Maltese corporate income tax is charged at 35 percent on the worldwide profits of a company resident in Malta. This headline rate is one of the highest in the EU and is frequently misunderstood: it is deliberately set high because the Maltese tax system is built on the imputation principle. The 35 percent is not a final burden but the basis for the subsequent tax refund to shareholders. For trading income, shareholders who are not resident in Malta receive a refund of 6/7, resulting in an effective tax rate of around 5 percent.
Malta taxes companies on the worldwide income principle: a company resident in Malta is taxable on its entire worldwide income. Tax residence depends on whether the company was incorporated in Malta or whether its management and control are exercised in Malta. Companies incorporated in Malta are automatically tax resident. The charge covers trading income, capital gains, interest and royalties. No separate withholding tax arises on dividends paid by one Maltese company to another.
The effective tax burden of a Malta structure depends on several factors: the type of income (active versus passive), the residence of the shareholders, the applicability of double taxation treaties and compliance with the substance requirements. The 5 percent is not automatic - it requires a correct structure, timely refund claims with the Commissioner for Revenue and full compliance. Entrepreneurs should also budget for the running costs of accounting, audit and regulatory compliance, which in small structures can consume a disproportionate share of the tax saving.
