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A Maltese private limited company (MaltaCo) is a highly flexible structure, ideal for various activities – whether you’re running an active business, holding assets, managing investments, or offering consulting, digital, IP or other services. Its adaptability, paired with Malta’s investor-friendly environment and strong digital infrastructure, makes it a popular choice among entrepreneurs, investors, and international clients.
What truly sets Malta apart is its distinctive corporate tax refund system. Shareholders of a MaltaCo can benefit from a 6/7th refund on the corporate income tax paid – provided that dividends are distributed – bringing the effective tax rate down to just 5%, one of the lowest in Europe. Additionally, Malta does not impose any withholding tax on outbound dividends, making it especially attractive for international shareholders.
In this article, we’ll walk you through eight key points to consider when paying dividends from MaltaCo. Understanding these factors is essential for making informed decisions that comply with Maltese regulations and align with your personal or international tax situation. These insights will help you plan more strategically and distribute profits in a tax-efficient manner.
Sooner or later, most of our clients operating through a MaltaCo will reach the stage where they want to withdraw earnings and enjoy the rewards of their efforts. Typically, this takes the form of a dividend distribution. Knowing how to approach this process efficiently while remaining fully compliant with both Maltese and international tax regulations is crucial for effective financial planning.
Here are eight key tips to keep in mind when you’re preparing to pay dividends from your MaltaCo:
1 Dividends Can Only Be Paid Out from Retained Earnings
A dividend is the distribution of a company’s profits to its shareholders. This means that your MaltaCo must have generated profit in previous periods and retained those earnings in order to pay dividends.
It’s generally not advisable to distribute all retained earnings – especially for investment companies. Investment values can fluctuate significantly, and a sharp decline in the following year could push the company’s equity into negative territory. Maintaining a buffer of retained earnings helps ensure financial stability and protects the company from future volatility.
2 Plan for the 35% Corporate Tax Before Distributing Dividends
Malta has a headline corporate income tax rate of 35%. When planning a dividend distribution from your MaltaCo, it’s important to ensure the company has sufficient funds not just to pay the dividend itself, but also to cover the corporate tax liability.
The corporate income tax must be paid to the Maltese authorities by June 30th of the year that falls approximately 18 months after your company’s financial year-end.
For example, if your company’s financial year ends on December 31, 2024, the tax payment deadline would be June 30, 2026.
3 Plan Ahead: The Tax Refund Is Not Automatic
While Malta’s tax refund system is highly beneficial, shareholders should understand that the refund is not automatic or immediate. Once dividends are paid and the company has settled its corporate tax, shareholders must actively apply for the refund – usually through a local tax advisor or corporate service provider like us. We’re here to support you throughout the process.
The refund process can take several months, depending on the complexity of the case and the efficiency of documentation. Therefore, it’s important to factor in this timing when planning cash flows or relying on the refunded amount. Smart planning ensures you’re not caught off guard waiting for funds you expected sooner.
4 Dividends Must Be Paid to Qualify for a Tax Refund
A key condition of Malta’s tax refund system is that dividends must be actually distributed to shareholders. Simply earning profits or paying corporate tax is not enough – no dividend, no refund.
To trigger the refund mechanism, your MaltaCo must formally declare and pay out dividends from taxed profits. Only then can shareholders apply for and receive the eligible tax refund from the Maltese tax authorities. This makes dividend planning an essential part of optimizing your company’s tax position.
Under Malta’s tax refund system, while companies are subject to a 35% corporate income tax, shareholders are entitled to claim back 6/7th of the tax paid, provided the income qualifies and dividends have been distributed. This refund reduces the effective tax rate to just 5%, making Malta one of the most attractive jurisdictions in Europe for profit distribution. The refund is typically processed within a few months after the dividend is paid and the necessary documentation is submitted.
5 Participating Holding in Malta
A participating holding refers to a shareholding in another company that meets certain criteria, allowing a MaltaCo to benefit from a full exemption from tax on dividends and capital gains derived from that holding.
