How does the tax system work in Malta?

Malta has a unique tax system in the European Union, which combines a nominal corporate tax rate of 35 per cent with a robust regime of full imputation and tax refunds for shareholders. This model makes the country especially attractive to foreign investors, including Portuguese entrepreneurs.

The Full Imputation System

Unlike other countries, in Malta profits distributed in the form of dividends are not taxed twice (at company and shareholder level).

How does this work?

1. The company pays corporation tax on profits (35 per cent).

2. When these profits are distributed to shareholders (in the form of dividends), the tax already paid by the company is credited to the shareholder.

3. The shareholder can then claim a partial refund of the tax paid from the Maltese state. 

4. This system avoids the economic double taxation of profits and guarantees transparency and fiscal justice, promoting foreign investment.

Tax Refund System

After receiving dividends, a non-resident shareholder of a Maltese company can request a refund of part of the tax paid by the company.

Types of refund:

• 6/7 of the tax paid, for commercial or operating income (final effective rate: ~5%).

• 5/7 for passive income (e.g. interest and royalties).

• 100%, when distributed profits result from income exempt under specific legislation.

In practical terms... 

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Conditions and Beneficiaries

1. This system applies mainly to non-resident shareholders in Malta.

2. Substance and tax compliance criteria must be met.

3. The distribution of dividends must be formally and correctly registered.

Bottom line… 

The Maltese model allows for efficient, legal and transparent tax management, making it a very advantageous solution for international entrepreneurs - especially given the double taxation agreements between Malta and Portugal, as we discussed in the last blog.