can achieve an effective tax rate of 5% and near-VAT neutrality, explaining the appeal for the services, gaming, fintech, and platform sectors.
Financial service providers or certain healthcare players, however, must contend with VAT exemptions “without credit,” which block the recovery of input tax on their general expenses. Malta has recently adjusted the scope of these exemptions and introduced reduced rates of 12% for certain services (custody of securities, third-party credit management, body care services provided outside the strict scope of medical care), aiming to fine-tune the balance between tax cost and neutrality.
Effectiveness Conditional on Substance and Rule Compliance
Malta does not offer a simple automatic “5% rate.” The real picture is more nuanced. On one hand, the country displays a high theoretical corporate tax rate (35%) and a standard VAT rate of 18%. On the other hand, a sophisticated set of tax credits, refunds, and exemptions allows a very significant reduction in the burden, particularly for international groups and holding activities.
The effectiveness of these mechanisms depends on several conditions:
To benefit from the Maltese regime, it is imperative to demonstrate a real activity in Malta (registered office, effective management, personnel, premises), maintain proper internal tax accounts (MTA, FIA, etc.), and comply with distribution formalities. Structures must be compatible with Maltese, European, and shareholder country anti-abuse rules, while aligning with tax treaties and the global minimum rate of 15% for large groups.
In this framework, Taxation of a Company in Malta: Corporate Tax, VAT, and Dividends is not simply a promise of an ultra-low “flat tax,” but rather a sophisticated environment where the 35% displayed is only a starting point. For a genuinely established company, with dividend flows and a well-thought-out international structure, the effective rate between 0% and 5% on trading and participation profits is realistic, provided the rules are mastered and credible substance is maintained on the ground.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
