Malta’s 6/7 Tax Refund: Correct Structure, Clean Filing, Refund in 14 Days

Malta operates a full imputation system of corporate taxation. The mechanism works in two stages and prevents economic double taxation of distributed profits.

Stage 1 — Corporate level. Every Malta-resident company pays a flat 35 % corporate income tax on its worldwide taxable income. This rate is intentionally set at the high end of the EU range: it ensures Malta is not classified as a low-tax jurisdiction and satisfies both EU and OECD standards.

Stage 2 — Shareholder level. When the company distributes a dividend, the shareholder receives an imputation credit equal to the full 35 % tax already paid. The shareholder then files a refund claim with the Commissioner for Revenue (CFR). For trading income, the refund is 6/7 of the tax paid — bringing the combined effective rate down to 5 %.

The critical distinction is that the company pays the full 35 %. The refund is a shareholder-level mechanism, not a reduced corporate rate. This is why the European Commission has confirmed that the system does not constitute unlawful state aid: it applies universally, prevents double taxation and maintains tax neutrality.

The legal basis sits in Articles 48–56 of the Income Tax Act, with procedural detail in Subsidiary Legislation 406.11.

The refund system applies to all shareholders — corporate or individual, resident or non-resident. In practice, the greatest benefit accrues to non-resident shareholders, because Maltese residents may face a “topping-up” tax if rates change between the year profits are earned and the year of distribution.

Who can claim. Any registered shareholder who receives a dividend from a Malta company and has paid (through the company) the corresponding corporate tax. This includes holding companies, trusts, fiduciaries and individual investors. Beneficial ownership must be fully disclosed under Malta’s 5th AML Directive implementation.

What substance is needed. To support refund claims and withstand review from foreign tax authorities, Malta companies must demonstrate genuine economic activity:

• A physical office in Malta — not a virtual address or mailbox • At least one Malta-resident director with real authority and active participation • Board meetings held in Malta, with documented minutes • A local bank account used for operational transactions • Employees proportionate to the scale of business operations • Key strategic and financial decisions made in Malta

What will not hold up. Virtual offices, nominee directors who do not participate in decisions, or structures where all real decision-making happens outside Malta. The Commissioner for Revenue and foreign tax authorities both apply a substance-over-form doctrine.

Anti-abuse provisions. Malta’s General Anti-Avoidance Rule (GAAR) allows the tax authorities to challenge arrangements that lack commercial rationale. Transfer pricing rules require arm’s-length treatment of related-party transactions. Treaty shopping is addressed through Limitation of Benefits clauses and the Principal Purpose Test under the BEPS Multilateral Instrument.

EU Anti-Tax Avoidance Directive (ATAD). Malta has transposed ATAD, including Controlled Foreign Company (CFC) rules. Structures must be designed with these provisions in mind — something we address during the planning stage with every client.

The refund claim follows a defined sequence. Each step has specific requirements that must be met before the next can proceed.

1. File the company tax return. The Malta company submits its annual tax return (Form TA1) to the Commissioner for Revenue, together with audited financial statements and a tax computation. The return is due within nine months of the accounting year end.

2. Pay the 35 % corporate tax. The full tax liability is settled upon filing. Late payments attract interest and penalties.

3. Allocate profits to tax accounts. Distributable profits must be allocated to the correct tax account — MTA (Maltese Taxed Account), FIA (Foreign Income Account), IPA, FTA or UA. The allocation determines which refund rate applies. Getting this wrong is the single most common cause of rejected or delayed claims.

4. Declare and distribute the dividend. The board passes a resolution specifying the dividend amount, the receiving shareholders and the tax account from which the distribution is made. Minutes must be documented.

5. File the refund claim. The shareholder submits the prescribed refund application form to the CFR. Required documentation includes a certified copy of the dividend resolution, beneficial ownership disclosure (mandatory under LN26 of 2020), proof of shareholder status and, for non-residents, a tax residence certificate.

6. CFR processes the claim. Electronic filings are typically processed within 14 working days. Paper filings can take up to 14 weeks. The CFR verifies documentation, validates beneficial ownership and runs anti-abuse checks.

7. Refund paid to the shareholder. The refund is paid directly to the shareholder by bank transfer — not to the company. The shareholder should retain all documentation for their home-jurisdiction tax records.

Deadline to note: Refund claims must be submitted within six months from the end of the calendar year in which the tax became chargeable.