Table of Contents What is the Maltese Refund System? How does the Malta Tax Refund work in practice? Step-by-Step Guide to the Malta Tax Refund Practical Examples and Calculations Requirements and Pitfalls of the Malta Refund Malta Tax Optimization vs. Other EU Countries Frequently Asked Questions about the Maltese Tax System What is the Maltese Refund System? The Trick with the Tax Refund Have you heard that Malta is supposed to be a tax haven? That’s true—but not quite in the way you might expect. Here, companies are initially charged a hefty 35% corporate tax. That doesn’t exactly sound like paradise, does it? The clever bit is Malta’s refund system (tax refund). As a shareholder, you get back the majority of the corporate tax paid. And not “sometime in the future”, but quite promptly after the profit distribution. The Basic Principle: Pay First, Claim Back Later Malta uses the imputation system for its taxes. That means: your Maltese company initially pays 35% corporate tax on profits. When profits are distributed to you as a shareholder, you can reclaim up to 6/7 of the tax paid. Mathematically, it works like this: – Corporate tax paid: 35% – Refund: 6/7 of that = 30% – Remaining tax burden: 5% Why does Malta do this? Malta wants to attract foreign investors—without violating EU law. The high nominal corporate tax sends a signal: Look, we’re not a low-tax jurisdiction! At the same time, the refund system ensures the actual tax burden remains competitive. What this means for you: you can legally and in full EU compliance optimize your tax liabilities—if you know and follow the rules. How does the Malta Tax Refund work in practice? Let’s get down to the nitty-gritty. I’ll explain to you exactly how the refund system actually works—without all the legal jargon you find elsewhere. The Maltese Tax Accounts Your Maltese company maintains various tax accounts, which determine how much refund you can get: Account Tax Refund Effective Burden Typical Income Final Tax Account 6/7 (ca. 30%) 5% Trading, passive income Foreign Income Account 6/7 (ca. 30%) 5% Foreign-source income Maltese Taxed Account 2/3 (ca. 23.33%) 11.67% Maltese business activity The Refund Mechanism in Detail The refund doesn’t happen automatically. You have to actively apply for it: 1. Declare a profit distribution: Your company distributes dividends 2. Pay withholding tax: Malta withholds tax at source 3. Apply for refund: You submit your application to the Maltese tax authority 4. Receive refund: After 4-8 weeks, the money is paid out Why Not Everyone Gets a Refund Here’s the catch: refunds are only available to shareholders who are not tax-resident in Malta. If you are tax resident in Germany, you’ll get the refund. If you are tax resident in Malta, you won’t. This isn’t a bug, it’s a feature. Malta wants to prevent its own citizens from paying only 5% while benefiting from Maltese infrastructure. Step-by-Step Guide to the Malta Tax Refund Let me show you the practical process. I’ve been through this myself, and I can tell you: it’s less complicated than it looks. Preparation: What You’ll Need Before you start, gather these documents: – Shareholder agreement of your Maltese company – Tax residence certificate of your country of residence – Resolution approving the profit distribution – Proof of paid corporate tax Step 1: Declare Profit Distribution You can’t simply take money out of the company whenever you like. Profits need to be properly distributed as dividends: Hold a general shareholders’ meeting (a written resolution suffices for a one-person company) Decide on profit allocation Set the dividend amount Draft and sign the minutes Step 2: Pay Withholding Tax Malta first withholds tax at source. The rate depends on your country of residence: – EU countries: usually 5% (due to double taxation treaties) – Germany: 5% withholding tax This tax is in addition to corporate tax. But don’t worry—it’s offset later. Step 3: Submit Refund Application Now for the crucial step. Submit your application to the Maltese tax authority (IRD – Inland Revenue Department): Fill out the “Application for Refund of Tax” form Attach all supporting documents (tax certificates, dividend resolution, etc.) Provide your bank details for the refund Sign and submit the application Step 4: Wait and Receive Your Refund Now it’s time to wait. Generally, it takes 4-8 weeks for the refund to hit your account. Complex cases can take up to 3 months. Tip: Make sure your application is complete and correct. Any queries from the authorities can delay the process by weeks. Practical Examples and Calculations: How the Malta Refund Adds Up Numbers speak louder than words. Here are three realistic scenarios. Example 1: The Classic Trading Case Anna from Berlin conducts stock trading through her Maltese company. She makes a profit of €100,000 per year. Calculation without Refund: Profit: €100,000 Corporate tax (35%): €35,000 Retained in company: €65,000 Withholding tax on distribution (5%): €3,250 Net to shareholder: €61,750 Calculation with Refund: Profit: €100,000 Corporate tax (35%): €35,000 Refund (6/7 of €35,000): €30,000 Withholding tax: €3,250 Refund of withholding tax: €3,250 (via DTA) Net to shareholder: €95,000 Savings: €33,250 or 33.25% more net income! Example 2: The Holding Structure Marco from Munich holds shares in German GmbHs through his Maltese company. These dividends are tax-exempt in Malta (Participation Exemption), but he can still apply for a refund. Scenario: Dividends received: €200,000 Corporate tax in Malta: €0 (tax-free dividends) Problem: No refund, since no tax was paid Solution: Mixed Income Marco also generates €50,000 taxable income (e.g., consulting services): Taxable income: €50,000 Corporate tax: €17,500 Refund: €15,000 Total distributable amount: €247,500 Withholding tax: €12,375 Refund of withholding tax: €12,375 Net: €247,500 Example 3: The Consulting Entrepreneur Sarah from Hamburg offers IT consulting to international clients. She works remotely from various countries. Annual profit: €150,000 Item Amount Calculation Gross profit €150,000 – Corporate tax (35%) -€52,500 150,000 × 0.35 Profit after tax €97,500 150,000 – 52,500 Refund (6/7) +€45,000 52,500 × 6/7 Distributable amount €142,500 97,500 + 45,000 Withholding tax (5%) -€7,125 142,500 × 0.05 Refund of withholding tax +€7,125 Via German DTA Net to shareholder €142,500 Effective tax: 5% Requirements and Pitfalls of the Malta Refund System This is the part that many tax advisors like to skip over. The Malta refund isn’t suitable for everyone, and there are some obstacles you need to be aware of. The Key Requirements 1. Substance Requirements Your Maltese company must have real economic substance: Management in Malta (at least a majority of directors) Key decisions made in Malta Adequate office infrastructure Qualified employees (for more complex business activities) 2. Shareholder’s Tax Residency You must not be tax resident in Malta. The refund is only available to non-resident shareholders. 