Benefits and features of taxation in Malta
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.
EU countries with the lowest VAT
Source: Eurostat, 2020
Taxes for legal entities in Malta
|Tax type||Base rate|
|Сorporate income tax||35%|
|Tax on dividends||0%|
|Interest income tax||0%|
|Tax on royalties||0%|
|Tax on the authorized capital||None|
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:
- Final Tax Account.
- Maltese Taxed Account.
- Foreign Income Account.
- Immovable Property Account.
- 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.
Main taxes in Malta for individuals
In the income of an individual which is taxed, the following are taken into account:
- 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.
Income tax in Malta for a married person
|From €0 to €10,500||0%||0|
|From €10,501 to €15,800||15%||€1,575|
|From €15,801 to €21,200||25%||€3,155|
|From €21,201 to €60,000||25%||€3,050|
|From €60,001 and more||35%||€9,050|
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%.
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:
- Be over 18 years of age.
- To sever all ties with other countries, that is, not to live regularly and for a long time in another country.
- Provide compelling evidence that there is an intention to live in Malta permanently or indefinitely in the future.
Double taxation avoidance agreements
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.
When tax liabilities arise
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.
Benefits of the Maltese tax system
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.
Frequently Asked Questions
If the investor decides against becoming a tax resident, then he is not required to pay taxes in Malta. However, if the investor does not live in Malta, but receives income from a business in Malta, such income is taxed. The amount of tax depends on the amount of income, source of income, family status of the investor and is calculated individually in each case.
The investor determines the benefits of tax residency in Malta depending on the purpose, country of original tax residence and sources of income. In our experience, a common reason for changing your tax residency to Maltese is the absence of taxes:
- on world income for individuals (if it is not actually received on the territory of Malta),
- inheritance and donation,
- any winnings from gambling (online or at bookmaker’s offices),
- in some cases for real estate.
The absence of taxes on global income, wealth, real estate, inheritance and donations can already be seen as an element of a tax exemption compared to taxation in other countries. For many categories of taxes, an investor can count on refunds, benefits and deductions. Individuals who own a business in Malta can deduct certain expenses from the company’s income. These are expenses that the company bears in full and exclusively for the purpose of generating income:
- expenses for current and major repairs,
- sales promotion costs,
- patent costs allocated over the life of the patent,
- capital investments in intellectual property, which are evenly distributed over three years,
- certain types of upfront sale costs.
Malta has a notional tax assessment system. Taxes paid by a company in Malta can be credited to shareholders upon payment of dividends.
The corporate taxation in Malta is 35%, but the tax rate on dividends and royalties is 0%. This distinguishes Malta from other EU states. In some countries, corporate tax reaches 50%.
The concept of “tax resident” does not depend on the document on the basis of which the person resides in the territory of the country. As a general rule, those persons who have a residence permit (for example, due to employment) are required to reside in the country permanently. Accordingly, they automatically become tax residents. However, this requirement does not apply to investors participating in Malta’s public investment programs. Having received a residence permit or citizenship, the investor may not reside in the country and, accordingly, will not become its tax resident. If an investor resides in Malta for more than 183 days a year, he or she automatically becomes a tax resident. If the investor is in Malta fewer days a year, but receives domicile status, then he will also become a tax resident of Malta.
As a general rule, if a person has received a residence permit in Malta outside of government programs for investors, then he must reside in Malta for at least 183 days a year. Only then will he be able to renew the residence permit. The residency requirement automatically makes the person arntax resident of Malta. The residence card number becomes the tax number of the individual. Participants in investor programs take a different approach. They are not required to stay in Malta for even a few days a year. Therefore, the investor has the opportunity to choose how much time to spend in Malta, whether or not to become a tax resident of the country. If an investor of his choice wants to become a tax resident of Malta, then it is necessary to prove that he was in the country for at least 183 days a year. Or he will need to obtain domicile status.
There are no taxes for opening and using bank accounts in Malta. But there is a fixed amount for banking services:
- Opening a bank account costs around €200 depending on the bank.
- Account maintenance costs approximately €20 for bank transfer services.