Whether you are passionate about international taxation or simply wish to pay fewer taxes, you have likely heard of Malta as a place with very low tax rates.
But is this really the case? Is Malta a tax haven? Does it offer advantages for everyone or just for a select few?
The truth is that, although Malta is no longer considered a tax haven, it still offers remarkable tax benefits that can benefit many types of tax nomads.
In this article, we analyze how it is possible to pay 5% in taxes with your company in Malta and remain (almost) tax-free with your non-dom residency.
Corporate Taxes in Malta: 5%!
While Malta’s Corporate Tax rate is a high 35%, there is a “trick” that allows your company in Malta to pay only 5%.
This refers to the Maltese Corporate Tax imputation system, which allows a refund of up to 30% of the 35% paid (6/7) related to the distribution of dividends.
In other words, initially, our company in Malta will be taxed at 35%, but after the distribution of dividends and the 6/7 refund from the Maltese tax authority, the effective tax rate will be reduced to 5%.
It is worth noting that companies with passive income from interest and royalties only receive a 5/7 refund (effective tax rate of 10%).
Other tax incentives of Companies in Malta
Beyond its famous 5%, companies in Malta have other advantages that can be very useful for our international tax planning:
- Maltese companies do not apply withholding taxes on the distribution of dividends to non-residents in Malta.
- They have a full exemption on dividends and capital gains received from a subsidiary (meeting certain requirements).
- VAT in Malta is among the lowest in the European Union, with a general rate of 18%.
- With the right advisors, incorporating and managing a company in Malta is very affordable.
Disadvantages of Companies in Malta
Despite efforts by Maltese management firms and advisors to suggest otherwise, tax refunds are not easily obtained, nor do they typically arrive in just two weeks. In reality, the average processing time for refunds is around 6 months.
Furthermore, tax refunds are not issued directly to the company itself but are instead deposited into a chosen account.
What’s concerning is that refunds deposited into a personal account are subject to Income Tax. This is particularly undesirable if you reside in a high-tax jurisdiction like Spain, Germany, France or a similar country!
So, you might wonder, what’s the point of having a company in Malta?
It still makes sense in two scenarios:
Firstly, if you reside in a country with no Income Tax (or very low) or in a territorial tax jurisdiction.
The second scenario is explained below:
Holding Companies in Malta
The most popular solution to the dilemma of receiving tax refunds into a personal account is the creation of a second company to act as a holding entity.
Here’s how the scheme works:
Company 1: Operates in Malta with a 35% tax rate.
Company 2: Holding company, receives dividends from Company 1 and tax refunds.
Clearly, it’s advantageous for this second parent company to enjoy some tax exemption on dividends received from the first.
Do you remember the advantages of companies in Malta that I mentioned earlier?
Exemption on dividend income!
A Maltese holding company can be exempt from paying taxes on 100% of the dividends received from a subsidiary if it meets certain requirements, such as:
- Holding at least 5% of the shares or voting rights.
- Holding shares valued at more than 1.164 million euros.
Additionally, Malta offers the option to opt for a tax consolidation regime for holding companies with ownership exceeding 95% in the subsidiary.
This consolidation regime helps avoid accounting duplication costs and the tedious tax refund process.
Thus, the most common structure in Malta consists of 2 Maltese companies treated as a single fiscal unit, benefiting from a direct effective tax rate of 5%.
Taxation in Malta for individuals and Non-Dom Regime
Income Tax in Malta may not be appealing to tax nomads, as it is progressive and ranges from 0% to 35%.
However, Malta offers a non-dom regime, similar to countries like Cyprus, Ireland, and the United Kingdom.
Under Malta’s non-dom regime, the following tax advantages are obtained:
- Profits generated outside Malta are not subject to tax unless they are brought into the country.
- Capital gains obtained outside Malta are not taxed, regardless of whether they are brought into the country or not.
- There is no requirement to declare worldwide income that is not subject to tax, only income that is brought into the country.
This requirement concerning the bringing of income into Malta is known as the Remittance Base.
Taxes under Remittance Basis in Malta
Taxation under the Remittance Basis regime allows taxation only on profits utilized or transferred into the country.
This definition encompasses both transfers to a bank account in Malta and the use of this money through card payments and cash withdrawals from ATMs.
It is possible to transfer to Malta, tax-free, all wealth generated before becoming a resident.
Disadvantages of Non-Dom in Malta
The main disadvantages of the non-dom regime are as follows:
- Since 2018, it is mandatory to pay a minimum tax of €5,000 annually, even if no income is transferred into the country.
- Residing as a non-dom in Malta and operating with a Maltese company structure makes little sense because income would originate from within the country, thus not benefiting from the non-dom regime.
On the positive side, this minimum tax allows us to spend approximately €2,000 per month in Malta.
Other Tax Advantages of Malta
In addition to the benefits derived from the non-domiciled regime, tax residency in Malta offers other advantageous features:
- 0% inheritance tax.
