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Malta is known for its incredibly low 5% corporate tax rate, but what does that really mean? How does it work?

Understanding how Malta 5% tax rate works is only the first step. The next step is getting setup and saving money on your corporate tax.

Ready to start saving money on your corporate tax?

In this blog article RHJ Law, RHJ Group, take a closer look at Malta’s 5% corporate tax rate and explain how it could benefit your business.

A closer look at how Malta's 5% corporate tax rate works

Understanding Malta’s 5% corporate tax rate

Malta’s 5% corporate tax rate has been gaining attention as an attractive option for businesses looking to reduce their tax burden. But what exactly does it mean and how does it work?

At its core, the 5% corporate tax rate in Malta is a flat rate that applies to companies operating in certain industries, such as gaming, financial services, and software development. This low tax rate is part of Malta’s effort to attract foreign investment and stimulate economic growth.

To qualify for the 5% rate, companies must meet certain criteria. One requirement is that the majority of the company’s activities must take place in Malta. Additionally, the company must have a genuine economic presence in the country, meaning it must employ a sufficient number of employees and have appropriate physical infrastructure.

It’s important to note that while the 5% corporate tax rate may seem incredibly low, there are additional factors to consider. One such factor is the Maltese tax refund system. This system allows companies to benefit from a refund of part of the tax paid on profits distributed as dividends. This refund effectively reduces the effective tax rate, making it even more appealing for businesses.


Who qualifies for the 5% rate?

Malta’s 5% corporate tax rate is indeed an attractive proposition for businesses looking to optimise their tax obligations. However, not every company automatically qualifies for this rate. To be eligible for the 5% rate, certain criteria must be met.

First of all you will have to structure your company correctly. This means that you must set up both a holding company and the trading company. Doing this will allow you to accept money from your clients and correctly organise your expenses.

After this, practically anyone can benefit from the 5% corporate tax rate in Malta. As long as you have the funds to set up a company and a complete business plan, you will be able to start saving.

It is also worth noting that the fees to set up and run the company will be higher in Malta than in other countries. This is because of the huge saving you will make on your corporate tax.

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Maltese tax refund

There are 2 ways of claiming the 5% corporate tax rate in Malta.

Option 1:

The first option is to submit the Maltese tax return normally at a rate of 35%. Later you will be able to claim this 30% of this back. Making the tax rate essentially 5%. However, it is worth noting that you will have to wait a certain amount of time to get this back. Sometimes this could be between 6 and 9 months.

Option 2:

Your second option is to file your tax return through the holding company. This way you can file at the 5% rate. In this method, the holding company becomes your fiscal unit, and will only pay 5%. This way, you do not have to wait at all to receive your money back.

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Maltese holding company

It is also worth noting that your Maltese holding company will usually not need a bank account if you are filing your accounts in the way above. This is because you can get paid straight from the trading company.

This means you don’t need to go through the hassle of opening a bank account for your holding company, which can save you time and money. Additionally, a Maltese holding company can benefit from the country’s extensive double taxation treaties, allowing for even further tax optimisation.

To set up a Maltese holding company, you must first establish a trading company and then register the holding company with the Malta Business Registry. The holding company must then own at least 10% of the shares in the trading company and must meet other requirements to qualify for the reduced corporate tax rate.

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Malta’s 5% corporate tax rate is definitely an attractive option for businesses looking to reduce their tax liabilities. By providing a competitive tax environment, the Maltese government has made the country a highly sought-after destination for companies wanting to set up operations in Europe.

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In summary, if you’re a company that is looking for ways to reduce your tax burden, Malta may be a good option to explore. The country’s low tax rates, tax refund system, and holding company structures can provide significant tax savings.

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