Corporate tax in Malta starts at a flat 35% on company profits, but the real cost is almost always lower. A shareholder refund system returns most of that tax when profits are distributed, bringing the effective rate down to 5% on trading income, 10% on certain passive income, and 0% on qualifying dividends and gains held through a participating holding. The headline rate and the refund are two sides of the same design, and you can’t understand what a Maltese company pays without looking at both together.
The 35% Rate and What It Applies To
Malta applies a flat 35% rate to all taxable company profits, whether the company is resident or non-resident, and whether the income is trading profit, passive income, or capital gains.1MTCA. Corporate Tax Taxable income begins with accounting profit and is then adjusted under the Income Tax Act. The most common adjustment swaps financial statement depreciation for statutory capital allowances. Non-deductible expenses are added back, and specific allowances are subtracted. The 35% rate applies to what remains.
That 35% is the ceiling. Almost every planning conversation about Maltese corporate tax is about what mechanisms bring it down, and for most operating and holding structures, several of them apply at once.
Who Malta Treats as Resident
A company incorporated in Malta is automatically resident and domiciled there, and Malta taxes its worldwide income and gains.
A company incorporated elsewhere becomes resident in Malta if its management and control sit in Malta. These companies are resident but not domiciled, and they are taxed on the remittance basis: Maltese tax applies only to income arising in Malta or received in Malta, and foreign-source capital gains are exempt whether or not the money is brought into the country.
How the Refund System Cuts the Effective Rate
Malta uses a full imputation system. When a company distributes a dividend, the corporate tax it already paid on those profits is treated as a credit in the shareholder’s hands, and the shareholder claims a refund from the tax authorities. The refund percentage depends on the type of income sitting behind the dividend.
6/7ths refund — 5% effective rate
This is the standard refund and applies to trading income and income held in the Maltese Taxed Account. A company earning €100 in trading profit pays €35 in Maltese tax. When the €65 balance is distributed, the shareholder claims 6/7ths of the €35 back, or €30. Malta keeps €5. The effective rate is 5%.
5/7ths refund — 10% effective rate
This applies to passive interest and royalties that have not benefited from any double taxation relief. The shareholder receives 5/7ths of the tax paid, leaving an effective rate of 10%.
2/3rds refund
Where the company has already claimed relief for foreign tax through a treaty or unilateral credit, the shareholder refund is limited to 2/3rds of the Maltese tax. This stops multiple relief mechanisms from stacking on the same profits.
The refund is paid to the shareholder, not the company, and processing normally takes around 14 days once the company has paid its tax and the shareholder has filed a valid claim.
The Five Tax Accounts
Before any dividend goes out, Maltese company profits must be allocated across five statutory tax accounts. The account a dividend is paid from determines which refund rate applies, so allocation is not administrative housekeeping — it drives the outcome.
- Final Tax Account: exempt income and income already hit with a final withholding tax. No further tax and no refund entitlement on dividends from this account.
- Immovable Property Account: income derived directly or indirectly from Maltese real estate.
- Foreign Income Account: foreign passive income such as overseas dividends, interest, and royalties. Most 5/7ths and 2/3rds refund claims trace to this account.
- Maltese Taxed Account: profits sourced in Malta, primarily trading income. Dividends from this account typically qualify for the 6/7ths refund.
- Untaxed Account: reconciles any gap between distributable accounting profits and the balances in the other four accounts.
Allocation is mandatory and follows a set sequence. Errors delay or reduce refunds, which is one reason clean bookkeeping matters more in Malta than in jurisdictions where the corporate rate is simply the corporate rate.
No Withholding Tax on Outbound Payments
Malta does not withhold tax on dividends, interest, or royalties paid to non-residents, whether or not a treaty applies. Interest and royalties are exempt provided they are not connected to a permanent establishment the recipient maintains in Malta. Combined with the refund system, this means profits can leave a Maltese company and reach foreign shareholders with no tax leakage at the border.
Malta also has 78 double tax treaties in force, largely modeled on the OECD convention, which can reduce withholding at the source country when income flows into Malta.2MTCA. Double Taxation – International Agreements
The Participation Exemption: Getting to 0%
Holding companies can do better than 5%. Dividends and capital gains from a qualifying “participating holding” are fully exempt from Maltese tax, with no need to pay 35% upfront and reclaim it.
A holding qualifies as a participating holding if any one of these conditions is met:
- The company holds at least 10% of the subsidiary’s equity shares.
