Located in the heart of the Mediterranean, Malta not only unfolds its beauty through picturesque landscapes and historical treasures, but also through a unique tax system. Since 2008, Malta has refunded over 13 billion euros in income tax. This impressive sum is a testament to Malta’s progressive and investor-friendly tax climate, which is characterized by a refundable tax credit system. This system can reduce the effective tax rate on dividends distributed by companies based in Malta to up to 5%.
A closer look at Malta’s tax refund mechanism
Malta’s tax legislation is unique. Unlike many countries that offer a graduated corporate tax rate, Malta taxes companies at a fixed rate of 35% on income. However, the real highlight is when dividends are distributed to foreign subsidiaries or shareholders. Thanks to the six-sevenths rebate on tax paid, foreign investors can enjoy a significantly reduced tax burden on dividends and ultimately bear a minimum effective tax burden of 5%.
A pillar of the economy
Taxes, especially in the form of direct income taxes, play an important role in Malta’s economy. With over 43,000 tax-registered companies, the country has secured significant revenues that contribute to the national budget and finance various public services and infrastructure projects. The tax refund system, which primarily favors foreign shareholders, also enriches Maltese state coffers and highlights a symbiotic relationship between the state and international business entities. Unsurprisingly, the number of companies registering for tax refunds under this program has steadily increased over the years, with 8,012 companies currently actively engaged.
Balancing act: tax incentives and international auditing
While Malta’s tax refund system has been a source of business attraction, it has not been without criticism. Some argue that this system could encourage tax losses and reduce the tax revenues of other countries. Nevertheless, Malta’s Finance Minister has indicated a cautious approach to adjusting this framework, keeping in mind the importance to the local economy and the potential impact on the global positioning of Maltese financial services.
Outlook
As the global tax environment evolves, Malta’s experience offers valuable insights into the balancing act between providing attractive tax incentives and complying with international tax standards. For investors and companies looking to optimize their tax position, Malta remains a jurisdiction that should be considered.