To qualify as a participating holding MaltaCo must hold at least 5% of the equity shares in the subsidiary company.
Additionally, for the exemption to apply on dividends (not just capital gains), the foreign subsidiary must meet certain anti-abuse conditions, such as:
- Being resident in the EU or
- Being subject to tax at a rate of at least 15% or
- The subsidiary must not derive more than 50% of its income from passive interest or royalties. In other words, it should be actively engaged in trading or commercial activity.
An active trading subsidiary will generally qualify under this rule, making it eligible for the participation exemption on dividends received and capital gains realized by the MaltaCo.
6 Tax refund mechanism
There are several types of tax refunds available in Malta, depending on the kind of income received by the company. The main refund categories include:
- 6/7 Refund: This is the most commonly used refund and applies to profits from active trading. Under this system, foreign shareholders can reclaim 6/7th of the corporate tax paid, effectively lowering the tax rate from 35% to 5% on distributed income.
- 5/7 Refund: This applies to passive income such as interest, royalties, and similar revenue. Since this type of income doesn’t come from active business operations, either directly or indirectly, the shareholder is entitled to a 5/7th of the tax paid. This effectively lowers the tax rate for shareholders from 35% to 10% on distributed income.
- 2/3 Refund: This refund is available when the Maltese company has claimed double taxation relief, for example, on foreign-source capital gains or dividends that don’t qualify for participation exemption, or other passive income. If a Flat Rate Foreign Tax Credit (FRFTC) is used, the effective tax rate comes down to around 6.25%.
These refund options allow foreign shareholders to significantly reduce their overall tax burden, making Malta a strategic location for holding companies, IP management, and international business operations.
7 The Order in Which You Withdraw Money from Your Company Matters
When it comes to tax efficiency, how and in what order you withdraw money from your MaltaCo. can make a significant difference. Here’s a simple guideline:
If you’ve previously issued a shareholder loan to your company, it’s usually best to repay that loan first. As a private individual, you’re allowed to lend money to your company interest-free and without a fixed repayment term. This means that from a personal tax perspective, no income is generated – there’s no interest income to report, and repayments are not treated as taxable income.
Because of this, it often makes sense to settle any outstanding shareholder loans before distributing dividends from your MaltaCo. It’s a straightforward way to improve your tax position and optimize how you take money out.
8 Dividends Can Be Paid More Than Once a Year
You’re not limited to an annual dividend – if you choose, you can pay yourself dividends twice a year, quarterly, or even weekly. However, paying dividends monthly (i.e., 12 times per year) is generally not recommended, as it may raise concerns with tax authorities. Monthly 12 times a year payments could be interpreted as a way to disguise a salary and avoid payroll taxes.
That said, there are exceptions. Monthly dividend payments without drawing a salary may be justifiable if your company receives a steady stream of passive income, such as rental income, investment dividends, or consistent foreign dividend income. In such cases, regular distributions can be supported by the cash flow and may still be viewed as compliant.
An Alternative to the Tax Refund System: Fiscal Unit Regime
If you’d prefer to avoid dealing with Malta’s tax refund process, there’s a simplified alternative – the Fiscal Unit regime. By opting into this group taxation system, and provided certain conditions are met, your MaltaCo can benefit from a straightforward 5% corporate income tax rate, with no need to apply for refunds.
Under the Fiscal Unit approach, the effective tax is settled within the group, allowing for a more seamless and predictable tax outcome. This structure can offer significant cash flow advantages, since there’s no waiting period for refunds – you simply pay the reduced tax rate and move on.
We’re Here to Help
Whether you need assistance with tax declarations or international tax planning, our team is ready to support you. Declaring dividends and managing corporate structures requires in-depth knowledge of both local and international laws – expertise we’ve developed through years of hands-on experience.
Our specialists are highly skilled in navigating Malta’s unique and business-friendly tax system. We’ll help you design an efficient corporate structure that not only complies with all regulations but also maximizes your financial outcomes.
Let’s build your MaltaCo together.
Get in touch today – we’d be happy to advise you!
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