Malta

The standard rate of tax applicable to companies is 35%. Under the full imputation system, income tax paid by a company is fully credited to shareholders upon distribution, eliminating economic double taxation. In addition, subject to conditions, Malta’s refundable tax credit regime allows shareholders to claim refunds of all or part of the Malta income tax paid on the underlying profits from which dividends are distributed, potentially reducing the overall effective Maltese tax burden to between 0% and 10%.

Certain categories of investment income are taxed at 10% or 15%, whereas qualifying rental income is taxed at 15%.

As of basis years commencing in 2024, companies have the option to apply a rate of tax of 15% on their chargeable income, with any income tax liability being deemed “final” (the “Final Income Tax Without Imputation” system (FITWI)). Any final tax paid under FITWI is available as a credit or refund at shareholder level.

At the time of writing, no. Malta is bound by Council Directive (EU) 2022/2523 (“Pillar Two Directive”) to implement the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). However, Malta has exercised its option to defer the application of both charging provisions for up to six years from 31 December 2023. Accordingly, both rules must be implemented domestically after 31 December 2029.

Malta has no obligation under the Pillar Two Directive to introduce a Qualified Domestic Minimum Top-up Tax (QDMTT), and there has been no indication to date that Malta intends to do so.

The Income Tax Act imposes a tax on income. There is no separate capital gains tax; instead, gains derived from the transfer of certain capital assets (e.g. immovable property, securities, intellectual property rights, goodwill, businesses) are aggregated with a company’s income in ascertaining its chargeable income for income tax purposes. A special framework applies to the transfer of immovable property situated in Malta.

Generally, the income tax is imposed upon the income (and chargeable capital gains) of any person accruing in or derived from Malta or elsewhere, and whether received in Malta or not. Persons that are either: not ordinarily resident; or not domiciled in Malta (often referred to as “resident, non-domiciled persons”) are liable to tax in Malta on a more limited basis of taxation, being:

• income and chargeable capital gains arising in Malta; and
• income arising outside Malta that is received in Malta.

Foreign-source capital gains derived by resident, non-domiciled persons are not subject to tax in Malta, regardless of whether such gains are received in Malta.

Income is defined in Article 4(1) of the Income Tax Act, and in the context of companies encompasses both income from a trade or business as well as “passive” income (e.g. dividends, interest, royalties, and other gains or profits derived from property).

Companies registered in Malta may also be entitled to several different mechanisms to relieve economic or juridical double taxation, such as:

• An exemption from tax on income from participating holdings (i.e. the participation exemption).
• An exemption from tax on gains or profits attributable to a permanent establishment situated outside Malta (i.e. the branch exemption).
• Foreign tax credits, which include:
  • credits available pursuant to a double taxation convention concluded with a foreign territory (“treaty relief”);
  • unilateral relief, which encompasses both a direct and indirect foreign tax credit;
  • Commonwealth relief, a limited foreign tax credit in relation to taxes imposed by a Commonwealth territory (though this method has largely fallen into disuse); and
  • the flat-rate foreign tax credit, which is a deemed foreign tax credit equal to 25% of the qualifying foreign income, available in lieu of evidence of actual foreign tax suffered.

Non-resident companies are only liable to tax in Malta on income and chargeable capital gains arising in Malta. The standard rate of tax of 35% applies to such income, subject to the availability of tax refunds.

Value Added Tax (VAT) is imposed under the VAT Act, which transposes the provisions of the EU VAT Directive. VAT is imposed on the supply of goods and services in Malta, the intra-community acquisition of goods in Malta, and the import of goods into Malta from outside the EU. The standard rate of VAT on taxable supplies is 18%, though reduced rates of 5%, 7% or 12% may apply. The VAT Act also contemplates zero-rated supplies (i.e. exempt supplies with the right to a credit for input VAT incurred) as well as exempt without credit supplies.

Duty on documents and transfers is imposed by the Duty on Documents and Transfers Act. The Act imposes duty on transfers of Maltese immovable property and on transfers of marketable securities and partnership interests. Several exemptions apply, depending on the circumstances.

As an EU Member State, Malta applies the Union Customs Code to non‑EU goods at the external border, with standard customs formalities being administered by the Malta Taxes and Customs Administration. Furthermore, harmonised excise duties apply to alcohol, tobacco and energy products under EU frameworks.

Malta’s general framework for withholding taxes on cross-border payments is governed by Article 73 of the Income Tax Act, whereby where any person pays to a person not resident in Malta any income chargeable to tax in Malta, they shall upon paying such income deduct tax therefrom at the applicable rate (typically 35% where the non-resident person is a company). Income is “chargeable to tax” in Malta to a non-resident person where it arises in Malta in accordance with domestic source rules. Gains or profits from a trade or business generally arise in the place where the income-earning activity takes place, whereas non-trading income typically arises in the country in which the income-producing asset is situated.

However:

• Article 73 of the Income Tax Act is not applicable to dividend distributions made by companies registered in Malta, which are governed by the full imputation system of taxation, such that no incremental taxation is suffered by shareholders of Maltese companies. By way of exception, dividends distributed out of a company’s “untaxed account” are—where the non-resident recipient is owned and controlled, directly or indirectly, by individuals ordinarily resident and domiciled in Malta—subject to a withholding tax of 15% (subject to treaty limitations).
• Payments of interest and royalties to non-resident persons are generally exempt from tax in Malta, provided that: the interest or royalty is not effectively connected to a permanent establishment of the recipient in Malta; and the beneficial owner of the interest or royalty is a person not resident in Malta and such person is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
• Article 73 of the Income Tax Act does not apply to payments of employment income. Special deduction of tax at source provisions (the “Final Settlement System”) apply to such income.

