Malta Corporate Taxation 2025 Explained: A Guide for Foreign Shareholders of Local Companies 

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Malta offers one of the most attractive corporate tax systems in Europe, particularly for foreign shareholders. The country’s tax regime is designed to promote investment and business activity, making it an appealing destination for international investors. Malta’s low corporate tax rate, coupled with an efficient refund system, ensures that foreign shareholders can benefit from substantial tax savings while enjoying access to the European Union’s single market.

This article provides a comprehensive overview of Malta’s corporate taxation framework for foreign shareholders, covering key aspects such as tax rates, the participation exemption, and the tax refund mechanism.

Corporate Tax Rate in Malta

Malta’s corporate tax rate is set at 35%, which is in line with the rates in many EU countries. However, the effective tax rate for foreign shareholders can be significantly lower due to Malta’s unique tax refund system. This refund system is one of the key features that make Malta a preferred destination for international business.

Tax Refund System: Reducing the Effective Tax Rate

One of the most compelling reasons for foreign shareholders to consider Malta for their business operations is the tax refund mechanism. Under this system, shareholders of a Maltese company who receive dividend distributions are eligible to receive a refund of a portion of the corporate tax paid by the company. This effectively reduces the overall tax burden on the income received by the shareholders.

There are different types of tax refunds available depending on the nature of the income and the shareholder’s involvement in the company. These are the main refund categories:

1. 6/7 Refund: – the most common refund and applies to income derived from trading activities. Under this refund scheme, a foreign shareholder is entitled to a 6/7 refund of the corporate tax paid. This effectively reduces the tax rate from 35% to approximately 5% on the income distributed to the shareholder.
2. 5/7 Refund: applies to income from passive sources such as interest, royalties, and similar earnings. The shareholder is entitled to a 5/7 refund of the tax paid. It’s important to note that passive income is considered as such when it is not derived from active trading activities, either directly or indirectly.
3. 2/3 Refund: applies to taxes paid on profits that have benefited from double taxation relief. Maltese company in receipt of foreign source capital gains (which do not qualify for the participation exemption) or other passive income may claim a Flat Rate Foreign Tax Credit (FRFTC). In this case the combined overall effective tax rate is 6.25%.

As a result of these refunds, foreign shareholders can significantly reduce their effective tax rate, making Malta an attractive jurisdiction for holding companies, intellectual property management, and international business structures.

Participation Exemption: Another Key Tax Benefit

Malta offers a participation exemption for foreign shareholders, which allows companies to receive tax exemptions on certain types of income, particularly dividends and capital gains derived from qualifying shareholdings. Under the participation exemption rules, the following conditions must be met:

• The Maltese company must hold at least 5% of the equity of the foreign subsidiary.
• The foreign subsidiary must be either a trading company or a company subject to tax at a rate of at least 15%.
• The income must not be derived from passive sources, such as interest or royalties.

The participation exemption is highly beneficial for foreign investors, as it allows them to repatriate profits to Malta without incurring additional tax liabilities. This makes Malta an ideal jurisdiction for holding companies and international investment structures.

Double Taxation Treaties (DTTs)

Malta has signed over 70 double taxation treaties with countries worldwide. These treaties are designed to eliminate or reduce the risk of double taxation on income earned by foreign shareholders in Malta. DTTs typically provide for lower withholding tax rates on dividends, interest, and royalties, making it easier and more cost-effective for foreign investors to repatriate profits from their Maltese companies.

For example, the Malta – US tax treaty reduces the withholding tax rate on dividends from the US to Malta from 30% to 15%. This is a significant benefit for investors, who hold positions in US stocks.

Other Tax Benefits for Foreign Shareholders

1. Capital Gains Tax Exemption: Foreign shareholders who sell shares in a Maltese company are generally exempt from capital gains tax on the sale of shares, provided certain conditions are met. This makes Malta an attractive jurisdiction for investment holding companies and international M&A activity.
2. No Inheritance Tax: Malta does not impose inheritance or estate tax, which can be a significant advantage for foreign investors looking to pass on their business interests or assets to heirs.

Malta fiscal unit for a group of companies

The Malta Fiscal Unit isn’t your typical corporate entity or a formal group of companies registered together. Instead, it’s a special tax arrangement – a bit like a superpower – for business owners who operate multiple companies (a minimum of 2). Instead of each company tackling taxes alone, they come together as a unified group, treated as one single taxpayer for tax purposes. This setup allows the group to tap into a range of tax benefits and incentives. And here’s the best one: you can immediately enjoy a low 5% corporate tax rate without the hassle of waiting for a tax refund to reclaim any overpaid taxes. It’s like getting a tax discount upfront, making the whole process smoother and more efficient.

Advantages of Choosing Fiscal Unit for Your Company:

• Incredibly low tax rate: 5% – a music to any business owner’s ears! This competitive rate positions Malta as one of the most tax-efficient jurisdictions in the EU.
• Huge cash flow advantage: no company funds are locked-in anymore and are now available for reinvestment or distribution.
• Streamlined Process: Say goodbye to lengthy waiting times and paperwork. By opting for the Fiscal Unit, you simplify tax process and enjoy immediate tax benefits without the hassle.
• Flexibility: a core of Fiscal Unit regime. You get to decide which companies you want to bring together to form a group. Whether you have two companies or more, foreign, or local, the choice is yours. But certain conditions still to be met.

Malta’s corporate taxation system is highly advantageous for foreign shareholders. The combination of a competitive corporate tax rate, an efficient tax refund system, participation exemptions, and a wide network of double taxation treaties makes Malta an attractive jurisdiction for international investors. Whether through a holding company, an intellectual property structure, or an international trading business, foreign shareholders can benefit from a significantly reduced tax burden, maximizing their returns on investment.

For businesses looking to expand internationally, Malta provides a stable and business-friendly environment, complete with the benefits of EU membership and a robust legal framework. As such, Malta continues to be a preferred choice for foreign investors seeking to optimize their tax positions while benefiting from the opportunities offered by the EU single market. Partner with professionals to make the most of Malta’s endless potential. We’re here for you – every step of the way! 

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