- The investment exceeds €1.164 million and is held for an uninterrupted period of at least 183 days.3Legislation Malta. Income Tax Act – Participating Holdings
- The company has the right to appoint a director to the subsidiary’s board or holds a right of first refusal on the remaining shares.
Dividends from a qualifying holding can be excluded from taxable income entirely, or included and then refunded in full. Most companies use the exclusion route because it is simpler. Capital gains on the sale of a qualifying holding are exempt automatically.
Anti-Abuse Conditions
If the subsidiary is resident in the EU or EEA, or pays tax at an effective rate of at least 15%, the exemption applies without further scrutiny.3Legislation Malta. Income Tax Act – Participating Holdings If neither is met, two further tests kick in: the holding cannot be a passive portfolio investment, and less than half the subsidiary’s income can come from passive interest or royalties.
The Notional Interest Deduction
Malta lets companies claim a deduction on equity capital, not only on debt. The Notional Interest Deduction applies a reference rate to a company’s qualifying risk capital, and the result reduces taxable income before the 35% rate is applied. The reference rate equals the yield on Malta Government Stocks with roughly 20 years to maturity, published quarterly by the Central Bank of Malta, plus a 5% premium.4MTCA. Notional Interest Deduction Guidelines For accounting periods shorter or longer than 12 months, the deduction is prorated by days. Used alongside the refund system, the NID can push the effective rate lower still.
Filing Deadlines and Payment
Every Maltese company files an annual income tax return within nine months of its financial year-end. For a December 31 year-end, the paper deadline is September 30 of the following year. Electronic filing through the Commissioner for Revenue’s online portal extends the deadline. For a December 2025 year-end, the electronic submission deadline is November 27, 2026.5MTCA. Corporate Income Tax The return must come with audited financial statements.
Companies make three provisional payments during the year, due April 30, August 31, and December 21, calculated by reference to the prior year’s tax liability. Any balance is settled when the return is filed; overpayments are refunded or carried forward.
Late payment interest runs at 0.6% per month or part of a month, a rate that has been in effect since August 2022. On a €100,000 liability, that is €600 per month, and the meter starts on the due date regardless of when the return is eventually filed. Late filing carries separate penalties.
Where the 5% Rate Stops Working: Pillar Two
The EU’s Pillar Two directive sets a minimum effective tax rate of 15% for multinational groups with consolidated annual revenue of €750 million or more. Malta’s 5% effective rate sits well below that threshold.
Malta has transposed the directive through Legal Notice 32 of 2024, with procedural updates in Legal Notice 48 of 2026. Malta has not yet introduced a Qualified Domestic Minimum Top-up Tax, and implementation of both the Income Inclusion Rule and the Undertaxed Profits Rule has been postponed. The practical effect for large in-scope groups is that the parent’s home jurisdiction can collect a top-up tax to bring the Maltese effective rate up to 15%, capturing benefit that would otherwise reach the shareholder through the refund.
Groups below the €750 million threshold fall outside the directive, and the refund system continues to deliver the full benefit. If your consolidated group is near the threshold, model the top-up impact before committing to a Maltese structure.
A Warning for US Shareholders
The Maltese refund system does not translate neatly into US tax outcomes, and US persons owning shares in a Maltese company face reporting and tax rules that can erase most of the planning benefit.
Any US person owning 10% or more of a foreign corporation’s voting power or value must file Form 5471 with their annual return. The penalty for failing to file is $10,000 per foreign corporation per year, with an additional $10,000 accruing every 30 days after an IRS notice, up to $50,000 per form.6Internal Revenue Service. Instructions for Form 5471
If US shareholders collectively own more than half of the company, it is a Controlled Foreign Corporation, and its income can be taxed to US shareholders each year under the GILTI rules without waiting for a dividend. Malta’s 5% effective rate falls below the 18.9% GILTI high-tax exclusion threshold, so Maltese CFC income is generally caught. Individual shareholders can make a Section 962 election to be taxed at corporate rates on GILTI, which lowers the immediate hit but complicates the later dividend.
The foreign tax credit interaction is the sharpest edge. The IRS generally does not allow a foreign tax credit for taxes that are refundable, so the creditable Maltese tax is likely limited to what Malta keeps after the shareholder refund, not the gross 35% paid.7Internal Revenue Service. Publication 514 (2025), Foreign Tax Credit for Individuals The refund itself is income to the shareholder in the year received. In practice, US shareholders cannot use Malta’s 35% headline rate to shelter income from US tax, and the combined Malta-plus-US burden on CFC income tends to land close to the full US rate.