In today’s global economy, businesses seek tax-efficient strategies to increase profitability. The right jurisdiction can greatly influence a company’s financial success.
As a full EU member since May 2004 and despite its consideration as a tax haven, Malta provides EU-compliant and approved company structures, making it an ideal choice for international business, investment, and financial services.
Malta’s favorable business and low tax environment make it a premier destination for European onshore and offshore business and company incorporation.
This article delves into Malta’s taxation system, company setup procedures, key regulations, and the reasons it stands out among other jurisdictions due to its tax refund system that triggers and effective Corporate Income Tax rate of 5% for most of the taxpayers.
If you want to set up your company or get tax-related services in Malta, TaxMove provides detailed services efficiently.
Malta Tax Rates
Corporate Income Tax in Malta
In Malta, companies are subject to a 35% Corporate Income Tax (CIT). However, according to the tax refund system, upon a profit distribution of a Maltese entity, Maltese and non-resident shareholders can claim a refund of the CIT paid by the Maltese entity. This refund can reduce the effective tax rate to 0-10% depending on the refund amount and whether a double taxation relief has been claimed at the level of the Maltese entity.
The most common tax refund is 6/7ths of the taxable profits triggering a CIT effective tax rate of 5%.
The refund typically goes to the personal bank account of the shareholder. Thus, a non-resident shareholder may face taxation in its home country once the refund has been made. In this scenario, we recommend implementing a two-tier structure under the tax unity regime to avoid home country taxation. This approach also shortens the refund waiting period.
It is worth mentioning that according to ATAD 1, Malta has implemented Controlled Foreign Company (CFC) rules. However, CFC Companies and Permanent Establishments are excluded from the application of these rules if: (i) their accounting profit does not exceed EUR 750,000 and non-trading income does not exceed EUR 75,000; or (ii) accounting profits amount to no more than 10% of operating costs for the tax period. Furthermore, CFC rules are not applicable when the CFC entity is resident in the European Economic Area.
Withholding Tax
Malta does not impose withholding taxes on interest, royalties and dividends, making it an attractive jurisdiction for foreign investors.
Malta VAT Rate
Malta’s standard VAT rate is set at 18%, which applies to most goods and services. However, there are reduced VAT rates for specific categories:
- 7% for tourist accommodation and use of sporting facilities.
- 5% for items such as electricity, confectioneries, medical accessories, domestic care services, printed products, tickets to museums and art galleries, and minor repair services for shoes and clothing.
VAT registration is mandatory for companies that meet the annual threshold of 35,000 Euro.
Stamp Duty
Stamp duty in Malta applies to various transactions, notably 5% for real estate and 2% for marketable securities.
This tax is crucial for property and financial dealings.
Other Benefits for Tax Planning Strategies
Participation Exemption Regime:
Malta offers one of the best Holding Company Regimes in the EU, where 100% of the dividends received from a foreign subsidiary and the capital gain triggered upon the sale of the subsidiary, are exempt, provided certain requirements are met.
Tax Credits and Incentives:
Malta offers various tax credits and incentives to promote economic growth and attract foreign investment. These include tax credits for research and development (R&D), investment in qualifying intellectual property (IP), and job creation.
Group Taxation:
Consolidated group taxation rules allow companies within a group to be taxed as a single entity, providing opportunities for tax optimization.
Double Tax Treaties:
Malta has signed 81 Double Tax Treaties (DTTs) with different jurisdictions across the globe. These DTTs provide mechanisms for the elimination or reduction of double taxation on various types of income including, dividends, interests, and royalties making Malta an attractive jurisdiction for international tax planning strategies.
Malta Company Setup
Setting up a business presence in Malta involves more than just incorporation. Businesses must consider various factors to ensure operational success and compliance with local laws.
Choosing the Right Legal Structure for your Business
Private Limited Liability Company (Ltd):
The most common legal structure offers limited liability protection to shareholders and flexibility in management.
Public Limited Liability Company (plc):
Suitable for larger enterprises seeking to raise capital through public investment.
Partnership:
Ideal for small businesses with multiple partners sharing profits and liabilities.
Branch Office:
For foreign companies wishing to establish a presence in Malta without incorporating a separate legal entity.
Benefits of Registering a Company in Malta
Malta offers several benefits for company registration, including
- A strategic location within the EU
- A favorable tax regime
- Access to EU markets
- A growing legal framework that protects investors’ interests.
Malta Company Incorporation
With its favorable regulatory environment and strategic location within the European Union (EU), Malta offers a streamlined process for incorporating companies and attracting entrepreneurs and investors.
