Malta’s corporate remittance system represents a cornerstone of the jurisdiction’s competitive tax framework, providing significant advantages for companies and multinational enterprises seeking efficient tax structures within the European Union. This system enables certain categories of companies to benefit from territorial-based taxation rather than worldwide income taxation, creating substantial opportunities for international tax optimisation.

Malta’s corporate remittance system is established under the Income Tax Act (Chapter 123) and applies to companies that are resident but not domiciled in Malta. The system distinguishes between different categories of corporate taxpayers based on their incorporation jurisdiction and place of effective management and control.

Under Maltese law, companies fall into three distinct categories:

The remittance basis subjects companies to Malta corporate tax only on income arising in Malta and foreign income that is received or remitted to Malta. Crucially, foreign source capital gains are exempt from Malta tax even if remitted to Malta, providing significant advantages for international investment activities.

Companies qualify for remittance-based taxation when they satisfy the following criteria:

• Foreign incorporation: Company must be incorporated, constituted, or registered outside Malta
• Malta management and control: The control and management of the company’s business must be effectively exercised in Malta
• Non-domiciled status: Company cannot be deemed domiciled in Malta under statutory provisions

The place of effective management is determined by where crucial management and commercial decisions necessary for conducting the entity’s business are made in substance. Key factors establishing effective management and control in Malta include:

• Board meetings: All board meetings held in Malta with decisions taken locally
• Strategic decisions: Commercial and operational decisions made by Malta-resident management
• Corporate records: Maintenance of company books and records in Malta
• Local directors: Appointment of Malta-resident directors with substantive roles
• Value-added activities: Performance of key business functions within Malta

Companies subject to remittance-based taxation are liable for Malta corporate tax on:

• Trading profits generated from business activities conducted in Malta
• Employment income from services performed in Malta
• Rental income from Malta immovable property
• Interest and dividends from Malta sources
• Capital gains arising from Malta assets

• Business profits transferred to Malta bank accounts or used for Malta operations
• Investment income (dividends, interest, royalties) brought into Malta
• Service income from foreign activities when proceeds are remitted
• Any foreign source income received, used, or enjoyed in Malta

The following categories of income remain outside the scope of Malta taxation:

• Non-remitted foreign income: Foreign source income maintained outside Malta
• Foreign capital gains: Exempt even if remitted to Malta
• Foreign source income: Kept in foreign bank accounts or reinvested abroad

Companies on the remittance basis are subject to the standard 35% corporate tax rate on their taxable income. However, the effective tax burden is significantly reduced through Malta’s comprehensive refund system and various reliefs to 5% on trading income.

Companies qualifying for remittance-based taxation have full access to Malta’s tax refund mechanism, enabling shareholders to claim refunds of up to 6/7ths of corporate tax paid. This can reduce the effective tax rate to as low as 5% for trading income distributions.

Where other forms of double taxation relief are unavailable, companies may claim a flat-rate foreign tax credit of 25% of overseas income received before deductions. This credit applies to foreign income allocated to the Foreign Income Account, reducing the effective tax rate to 18.75% even without expenses and further reduced on dividend distribution, as shareholders may apply for Malta’s traditional tax refunds, reducing the ultimate effective rate to 5% or less, depending on expense structure.

Malta branches enjoy several advantages:

• No withholding tax on profit remittances to the parent company
• Access to Malta’s refund system for shareholder tax credits
• 35% corporate tax rate with potential effective rates as low as 5%
• Full access to Malta’s double taxation treaty network
• EU directive benefits including participation exemption provisions

The remittance system provides significant cash flow advantages by eliminating immediate tax liability on non-remitted foreign income. Companies can:

• Defer taxation by maintaining foreign profits outside Malta
• Optimize remittance timing based on business and tax planning needs
• Avoid double taxation on foreign source income until remittance occurs
• Benefit from currency flexibility in managing international cash flows

The system enables sophisticated international tax structures:

• Passive income optimization: Foreign dividends, royalties, and interest remain tax-free until remitted
• Capital gains exemption: Complete exemption on foreign capital gains regardless of remittance
• Treaty network access: Utilisation of Malta’s 70+ double taxation treaties
• EU directive benefits: Access to participation exemption and other EU tax directives

Companies must maintain genuine substance in Malta to qualify for remittance based taxation:

