Corporate income tax remains one of Malta’s most significant sources of revenue, contributing almost 15% of its total tax income, according to the EU’s latest taxation report for 2023. Malta ranks third in the EU, trailing only Cyprus (18.1%) and Ireland (21.5%) where corporate income tax forms a substantial portion of state revenues.
Despite having the highest top statutory tax rates on business profits at 35%, Malta’s effective tax rate is considerably lower due to rebates. Companies owned by non-residents or residents without domicile in Malta enjoy an effective tax rate of just 5%. This disparity between statutory and effective rates highlights the complexities in understanding what is a lease and lease meaning in the context of corporate taxation.
Profit Shifting and Tax Structures
In Europe, several small jurisdictions report a high number of companies per adult population, suggesting their use for profit shifting from high-tax regimes to lower-tax countries. Liechtenstein leads with 809 limited liability entities per adult, followed by Gibraltar (619), Isle of Man (597), Guernsey (528), and Jersey (495). Within the EU, Estonia (348), Luxembourg (330), Cyprus (226), Belgium (168), and Malta (168) are notable.
Multinational enterprises (MNEs) often employ complex tax structures to shift profits to subsidiaries in these jurisdictions, thereby reducing their tax liabilities. A 2022 study cited by the EU’s taxation report identified Puerto Rico, Ireland, Luxembourg, Hong Kong, Switzerland, Singapore, and the Netherlands as primary destinations for profit-shifting.
Refundable Tax Credit System
Malta has refunded over €13 billion in income tax to corporate shareholders over the last 14 years under its refundable tax credit system. Since 2008, Malta has refunded an average of 14.2% annually from the tax owed by eligible companies. Currently, 8,012 companies are actively registering for tax refunds under this system.
The number of companies benefiting from these refunds has grown exponentially. In 2008, over €276 million in tax owing was reduced to €39 million after refunds. By 2022, a staggering €1.5 billion was whittled down to €216 million post-refunds.
With tax revenues accounting for 40.4% of the EU’s GDP in 2022, efficient tax administration is crucial for the EU business environment. The European Commission is assisting Malta in addressing data quality challenges and is supporting the introduction of real-time reporting for payroll and VAT. Simplifying revenue administration is expected to reduce administrative burdens, improve tax compliance, increase revenues, and enhance the business environment, particularly for digital VAT reporting and real-time reporting of gig economy income.