- 0% wealth tax.
- 0% gift tax.
- More lenient CFC rules: only applicable starting from €750,000 in profit.
How to Obtain Non-Dom Status in Malta
The concept of non-domiciled resident is a legal term referring to an individual who has closer ties to another place or considers it their permanent home.
Certainly, the term is not free from interpretation and subjectivity.
According to Maltese law, a domiciled resident is someone who permanently resides in Malta or considers Malta their permanent home.
In practice, a resident is non-dom as long as they do not regard the country as their definitive home, plan to leave in the future, or maintain closer ties with another country (such as their country of origin).
In fact, it is possible to obtain Maltese citizenship and still maintain non-dom status to benefit from tax advantages.
Tax Residency in Malta: Requirements
The requirements to obtain tax residency in Malta are as follows:
- You must reside in Malta for at least six months per year.
- It is necessary to have a valid health insurance.
- You must either rent a home throughout the year or own a house (regardless of its value).
- You need to be economically self-sufficient, with minimum income of €14,000 per year or €84.95 per week, or have an employment contract.
HNWI Scheme in Malta
For those wishing to maintain tax residency in Malta without spending more than 183 days per year in the country, the HNWI (High Net Worth Individual) program offers a viable solution without a physical presence requirement.
Additionally, HNWI benefit from a tax rate of only 15% on income brought into the country.
However, this option involves a higher cost compared to the standard non-dom regime, as it requires payment of a higher fixed tax and substantial investment.
Participants in the HNWI program must pay an annual fixed fee of €20,000, instead of the €5,000 under the standard non-dom regime.
Furthermore, it is necessary to acquire a property valued at a minimum of €400,000 or rent one for at least €20,000 per year. This property cannot be leased out on either short or long-term basis.
Golden Visa in Malta
The Golden Visa of Malta is an excellent option for citizens outside the European Union (EU) and the European Economic Area (EEA) who wish to reside in Europe in exchange for an investment in properties or a contribution to the government.
There are 3 pathways to residency:
Three-Year Program:
To be eligible for citizenship after 36 months of residence, some requirements include:
- Investing at least €600,000 in the national development fund.
- Purchasing a residential property for at least €700,000 or signing a rental contract of at least €16,000 per year for five years.
One-Year Program:
To be eligible for citizenship after 12 months of residence, you must invest at least €750,000 in the national development fund.
Malta Permanent Residency Programme (MPRP):
Malta Companies and Tax Residency Review
In summary, Malta offers a variety of advantages from both a tax and migratory perspective, capable of meeting the needs of various profiles of tax nomads.
On one hand, its corporate tax regime stands out as a competitive option in any corporate tax structure.
On the other hand, its citizenship programs provide access to Europe for wealthy individuals worldwide.
Regarding the non-dom regime, we consider that due to its limitations such as the annual fixed tax, the Remittance Base, and the 183-day requirement, it is overshadowed by other non-dom regimes, such as the one offered by Cyprus.
Are you interested in obtaining residency or setting up a company in Malta?
Or would you prefer a complete analysis of your situation to discover the best option for you?
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Income Tax is progressive and varies between 0% and 35%.
VAT has a general rate of 18%, one of the lowest in the European Union.
Additionally, Malta offers advantages such as 0% inheritance tax, wealth tax, and gift tax.
Finally, Malta offers a non-dom regime under which profits generated outside Malta are not subject to tax unless they are brought into the country.
The Corporate Tax rate in Malta is 35%, but thanks to the imputation system, companies can receive a refund of up to 30%, resulting in an effective tax rate of 5% for many types of income.
Opening a company in Malta costs between 3,000 and 4,500 euros.
This range depends on the type of business structure and the activities to be undertaken. If you choose to set up a “double” structure with a holding company, costs will be higher due to the additional requirements for incorporation.
In addition to a potential effective corporate tax rate of 5%, companies in Malta do not apply withholding taxes on dividends to non-residents, benefit from a full exemption on dividends and capital gains from subsidiaries, and Malta’s VAT is one of the lowest in the EU.
Under the non-dom regime, profits generated outside of Malta are not subject to tax unless they are brought into the country. Capital gains generated outside of Malta are also not taxed, regardless of whether they are brought into the country or not.
To obtain tax residency in Malta, you must:
- Reside in Malta for at least 183 days per year.
- Have valid health insurance.
- Rent or own a property.
- Be economically self-sufficient (minimum income of €14,000 per year).
The HNWI scheme allows for tax residency in Malta without spending more than 183 days per year in the country, with a 15% tax on income brought into the country and additional requirements such as purchasing or renting high-value properties.
The Golden Visa of Malta is an option for citizens not belonging to the EU and EEA who wish to reside in Europe in exchange for an investment in properties or a contribution to the government. There are programs with different investment and residency requirements.