• Local management: Appointment of Malta-resident directors with decision making authority
• Physical presence: Maintenance of offices and operational facilities in Malta
• Key functions: Performance of central management and control activities locally
• Documentation: Comprehensive records demonstrating Malta as the centre of business operations

Foreign companies claiming Malta tax residence must:

• Register with tax authorities as Malta tax residents
• Obtain Malta tax numbers for corporate income tax purposes
• File annual tax returns by statutory deadlines
• Maintain proper books and records in accordance with Malta law

Companies on the remittance basis must:

• Prepare audited financial statements annually under IFRS or local GAAP
• File financial statements with Malta Business Registry within prescribed deadlines
• Separate income sources between Malta and foreign for tax account allocation
• Document remittances with detailed records of foreign income brought to Malta

Companies with international related-party transactions must:

• Maintain transfer pricing documentation supporting arm’s length pricing
• Prepare country-by-country reports where applicable under OECD BEPS requirements
• Document substance supporting Malta as the place of effective management
• Comply with ATAD provisions including controlled foreign company rules

The remittance system is particularly beneficial for international holding companies:

• Portfolio dividends from foreign subsidiaries remain tax-free until remitted
• Capital gains on disposal of foreign investments are completely exempt
• Interest income from foreign loans can be managed on a remittance basis
• Royalty income from intellectual property licensing remains non-taxable until remitted

Investment funds and asset managers benefit from:

• Management fee income from foreign clients taxable only on remittance
• Performance fees and carried interest can be optimized through remittance timing
• Investment gains realized outside Malta remain tax-free
• Dividend income from international portfolios untaxed until brought to Malta

International trading companies can optimize taxation through:[2][3]

• Profit allocation between Malta and foreign operations
• Working capital management by controlling remittance timing
• Currency hedging benefits through foreign income retention
• Supply chain optimization using Malta as a coordination hub

Malta’s remittance system aligns with OECD Base Erosion and Profit Shifting (BEPS) initiatives:[3]

• Substance requirements prevent artificial profit shifting
• Transfer pricing rules ensure arm’s length dealing
• Economic presence requirements support legitimate business operations
• Transparency measures including automatic exchange of information compliance

The remittance system has been approved by EU state aid regulations:

• No selective advantage provided to specific companies or industries
• Territorial basis aligns with international tax principles
• Open to all eligible entities meeting objective criteria
• Consistent application across all qualifying taxpayers

Malta applies comprehensive anti-avoidance measures:

• General anti-avoidance rule (GAAR) preventing abusive tax arrangements
• Controlled foreign company (CFC) rules under ATAD implementation
• Principal purpose test under double taxation treaties
• Beneficial ownership requirements for treaty benefits

Malta’s remittance system has been adapted for digital economy businesses:

• Digital services may qualify for remittance-based taxation
• Intellectual property income benefits from favourable treatment
• E-commerce operations can optimize through remittance timing
• Blockchain and crypto activities subject to specific guidance

Recent enhancements to the remittance system include:

• Simplified compliance procedures for qualifying companies
• Enhanced substance guidance providing clarity on requirements
• Digital filing systems for tax returns and compliance
• Expedited ruling procedures for complex remittance determinations

Malta’s remittance system provides:

• Effective tax rates as low as 5% through the refund mechanism
• No withholding taxes on profit distributions to non-residents
• Extensive treaty network providing global tax optimization opportunities
• EU membership benefits including single market access and regulatory stability

The system successfully attracts:

• International holding companies seeking EU-compliant structures
• Asset management entities requiring flexible tax treatment
• Trading companies optimizing global supply chains
• Technology companies managing intellectual property portfolios

• Professional advice essential for structure implementation and ongoing compliance
• Substance requirements must be genuinely satisfied to maintain eligibility
• Anti-avoidance provisions apply to prevent artificial arrangements
• Regular monitoring required to ensure continued qualification under remittance basis

• Full compliance with OECD BEPS initiatives and EU directives
• Extensive double taxation treaty network providing global coverage
• Modern regulatory framework supporting legitimate business operations
• Ongoing updates to maintain international best practices compliance
  

Remittance based taxation requires careful forward planning and tax structuring. We at Acumum have extensive experience of company tax structuring. If you would like to know more, please contact us.