The headline — 5% effective corporate tax in an EU member state — sounds too good to be true. It is not too good to be true. But it is not as simple as it sounds either.
Here is how it actually works, who it works for, and where the catches are.
The Statutory Rate and the Refund Mechanism
Malta’s statutory corporate tax rate is 35%. That is not a misprint. Companies pay 35% on profits — and then shareholders claim a refund.
The refund mechanism is Malta’s invention: the Full Imputation System. When a Maltese company pays a dividend to its shareholders, those shareholders are entitled to claim back a portion of the tax the company paid at the corporate level. The refund percentage depends on the nature of the income:
- Trading income (most businesses): 6/7ths refund → effective rate 5%
- Passive income (interest, royalties): 5/7ths refund → effective rate 10%
- Income from a participating holding: potential full exemption via the participation exemption (no refund required)
The mechanics: Company earns €100 of profit. Pays €35 in corporate tax. Declares a dividend to the shareholder. Shareholder claims a 6/7ths refund of the €35 paid — i.e., €30. Net tax retained by Malta: €5. Effective rate: 5%.
The refund is paid by the Maltese Tax Authority within 14 days of a valid claim.
The 15% Final Tax Option (from September 2025)
In September 2025, Malta introduced an alternative: the 15% Final Income Tax Without Imputation regime (Legal Notice 188 of 2025).
Under this model:
- The company pays a fixed 15% on profits
- No refund is available
- All profits taxed under this regime are allocated to the Final Tax Account
- Dividends paid from the Final Tax Account are not subject to further tax
This is simpler to administer — no refund claims, no waiting, cleaner accounting. But the effective rate (15%) is higher than the refund route (5–10%). It suits smaller companies that value simplicity over maximum efficiency, or structures where the refund logistics are inconvenient.
The Participation Exemption
For holding companies, the participation exemption is often more powerful than the refund system. Under the participation exemption, dividends and capital gains from qualifying subsidiaries are fully exempt from Maltese corporate tax — no 35% paid, no refund claimed, just zero.
To qualify, the Maltese company must:
- Hold at least 10% of the equity of the subsidiary, or have an investment of at least €1,164,000, held for a minimum of 183 days continuously
- The subsidiary must be subject to foreign tax of at least 15% (or derive less than 50% of income from passive sources)
- The investment must be held as a long-term asset, not trading stock
For international holding structures — a Maltese company holding subsidiaries across multiple countries — the participation exemption is frequently the cleanest and most efficient route.
What Pillar Two Changes for 2026
From 1 January 2026, Malta has introduced a Qualified Domestic Minimum Top-up Tax (QDMTT) to comply with the OECD’s Pillar Two global minimum tax rules.
This applies only to multinational groups with consolidated revenues above €750 million. If your group is below that threshold — which covers the vast majority of our clients — the traditional 5% effective rate continues unchanged. You do not need to worry about Pillar Two.
For the largest multinationals operating through Malta, the picture is more complex. If you are in that category, you already have advisers who are working through this. Contact us if you need a second opinion.
Who the Malta Corporate Structure Actually Works For
It works well for:
- Trading companies with genuine business activity in Malta
- iGaming and online businesses licensed through the MGA
- International holding structures using the participation exemption
- IP-holding companies where royalties flow through Malta
- Fintech companies with substance in Malta
It does not work well for:
- Purely passive holding structures with no substance
- Companies where the only purpose is a letterbox and a registered address
- Any structure that cannot demonstrate genuine economic activity in Malta
Substance is the word that matters. Post-BEPS, post-DAC6, in an era of automatic exchange of information between tax authorities, a Malta company without real directors, real decisions made in Malta, and real economic activity is vulnerable. It will not hold up to scrutiny from HMRC, the ATO, Revenue Ireland, or the IRS.
See our full substance requirements guide.
[Book a consultation](/consultation) to find out whether a Malta corporate structure makes sense for your business.