Optimizing Dividend Distribution from Malta: Timing and Tax Considerations for International Shareholders

Understanding the Malta Tax Refund System: How Does the Refund Work?

The Maltese tax system is unique in Europe. While other countries simply bill you, Malta has developed a refund system that’s almost too good to be true. Almost.

The 6/7ths System Explained Simply

Let’s say your Maltese company generates a profit of €100,000. Initially, you pay 35% corporate tax—that’s €35,000. So far, so normal. Here’s the twist: When you distribute the profit to shareholders, you get 6/7ths of the corporate tax you paid refunded.

That means you get €30,000 (6/7 of €35,000) back from the Maltese tax authority. Your effective tax rate ends up at just 5% at the company level. Sounds unbelievable? It is—and it’s perfectly legal.

Practical Example: My friend Marcus, an IT entrepreneur from Munich, was skeptical. “There’s no way that’s right,” he said the first time I explained it. A year later, he distributed €200,000 from his Maltese holding and received a €60,000 tax refund. Since then, he talks about Malta the way others talk about their first love.

What Are the Current Tax Rates?

This gets a bit more complex, as not all shareholders are treated equally. Malta’s system distinguishes between different accounts—yes, you heard that right: Malta keeps different tax accounts for each company.

*Depending on the Double Taxation Agreement (DTA) between Malta and the respective country.

Tax Refund Entitlement: When and How to Apply?

The right to a refund doesn’t happen automatically. You have to actively apply for it, and you have up to six years from the end of the financial year in which the distribution took place. It may sound like plenty of time, but it’s an important deadline—do not miss it.

The application process goes through the online portal of the Maltese tax authority (Malta Tax and Customs Administration). Here’s what you need:

• The shareholders’ resolution approving the dividend distribution
• Proof of paid corporate tax
• Shareholder list with ownership percentages
• For foreign shareholders: Tax residency certificate

Pro tip: Submit your application no later than three months after the distribution. The Maltese tax office often takes 6–12 months to process claims—and you dont want your money languishing for ages.

Optimal Timing for Dividend Distributions: When Will I Pay Less Tax?

Timing is everything when it comes to Maltese distributions. I’ve seen entrepreneurs lose tens of thousands of euros through bad timing alone. Don’t let that be you.

Tax Treatment by Shareholder Type

Your tax burden depends largely on where you are tax resident and which passport you hold. Malta’s system is nuanced here—some would call it complicated.

Malta residents have hit the jackpot. They essentially pay no tax on dividends from Maltese companies. The 35% corporate tax gets almost fully refunded, and no additional tax is due at the personal level.

EU citizens who are not Malta residents benefit from the EU Parent-Subsidiary Directive. The result: No withholding tax in Malta, an effective 5% company-level tax burden. However, you must declare the dividends in your home country—and the Maltese tax is credited against the local tax.

Third-country nationals face more complexity: double taxation treaties may apply with varying terms. For example, with the US the withholding tax is capped at 15%; with Switzerland, it’s 5%.

Year-End Timing and Cash Flow Management

Malta’s tax year runs from January 1st to December 31st—that much is known. What’s less well known is that the exact timing of a distribution can be highly relevant.

My Mistake, Your Gain: In my first year in Malta, I distributed dividends in December. Problem: Corporate tax only became due the following March. So for three months, I’d “pre-financed” €35,000 for the tax office, which I only got back much later. Now, I only ever distribute after the corporate tax has been paid.

The optimal sequence:

1. Close the financial year (no later than December 31st)
2. Calculate and pay corporate tax (due by March 31st of the following year)
3. Call a shareholders’ meeting and pass a distribution resolution
4. Carry out the distribution
5. File the refund application

Exit Timing: Distribute Before Selling or Moving?

Are you planning to sell your Maltese company or change your tax residence? Then you should consider a strategic distribution.

On a company sale, retained profits are included in the sale price. This means the buyer pays for money that’s actually yours. If you distribute before selling, the company value decreases—but so does your overall tax burden.

Sample calculation: Your company has €500,000 in retained profits. On sale, you pay 26.375% on the capital gain in Germany (partial-income method). If you distribute before selling, you only pay 5% in Malta plus your German capital gains tax minus the Malta tax credit.

International Shareholders: Key Points and Pitfalls

As an international shareholder of a Maltese company, you’re moving through a minefield of double taxation treaties, EU directives and national tax laws. The good news: With the right knowledge, it’s navigable.

EU Citizens vs. Third-country Nationals

EU membership is pure gold when it comes to Maltese dividends. EU citizens enjoy several benefits:

• No withholding tax: Malta does not charge withholding tax on dividends to EU shareholders
• Faster refund processing: EU applications are often prioritized
• Lower documentation requirements: Less paperwork, more efficiency

Third-country nationals have a more complicated situation. Depending on home country, withholding tax may be between 5% and 15%. This is withheld at source and can only be credited or refunded via the double taxation agreement.

Case Study: A US client distributed $300,000 from his Maltese holding. Malta withheld 15% withholding tax ($45,000). He could credit this in the US, but the cash flow hit was noticeable. He now plans his distributions accordingly.

Leveraging Double Taxation Agreements

Malta has double taxation agreements (DTAs) with over 70 countries. These determine which country can levy how much tax. For you as a shareholder, withholding tax rules are especially relevant.

Here are the main DTA rates on dividends:

Withholding Tax: What’s Left Over?

The withholding tax is the amount Malta deducts directly from the distribution. But beware: That’s not necessarily your final tax bill.

In many cases, you can credit Malta’s withholding tax against your liability in your country of residence. This only works if your home country allows such credits—not always a given.

My advice: Before your first payout, get written confirmation from a tax advisor in your home country about how Maltese dividends are treated there. That clarity is worth its weight in gold.

