Malta has always been an outlier. Whether you look centuries back to the time when it was ruled by a Catholic order of knights or more recently as a British colony — it has done things differently.
The colonial history combined with a more recent desire to build a reputation as a financial center and establish a strong economy has led Malta to a very favorable tax regime. One that some people may call a tax haven.
But the current desire to integrate with the European community and avoid censure from American authorities has lead Malta to scale back on the tax allowances.
Still, government authorities say Malta’s tax code is its strongest card in a competitive world.
Is Malta a traditional tax-free jurisdiction in today’s world? Definitely not, it has some of the highest on-paper tax rates in the world. But there are some very attractive tax advantages in Malta and we’ll thoroughly outline them in this article.
Malta’s Tax Code: Not That Great at First Look
On paper, Malta charges 35% tax on income, personal and corporate. In theory, that means that Malta’s tax authorities take more in tax more from corporations than France or Germany.
As well as the basic income tax, Maltese companies are required to make social security contributions. This levy amounts to about 10% of payroll once employee contributions are taken into account.
For personal income, tax rates in Malta follow a tax-bracket system that runs from 0% on the first €11,900 of income but kicks up to 35% after €60,000.
That high rate and relatively low threshold puts Malta, in theory, towards the top of most lists of high-tax jurisdictions.
What Makes Malta a Tax Paradise for Companies Then?
The bright spot in the face of that high nominal rate is that if a company is not incorporated in Malta but is based in Malta, it may not pay very much tax on its worldwide income. That’s because:
- Companies are legally resident in Malta if they are controlled from Malta.
- If a company is not incorporated in Malta (and therefore not domiciled here) only income that arises in Malta or is remitted to Malta is taxable.
- As well, capital gains arising outside of Malta, are not taxable even if the proceeds are remitted to Malta.
- Losses, trade and depreciation, can be used to offset gains and can be carried forward indefinitely.
- A series of tax credits and refunds means that the effective tax rate on companies can be as low as 5%.
How Can Individuals Take Advantage of Malta’s Tax Code?
Obviously, someone who is keen on sheltering assets or income from taxation will be happy to use a company to disguise their personal holdings and take advantage of corporate tax advantages.
As well, just as for companies, the Maltese tax authorities are basically only interested in the income an (expat) individual makes in Malta or remits to Malta.
Similarly, capital gains, say from a real estate or stock portfolio, can be remitted without paying tax in Malta.
Tax Breaks Under the Maltese Residence Schemes
There are also two very attractive tax breaks available as part of Malta’s residence permit system.
One is designed for high net worth individuals (HNWI). Under two parallel programs, EU nationals or those from elsewhere, who rent or buy property of a certain value in Malta only pay 15% in income tax.
There is also a tax-favorable residence scheme for highly qualified individuals (HQI). This is open to expats who work in Malta’s gaming, aviation or financial sectors. They must have one of the government’s listed high-level job titles and earn at least €85,016 per year.
HQIs only pay 15% income tax on what they make up to €5-million and no tax above that.
There is no year limit on how long EU nationals can participate in the HQI program; 10 years for EEA and Swiss nationals and four years for everyone else.
It’s hard to say that either of these makes Malta a tax haven per se, but both go towards supporting the idea that Malta is trying to attract expats through deep cuts to personal income tax.
Malta’s Recent Controversy as an Offshore Tax Haven
Large-scale investigations by journalists have cast a critical light on small countries like Panama, certain Carribean islands and, now, Malta.
What do Fellow EU Countries Think of Malta’s Tax Regime?
The European Parliament’s Green MEPs had a report commissioned that found that the tax system in Malta helped corporations avoid €14-billion in taxes between 2012 and 2015. Specifically, that money would otherwise have gone into European government coffers.
Will Malta’s Tax Authorities Change Course?
Whether deserved or not, all of this pressure from the EU may lead Malta to change its tax regime in the near future. Maltese authorities have been loudly insistent that they do not condone illegal activities like money laundering or tax evasion.
Despite these strident statements, there have been small changes to Malta’s tax code, like the minimum tax on non-domiciled residents, that indicate they may move further to distance Malta from its tax haven past.
It’s tough to predict how future governments will act, so take this uncertainty into account when planning your future in Malta.
Is Malta on Tax Haven Blacklists?
Over the past 30 years, a few governmental organizations — mainly the EU and the OECD — have published lists of countries where tax evasion is public policy.
Malta landed on the well-known 2000 list from the OECD of 35 countries who had agreed to improve.
Thanks to it’s co-operation, the country has not been included on subsequent lists such as one published by the EU. Malta has escaped mention on some of the more quantitative lists that usually track things like corporate relocations as well as tax rates as well.
Most analyses place Malta in the emerging category, outside the top 10 tax havens. The long-term result of the “Malta Papers” media attention will probably determine how Malta continues to develop itself in this new world.
Is Malta a 21st-century Tax Haven?
It’s very difficult to imagine a set of circumstances where a country could offer both an EU passport and a true haven from taxes. Malta has a high nominal tax rate and loudly proclaims its support for transparency and participating in a liberal EU.
But there are definitely tax advantages in Malta. For instance:
- Residence permits for executives and high-net-worth expats allow significant tax allowances where the maximum income tax rate is only 15%.
- Malta’s complex tax code means that companies and tax experts can find ways to reduce the effective tax on their income to as low as 5%.
Thanks to steering clear of the many blacklists, Malta is not legally a tax haven, but in the traditional sense of the term, some people may still class it as one.
Whatever the label, Malta is a favorable jurisdiction to do business and live thanks to it’s fair tax code.
Tax law in Malta is not straightforward so it makes sense to speak with a tax advisor. Get in touch and I’ll be thrilled to help.