Malta's Tax Refund System: The Complete Picture
Malta's tax system is frequently cited as one of the most attractive in the EU, and with good reason. While the headline corporate tax rate is 35%, Malta's full imputation system combined with shareholder refunds can reduce the effective tax burden to as low as 5%. Understanding how this works is essential for anyone considering Malta as a business base.
How the imputation system works
Malta operates a full imputation system, meaning that tax paid by the company is imputed (credited) to shareholders when dividends are distributed. When a Maltese company earns profits and pays 35% corporate tax, the shareholders can claim a refund of 6/7ths of the tax paid, leaving an effective tax rate of just 5% on distributed profits.
Types of refunds available
- 6/7 refund: Available on trading income – the most common refund, reducing effective tax to 5%
- 5/7 refund: Available on passive interest and royalties – effective rate of 10%
- 2/3 refund: Available when the company claims double taxation relief – effective rate of approximately 11.67%
- Full refund: Available on profits from a participating holding (dividends from qualifying subsidiaries)
Eligibility requirements
The refund is available to shareholders who are not resident in Malta or, if resident, are not domiciled in Malta. The company must be registered in Malta and must distribute dividends to trigger the refund. There are no minimum holding periods, and the refund mechanism has been confirmed as compliant with EU law.
Practical process
After the company files its tax return and pays the 35% tax, shareholders submit a refund claim to the Malta Tax Refund Department. Refunds are typically processed within 14 business days of a complete application, making Malta one of the most efficient jurisdictions for tax refund processing. The refund is paid directly to the shareholder's designated bank account.
Structuring considerations
A common structure involves a Malta trading company owned by a foreign holding company. The Malta company pays 35% tax on its profits, distributes dividends to the holding company, and the holding company claims the 6/7 refund. Malta has no withholding tax on dividends paid to non-resident shareholders after the refund, which further enhances the tax efficiency of this arrangement.
Important considerations
While the system is entirely legal and EU-compliant, proper structuring is essential. Companies must maintain substance in Malta – this means having a local office, employing staff or directors who make genuine management decisions, and keeping proper books and records on the island. Anti-avoidance provisions apply to arrangements that are considered artificial. Professional advice from a Malta-based tax advisor is strongly recommended to ensure the structure withstands scrutiny.
Zunapro connects entrepreneurs with experienced Maltese tax advisors to ensure optimal structuring and full compliance with all regulatory requirements.
