Taxes in Malta: what makes the Maltese tax system attractive

A Malta tax resident pays up to 35% tax on income and is entitled to tax deductions. The amount of the deduction depends on the marital status of the resident. For example, a married man without children with an annual income of more than €60,000 is eligible for a deduction of €9,905.

Malta does not have taxes on gift, inheritance and, in some cases, on property.

Another significant advantage of Malta’s tax system is that you can be a tax resident even if you spend less than 183 days in the country. To do this, you need to obtain domicile status.

Malta is one of six EU countries with VAT below 20%. For comparison, the average basic VAT rate in the EU states is 23,1%, in Russia it is 20%.

Moreover, only in Malta it is possible to obtain a residence permit in two weeks, and after another 14 months — citizenship for exceptional services by direct investment. To do this, you need to pass a strict Due Diligence check and invest in the economy of Malta at least €690,000.

Having received a residence permit, you can quickly move to the country, become a tax resident and transfer your business to Malta.

Source: Eurostat, 2020

Malta has favorable taxation for business, because a large share of taxes can be refunded, for example:

• 6/7 tax refund of the tax paid and the tax rate after refund is only

• 5/7 tax refund if the company received passive income and royalties.

• 2/3 tax refund if the company is subject to a double taxation treaty.

• 100% tax refund if the Maltese company is a holding company and owns an interest in a foreign company. Such a company belongs to the Participating Holding category.

To ensure that taxes can be refunded, they are distributed across five accounts. Tax refunds are made only from the first and second accounts:

1. Final Tax Account.

2. Maltese Taxed Account.

3. Foreign Income Account.

4. Immovable Property Account.

5. Untaxed Account.

The return procedure is similar in all cases. First, the company pays taxes, then writes an application for a refund. The tax office considers the application within 14 days. When the application is approved, the refund is made in the same currency in which the taxes were paid.

In the income of an individual which is taxed, the following are taken into account:

• wage;

• salary and other income received from labor activity;

• profit or income from business activities;

• dividends, interest, royalties and other investment income, including rental income;

• pensions and regular receipts (annuities).

The remuneration received by members of the board of directors is equal to ordinary income from employment. The remuneration received by a citizen of Malta is subject to taxation.

The income tax rate depends on the total income and marital status of the taxpayer. There are three categories of residents: unmarried, married, and parents.

In our experience, the majority of investors planning to obtain Malta tax residency status are married people with minor children. Therefore, we present the basic tax rates and deductions for this category.

We said above that there is no property tax in Malta. However, if you decide to sell the property, you will have to pay 8% tax of the transaction value. In some cases, this tax can be reduced to 5%.

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To become a tax resident in Malta, you must be in the country for more than 183 days a year and receive income in its territory. If a person lives and earns income in another country but has a passport of Malta, then he is not considered a resident and does not pay Maltese taxes.

In addition, domicile status can be obtained in Malta. This is a person who spends less than 183 days a year in Malta, but considers the country his main place of residence and may intend on returning to spend the rest of his life there.

There are three conditions that must be met in order to obtain domicile status in Malta:

1. Be over 18 years of age.

2. To sever all ties with other countries, that is, not to live regularly and for a long time in another country.

3. Provide compelling evidence that there is an intention to live in Malta permanently or indefinitely in the future.

Malta has agreements on avoidance of double taxation with 81 different countries and territories.

The conditions of agreements may differ from country to country. But usually their provisions affect investors who:

• are tax residents of Malta and they are non-residents in another country but receive dividends or interest from that country’s companies;

• remain tax residents of another country under the 183-day rule and have Maltese holding and financial companies in their structure.

To become a tax resident of the country, you need to be in Malta for more than 183 days a year or obtain domicile status.

If an investor plans to move to Malta, open accounts with local banks and receive income in these accounts, he will become a tax resident of the country. The mere fact of opening a bank account with a Maltese bank is not yet a sufficient basis for taxation.

If an investor purchases assets in Malta, such as investing in local rental properties or starting a business, he will also have to pay taxes to the local budget.

If an investor moves the head office of his business to Malta, he will also need to pay taxes in Malta.

Tax rates in Malta are lower than in most other EU countries. At the same time, tax residents of the country can optimize tax payments by returning most of them.

There are no important taxes for business in Malta: on royalties, interest, dividends.

Individuals do not pay taxes on inheritance, gift, property, capital.