There are several general anti-avoidance provisions under domestic law, all of which appear to have overlapping objective scopes. The Commissioner for Taxes and Customs is entitled to disregard any artificial or fictitious scheme that reduces the amount of Malta tax payable by a taxpayer, and to assess tax on the taxpayer to nullify or modify the scheme and the consequent tax advantage. A separate General Anti-Avoidance Rule (GAAR) entitles the Commissioner to issue a “tax avoidance order”; this is applicable where a person obtains a tax advantage from a scheme whose sole or main purpose is to avoid, reduce, or defer tax, or to secure a refund or set off.

Malta has also transposed the GAAR found in Article 6 of the Anti-Tax Avoidance Directive. Pursuant to this rule, taxpayers must ignore any arrangements or series of arrangements that have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law. An arrangement or series thereof will be regarded as non-genuine to the extent that it is not put into place for valid commercial reasons that reflect economic reality.

The Income Tax Act and its subsidiary legislation also contain several specific anti-avoidance rules that target specific activities and/or arrangements.

The Malta Tax and Customs Administration (MTCA) has significantly enhanced its data‑analytics and investigative capabilities and moved toward more real‑time reporting, contributing to a noticeable rise in audits and tax controversy.

In income tax, scrutiny has centred on persistently loss‑making companies with material accumulated losses and weak evidentiary support. Evidentiary gaps arising from inadequate records and unsubstantiated positions have resulted in the courts upholding assessments raised by the MTCA.

Transfer pricing adjustments by foreign authorities have driven an uptick in Mutual Agreement Procedures under double tax treaties, the EU Arbitration Convention, and the EU Dispute Resolution Directive. Taxpayers are also frequently challenging demand notes (final, non‑appealable requests for settlement) on procedural grounds; however, these challenges generally fail given the strict statutory formalities that apply.

Recent decisions of the Maltese courts on VAT demonstrate a consistent pattern; controversies often stem from poor documentation coupled with point‑of‑sale failures. Where records are incomplete or unreliable, MTCA best-of-judgment assessments (including reversals of input VAT and indirect estimation of undeclared sales) are routinely upheld, with taxpayers bearing the burden to disprove them. Registration lapses, particularly late or non‑registration upon making taxable supplies, also feature prominently and have attracted penalties. Procedurally, appeals to the Court of Appeal routinely fail when pursued on points of fact rather than points of law.

A particular prominent area of tax controversy in Malta concerns valuations of immovable property under the Duty on Documents and Transfers Act (DDTA). Under Article 52 of the DDTA, if the declared consideration/value on a transfer (including a transmission causa mortis) is less than 85% of the market value established by the Commissioner for Tax and Customs (CfTC), the CfTC may issue a written order and assess duty on the difference. These disputes often turn on expert valuation evidence and inherently subjective judgments. The Administrative Review Tribunal (ART) routinely rejects simplistic approaches (e.g. valuing the whole and dividing by shares) and insists that duty on documents assessments reflect the real marketability and constraints of the actual interest transferred (such as undivided shares, co‑ownership, lack of vacant possession, or inheritance context).

The legislative frameworks governing the process and resolution of tax controversies differ depending on the tax concerned.

Income tax disputes are principally governed by the Income Tax Management Act, though special single-issue appeal procedures are scattered amongst the provisions of the Income Tax Act too. Generally speaking, a taxpayer is required to file a return of income (a self-assessment) for a year of assessment (i.e. the year in which a self-assessment for a prior basis year is due) in accordance with the deadlines laid down by the Income Tax Management Act (ITMA) and its subsidiary legislation.

The CfTC generally has five years from the end of the year of assessment to challenge a taxpayer’s self-assessment position (though there is no statute of limitations in cases of delinquency or wilful omissions). Challenges come through the form of “assessments” which are typically preceded by an audit procedure. Upon the issuance of an “assessment”, a taxpayer has 30 days to lodge a “notice of objection”, whereby they set out their objections to the CfTC’s position. The notice of objection initiates the objection phase, whereby the CfTC is required to reconsider its position via deliberation with the taxpayer. Where no agreement is reached, a “notice of refusal” is issued. The taxpayer then has 30 days to lodge an appeal with the ART, an independent and impartial judicial body. The onus of proving an assessment is excessive falls on the taxpayer. The ART shall confirm, reduce, increase or annul the assessment or make such order thereon as to it may seem fit.

Point of law appeals can be made to the Court of Appeal.

Judicial review of administrative action is available only in narrow, exceptional circumstances and is confined to reviewing the legality and procedural propriety of government action or inaction, not the merits. In practice, taxpayers who seek to challenge acts of the MTCA via judicial review have largely been unsuccessful, particularly where ordinary statutory remedies (objection and appeal to the ART) are available and not exhausted, or where strict procedural requirements are not met.

Generally, no. However, following Act XXX of 2025, a voluntary out-of-court settlement mechanism was introduced whereby a taxpayer may, by written request and submission of adjusted declarations, enter into a formal agreement with the CfTC providing for payment of an additional penalty of between EUR 10,000 and EUR 1,000,000, upon conclusion of which all criminal liability—including for broadly defined “connected breaches”—is extinguished.