The corporate tax rate in Malta stands at 35% on the chargeable income. For companies registered in Malta, being considered resident and domiciled in the Malta means they are liable for income tax on a world-wide basis at this standard rate.

Malta adopts the full imputation system for corporate taxation, taxing company profits at the standard rate of 35%. Subsequently, when shareholders receive dividends, they receive a tax credit equivalent to the tax already paid on the underlying profits. This approach effectively eradicates the issue of economic double taxation on company profits.

The full imputation system includes a tax refund mechanism, subject to certain conditions. After profits are distributed to shareholders, they can request a refund of the Malta tax paid by the distributing company. The amount of refund depends on the nature and source of the income. In general, a shareholder is typically entitled to claim 6/7 of the original tax paid in Malta by the company on the distributed profits.

However, if the dividends come from profits involving passive interest or royalties, the refund is reduced to 5/7ths of the tax due in Malta. In cases where dividends originate from profits allocated to the Foreign Income Account, and the company has availed double taxation relief, the shareholder can claim a 2/3rds refund of the tax paid in Malta.

Fiscal Consolidation

By virtue of Legal Notice 110 of 2019, Malta has introduced fiscal unity rules, allowing certain groups of companies to opt for consolidated treatment as a single taxpayer starting from the year of assessment 2020 (basis year 2019).

The primary advantage of tax consolidation lies in the cash flow benefits, particularly concerning partial shareholder tax refunds. Under these rules, a fiscal unit pays only the effective tax, which is essentially the difference between the corporate tax payable by the subsidiary and the refunds claimable by its shareholder. This eliminates the need for the distributing company to go through the process of dividend distribution, paying relevant taxes, and then claim for the refund by its shareholders.

While participation in the tax consolidation regime is optional, if a fiscal unit is formed, the principal taxpayer must annually prepare a consolidated balance sheet and profit and loss account covering all companies within the fiscal unit. This should be accompanied by an audit report. Additionally, the fiscal unit is required to submit a consolidated tax return, for the entire group of companies.