Role of Malta Business Registry (MBR)
The Malta Business Registry serves as the central repository of company formation in Malta. It provides public access to corporate records, facilitating transparency and due diligence for investors and stakeholders.
The MBR oversees company registrations and ensures compliance with local laws.
Required Documents
Businesses need to provide the following documents:
- Identification documents for shareholders and directors
- A registered office address in Malta
- A memorandum and articles of association
The experts at TaxMove prepare documents and fulfill regulations on your behalf.
Steps Involved in Incorporating a Company in Malta
Choose a Legal Structure:
Decide on the most suitable legal structure for your business, such as a private limited liability company (Ltd), public limited liability company (plc), partnership, or branch.
Draft Articles of Association:
Prepare the articles of association outlining the company’s internal rules and regulations, including details on share capital, management structure, and shareholder rights.
Appoint Directors and Company Secretary:
Identify and appoint directors who will manage the company’s affairs. A company secretary must also be appointed to handle administrative duties and ensure compliance with statutory requirements.
Register with Malta Business Registry (MBR):
Submit the necessary documents, including the articles of association, proof of identity for shareholders and directors, registered office address in Malta, and a memorandum of appointment for the company secretary to the MBR.
Obtain Tax Identification Number (TIN):
Upon successful registration, obtain a Tax Identification Number (TIN) from the Maltese tax authorities (Malta Inland Revenue Department) for tax purposes.
Open a Bank Account:
Open a corporate bank account in Malta to facilitate business transactions and comply with financial regulations.
Legal Requirements and Timelines
Share Capital:
Private companies do not have a minimum share capital requirement. Public companies, however, must have a minimum share capital of 46,587.47 Euro or its equivalent in other currencies.
Timeline:
The incorporation process typically takes 5-7 working days once all required documentation is submitted to the MBR. Delays can occur if documents are incomplete or if additional information is requested.
Cost Considerations for Company Incorporation
Government Fees:
Fees payable to the Malta Business Registry for registration and other administrative processes.
Legal Fees:
Costs associated with legal advice and assistance in drafting documents and ensuring compliance with local regulations.
Annual Fees:
Ongoing costs such as renewal fees for maintaining the company’s status and compliance with regulatory requirements.
The cost of opening a company in Malta typically ranges between €1,500 and €3,500, though it can vary depending on each case.
How Can TaxMove Help You?
With its competitive tax rates and favorable business environment, Malta is perfect for businesses aiming to reduce taxes and increase profits.
Malta is one of our favorite countries to incorporate an entity due to the lowest effective CIT rate in the European Union with the exception of the Micro-Enterprise regime in Romania.
The tax and business setup experts at our international tax firm, help you set up or optimize your business in Malta.
Our team manages your company’s tax-related affairs in compliance with regulatory authorities’ legislation.
We also ensure compliance with local tax laws and strategic planning to maximize efficiency and minimize risks in your business.
Submit the form to get tailored advice from our experts
How does Malta's tax refund system reduce the effective Corporate Income Tax rate?
- Companies are initially subject to a 35% Corporate Income Tax (CIT).
- Shareholders can claim a refund of the CIT paid, typically 6/7ths of the taxable profits.
- The refund tipically reduces the effective CIT rate to 5%.
- Refunds are paid to the shareholder’s personal account, potentially subject to home country taxation unless a tax group is implemented.
This system makes Malta’s tax environment highly attractive for businesses.
What are the tax benefits of incorporating a company in Malta?
- Low Effective Tax Rate: Corporate Income Tax can be reduced to 5% through Malta’s tax refund system.
- No Withholding Taxes: No taxes on interest, royalties, and dividends.
- Participation Exemption: 100% exemption on dividends and capital gains from foreign subsidiaries.
- Tax Credits and Incentives: Available for R&D, IP investment, and job creation.
- Group Taxation: Companies within a group can be taxed as a single entity.
Malta offers a favorable tax regime and strategic advantages within the EU.
What are the steps and requirements for setting up a business in Malta?
- Choose a Legal Structure: (Ltd, plc, partnership, branch).
- Draft Articles of Association.
- Appoint Directors and Company Secretary.
- Register with Malta Business Registry (MBR).
- Obtain a Tax Identification Number (TIN).
- Open a Bank Account in Malta.
Required Documents:
- ID for shareholders and directors
- Registered office address
- Memorandum and articles of association
What is the cost of a company in Malta?
Setting up a business in Malta typically involves costs ranging from €3,000 to €4,500.
This range varies depending on the type of business structure and the activities planned. Opting for a “double” structure with a holding company may increase costs due to additional incorporation requirements.
