Malta's corporate tax refund system explained
Malta taxes companies at 35%, and then refunds most of it to the shareholder. Here is how the mechanism works, who qualifies, and what the effective rates actually are.
Malta's headline rate of corporate income tax is 35%, one of the highest in the European Union on paper. The reason the country is a serious jurisdiction for holding and trading companies is what happens after the tax is paid: Malta runs a full-imputation system under the Income Tax Act (Chapter 123 of the Laws of Malta), and on the distribution of a dividend the shareholder may claim a refund of a large part of the tax the company paid.
How the imputation system works
A Maltese company pays tax at 35% on its chargeable income and allocates the profits to one of five tax accounts, depending on their source: the Final Tax Account, the Immovable Property Account, the Foreign Income Account, the Maltese Taxed Account and the Untaxed Account. When the company distributes a dividend out of the Maltese Taxed Account or the Foreign Income Account, the shareholder receives the dividend with an imputation credit for the tax already paid, and may apply for a refund of part of that tax.
The refund is claimed by the shareholder, not the company, and is paid by the Malta Tax and Customs Administration after the dividend has been distributed and the company's tax has been settled.
The four refund rates
- 6/7 refund: the general case, for trading income. Of the 35% paid, six sevenths are refunded, leaving an effective rate of 5%.
- 5/7 refund: for passive interest and royalties, that is, income not derived from a trade or business and not subject to foreign tax of at least 5%. Effective rate of 10%.
- 2/3 refund: where the company has claimed double-taxation relief on the same income. The effective rate then depends on the foreign tax credited.
- 100% refund: for dividends and gains derived from a participating holding that meets the participation exemption conditions, where the company chose to pay tax rather than apply the exemption.
The fiscal unit alternative
Since 2019, a Maltese parent company and its subsidiaries may elect to form a fiscal unit under the Consolidated Group (Income Tax) Rules. The unit files one consolidated return and pays tax at the effective rate directly, so that the group is not funding a 35% payment and waiting for a refund. For groups that meet the conditions, this replaces the cash-flow cost of the refund system with a single 5% liability.
Who the refund is for
The refund system is open to shareholders whether resident in Malta or not, but it was designed with international shareholders in mind: a non-resident shareholder receiving a dividend from a Maltese company pays no Maltese withholding tax on it, and the refund is paid gross. Substance matters. The company must be a genuine Maltese company with its own management, and the anti-avoidance rules that apply across the EU, including the controlled foreign company rules Malta adopted under the Anti-Tax Avoidance Directive, are applied by the shareholder's own country of residence.
What it costs to run
The refund system only works for a company that files its accounts and tax return on time. A late tax return delays the refund; unaudited accounts block it. The annual cycle of a Maltese company, covered in a separate guide, is the operational side of a 5% rate.
Frequently asked questions
- Is the effective corporate tax rate in Malta really 5%?
- For trading income distributed to shareholders, yes: the company pays 35% and the shareholder receives a 6/7 refund, leaving 5%. Passive interest and royalties leave 10%. The refund requires a distributed dividend and a company whose accounts and returns are in order.
- Who receives the tax refund, the company or the shareholder?
- The shareholder. The refund is claimed by the recipient of the dividend after the company has paid its tax and distributed the profits. A fiscal unit election lets a group pay the effective rate directly instead.
- Does Malta withhold tax on dividends paid abroad?
- No. Malta charges no withholding tax on dividends, interest or royalties paid to non-residents, subject to the anti-abuse rules of the recipient's own jurisdiction.