Corporate Income Tax Trends in Malta: EU Taxation Report 2023

Malta’s Corporate Income Tax Revenue Among Highest in EU, Report Shows

Malta continues to rely heavily on corporate income tax as a significant source of revenue, according to the EU’s latest taxation report for 2023. The report reveals that corporate income tax accounts for almost 15% of Malta’s total tax income, making it one of the highest in the EU.

Ranked third in the EU, after Cyprus and Ireland, Malta has the highest top statutory tax rates on business profits at 35%. However, the report highlights that the effective tax rate for companies owned by non-residents or residents without domicile in Malta is much lower at 5%, due to rebates.

The report also sheds light on the use of ‘tiny’ jurisdictions in Europe, such as Liechtenstein, Gibraltar, and Isle of Man, where a high number of companies per adult population suggest their use for profit-shifting from high-tax regimes to lower tax countries.

Multinational enterprises (MNEs) are known to use complex tax structures with entities in these jurisdictions to shift profits to subsidiaries with lower tax rates. The report identifies Puerto Rico, Ireland, Luxembourg, and others as main destinations for profit-shifting.

Malta has refunded over €13 billion in income tax to corporate shareholders in the last 14 years under its refundable tax credit system. The number of companies benefiting from the refund has grown significantly, with 8,012 companies actively registering for tax refunds.

The European Commission is assisting Malta in addressing challenges related to data quality in tax administration. The introduction of real-time reporting of payroll and VAT is expected to simplify revenue administration, reduce administrative burden, and improve tax compliance.

Overall, tax revenues accounted for 40.4% of the EU’s GDP in 2022, highlighting the importance of effective tax administration in the business environment. The EU’s taxation report emphasizes the need for simplification and real-time reporting to enhance tax compliance and increase tax revenues, especially in the digital VAT reporting and ‘gig economy’ income sectors.