International entrepreneurs have the opportunity to achieve a very low tax rate in Malta. Is this the reason that Malta is a low-tax country? I would to examine this question in more detail in today’s post.
What is a low-tax country?
Commonly, a low-tax country is a country that charges companies a corporation tax below 20%. Some people might think now, that Germany could also be considered a low-tax country, as the corporation tax is only at 15%. However, when adding trade tax and solidarity surcharges, the tax burden increases dramatically. Classic low-tax countries within the European Union are for example Ireland and Switzerland.
Is Malta a low-tax country?
Let us now look at the question whether Malta is also considered a low-tax country. On first glance, this question can be easily answered with ‘No’. Every company that is resident in Malta has to pay a corporation tax of 35%. This places Malta in one league with other countries with the highest corporation tax, even though no other taxes are added. But how can it be, that many companies choose Malta for their company to reduce their own tax burden?
How do you get a lower tax rate in Malta?
Every company in the country has to pay 35% corporation tax, including those that are operated by international companies in order to save taxes. However, the Maltese government reimburses foreign shareholders with 6/7 of the tax. This reimbursement will be made upon request within four weeks of submitting the correct documents. This ultimately results in a tax burden of 5% on corporate level. In fact, 30% (=6/7) are being refunded. With this measure, the Maltese government hopes to attract more foreign companies to settle on the island. In the long run they want to be considered as an attractive location within the European Union.
This is the reason that Malta is sometimes referred to as a low-tax country. However this is not quite correct, because as already indicated, the 5% tax rate is a clear exception, and a kind of subsidy measure.
