When entrepreneurs set up a company in Malta for tax optimization, the philosophical concept of "tax justice" is not usually top of mind. However, fairness is crucial when the EU evaluates a national tax system. EU law dictates strict non-discrimination principles: a national tax system cannot favor specific groups over others.
If you are establishing a Malta Limited to benefit from the 6/7 tax refund, understanding this legal footing provides long-term security for your planning. Let us look at how this works in practice.
Analyzing Tax Fairness in Malta
Technically, Maltese residents are perfectly entitled to claim the tax refund just like international shareholders. There is no law stopping them. However, the outcome differs significantly due to personal tax liability.
For a local resident, the refund would generally be treated as taxable income. Since the corporate tax rate is 35% and the top personal income tax rate is also 35%, the full imputation system usually means the tax paid by the company covers the individual's liability. If a local resident were to claim a refund, that money would simply be taxed again at the personal level. It is a zero-sum game.
Consequently, claiming the refund makes no financial sense for a Maltese entrepreneur, as it merely shifts the taxation rather than reducing it. The net result remains the same, offering no savings.
Why This Matters for Compliance
Crucially, because the option exists for everyone, the principle of tax justice is upheld. Legally, the Maltese system fulfills all EU requirements regarding non-discrimination. The distinction lies in the economic reality of the shareholder, not in the rights granted by the law.
Comparing the Maltese tax code to complex systems like those in the UK or Germany, one thing stands out: simplicity. Malta has fewer exceptions, fewer hidden clauses, and a clearer overall structure. The system is designed to attract international business, resulting in an effective tax rate of 5%—the lowest in the EU—through the refund mechanism.
At DW&P Dr. Werner & Partners, we have guided countless international entrepreneurs through the company formation process in Malta, ensuring their structures are compliant, optimized, and built on a solid legal foundation.