3. Proper Bookkeeping Malta requires full bookkeeping according to local standards. Sloppiness is heavily penalized. The Most Common Pitfalls Pitfall 1: False Self-Employment If you operate as a one-person company but in reality work like an employee (especially with only one main client), Malta may refuse to recognize the setup. Pitfall 2: Insufficient Substance Many believe a “letterbox company” is enough. It’s not. Malta scrutinizes increasingly closely for genuine business activity. Pitfall 3: Ignoring German Tax Consequences The refund doesn’t relieve you of German tax obligations. You must declare the Maltese income in Germany—however, Maltese taxes are usually credited. Compliance Requirements Malta has tightened its compliance rules. You must pay attention to these points: Economic Substance Test: Annual proof of economic substance Ultimate Beneficial Owner (UBO): Full disclosure of all beneficial owners Transfer Pricing: Arm’s length pricing for intra-group transactions CRS reporting: Automatic exchange of information with your country of residence When the Malta Refund Doesn’t Work Malta is not the right choice in the following situations: – You only want to save taxes, without real business activity – Your work is closely linked to Germany (local services) – You shy away from proper compliance efforts – Your annual profits are below €50,000 (cost-benefit ratio isn’t worthwhile) Malta Tax Optimization vs. Other EU Countries: The Honest Comparison Malta isn’t the only EU member with attractive tax rules. Here’s a comparison of the leading alternatives—honestly and without polishing the truth. Malta vs. Ireland: The Classic Comparison Criteria Malta Ireland Nominal corporate tax 35% 12.5% Effective burden 5% (with refund) 12.5% Substance requirements High Very high Minimum capital €1,165 €100 Language English English EU reputation Under critical observation Accepted Conclusion: Malta offers lower taxes, Ireland offers greater legal certainty. Malta vs. Cyprus: The Mediterranean Rivalry Cyprus was Malta’s biggest competitor for a long time, but after various scandals it’s now less attractive: Cyprus: 12.5% corporate tax, but high reputational risks Malta: More complex, but still EU-compliant if implemented properly Malta vs. Estonia: The Digital Duel Estonia has an interesting model for tech businesses: – Estonia: 0% tax on retained profits, 20% on distributions – Malta: Immediate taxation but high refund For fast-growing tech startups, Estonia can be more attractive. The Netherlands: The Underrated Candidate Many overlook the Netherlands as a tax location: – 25.8% corporate tax (only 15% on profits up to €245,000) – Very stable legal environment – Excellent infrastructure – But: no spectacular tax perks My Honest Assessment After Two Years in Malta The Malta refund works, but it’s not a walk in the park. You need: – A solid compliance structure – Regular presence in Malta – Professional advice on the ground – Long-term planning If you’re only looking for a quick tax fix, Malta is the wrong choice. But if you’re ready to build real substance, it can pay off. Frequently Asked Questions about the Maltese Refund System How long does it take to get the refund? It usually takes 4–8 weeks after submitting a complete application. If there are queries or missing documents, it can take three months or longer. Tip: Submit everything correctly and completely. Can I apply for the refund without Maltese tax advice? Theoretically yes, but I wouldn’t recommend it. The Maltese tax authorities are sticklers for forms. One mistake can cost you months. The few hundred euros for a local tax advisor are money well spent. What happens if EU laws change? Malta regularly adapts its laws to EU requirements. The refund system has been around since the 1990s and has survived several EU reforms. Still: there’s no guarantee. Plan flexibly. Do I really need to be physically present in Malta? For substance requirements: yes, to some extent. You don’t have to live there full-time, but important business decisions should be made in Malta. Remote work is possible, just not for 100% of the time. What are the ongoing costs of a Maltese company? Expect €3,000–8,000 per year for compliance (accounting, tax advice, registration fees). There may also be costs for an office and local presence. With annual profits under €50,000, it’s usually not worth it. What about German CFC (“Hinzurechnungsbesteuerung”)? German CFC rules can apply if you manage the Maltese company from Germany. That’s why real substance and local management are so important. Can I move my existing German GmbH to Malta? A direct relocation is complicated and usually not tax efficient. Better: establish a new Maltese company and gradually transfer business activities. Get advice beforehand. How secure is the Malta refund in the long term? Malta is under EU scrutiny, but the refund system is part of Malta’s DNA. Major changes usually come with transition periods. Still: prepare for possible adjustments. Does Malta work for cryptocurrencies? Malta has relatively crypto-friendly laws, but taxation can be complex. Crypto trading is subject to standard corporate tax, while mining and DeFi have special rules. You’ll definitely need specialized advice here. What happens during a tax audit in Malta? Maltese tax audits are thorough but fair. If your books are correct and you have real substance, it’s not an issue. Problems only arise in obvious cases of abuse.