Practical Dividend Strategy: Step-by-Step to the Optimal Distribution

Enough theory—let’s get practical. Here’s my tried-and-tested strategy for Maltese dividend distributions, developed through personal experience (and learning from others’ mistakes).

Planning and Documentation

Before you even think about a distribution, you need a plan. I use a simple Excel spreadsheet tracking all the key factors:

• Available profits: What can actually be distributed?
• Corporate tax status: Has the tax been paid already?
• Shareholder structure: Who gets how much?
• Liquidity needs: How much cash does the company need?
• Tax implications: What’s the net cost of the distribution?

You should do this planning at least three months before your intended distribution. Why? Because you might still have to pay additional corporate tax or handle other formalities.

Formulating the Distribution Resolution Correctly

The distribution resolution isn’t just a formality—it has major tax implications. In Malta, specific wording is required for the tax office to accept your refund claim.

An appropriate resolution includes:

1. Exact profit calculation: On what basis is the payout made?
2. Refund entitlement: Explicit mention of the 6/7ths claim
3. Shareholder allocation: Who gets what, from which tax account?
4. Payment details: When and how will it be paid?

Warning from Experience: My first distribution resolution was too vague. The Maltese tax authorities rejected the refund claim because it wasn’t clear which tax account the distribution came from. Fixing this cost me three months and €2,500 in advisor fees.

Distribution and Tax Return

The actual payout should happen soon after the resolution—ideally within 30 days. Why? Because the Malta tax office might question a distribution that’s significantly delayed.

When making the transfer, pay attention to the payment reference. I always use: Dividend payment according to shareholders resolution dated [date] – [company name]

For your tax return, you’ll need:

• Shareholder resolution (original and translation)
• Company bank statement showing the payment
• Recipient’s bank statement showing receipt
• Company tax calculation
• For foreign shareholders: Tax certificate from home country

Common Mistakes and How to Avoid Them

In three years in Malta, I’ve seen every conceivable mistake in dividend payouts—some I made myself, others I watched unfold. Here are the costliest (and how to avoid them).

Timing Mistakes That Get Expensive

The most common and expensive mistake: Distributing before paying corporate tax. The issue isn’t just cash flow, but also tax allocation.

Mistake #1 – December Distribution: You distribute in December, but corporate tax isn’t due until March the following year. Result: You’re lending money to the tax office interest-free.

Mistake #2 – Double Distribution: You pay out twice a year without consideration of the different tax accounts. Malta keeps separate accounts for different income types. If you mix these, the refund gets complicated, or impossible.

Mistake #3 – Year-End Rush: You only start planning the distribution in December. Problem: Shareholders’ meetings need time, transfers take a while, and the tax office doesn’t work overtime between Christmas and New Year.

Traps in the Formalities

Malta is a common law country—formalities are sacred. A wrongly filled-out form can delay you by months.

The Signature Trap: All shareholders must sign the distribution resolution, even if someone only holds 1%. For international shareholders that often means postal correspondence, certified translations, apostilles. Allow at least six weeks for this.

The Translation Trap: All non-English documents must be officially translated. This includes German tax certificates. Google Translate just doesn’t cut it—the Maltese tax office is strict here.

The Deadline Trap: The refund application must be submitted within six years. Sounds like plenty of time—but it isn’t. I know business owners who missed the deadline and lost out on five-figure refunds.

Tax Advisory: When It’s Worth It

Maltese tax law is complex. The question isn’t if you need an advisor, but when and which one.

You definitely need an advisor if:

• You want to distribute more than €100,000
• You have shareholders from different countries
• You plan to change your tax residence
• You have complex structures (holdings, subsidiaries)

You can probably manage on your own if:

• You are an EU citizen and distribute less than €50,000
• You are the sole shareholder (just yourself)
• Your affairs are simple and clear-cut

The cost of professional advice ranges from €1,500 to €3,500 for a standard distribution. Expensive? Yes. But a single mistake could cost you ten times as much.

My Advice from Experience: Invest in professional advice the first time and document every step. The second time, you’ll be able to do most of it yourself and save money. That first round of consulting is your tuition fee—and it’s almost always worth it.

Frequently Asked Questions

Can I pay out dividends multiple times per year?

Yes, in principle that’s possible. But keep in mind that each distribution requires a separate refund application and causes additional administrative costs. For smaller amounts, a single annual payout is often more efficient.

How long does the refund payout take in Malta?

The Maltese tax office usually takes 6–12 months to process. In exceptional cases, it can take even longer. Plan accordingly and factor the cash flow effect into your liquidity planning.

Do I have to pay tax on Maltese dividends in Germany?

Yes, as a German tax resident, you must tax Maltese dividends in Germany. However, you can credit the Maltese tax. The details depend on your personal situation—consult a German tax advisor.

What happens if I submit the refund claim too late?

After the six-year period, your right to a tax refund lapses. The money is lost for good. Always file your application promptly after the distribution.

Can non-EU citizens use the Maltese system?

Yes, but with more restrictions. You may have to pay withholding tax and face greater administrative hurdles. Check the double taxation agreement between Malta and your home country.

Do I need a Maltese bank account for the distribution?

No, the payout can be sent to any account worldwide. Just be aware that international transfers may result in fees and sometimes take longer.

What if my company made a loss?

No profits, no dividend distribution. But you can carry losses forward against future profits indefinitely. Malta allows unlimited loss carryforward.

Can I make non-cash (in-kind) distributions instead of cash?

Yes, but it’s tax-wise complicated. The value of the non-cash distribution must be determined, and additional taxes may apply. Always consult an advisor before taking this route.

What happens if a shareholder changes?

New shareholders are not entitled to already accumulated refunds. These belong to those who held shares at the time profits were generated. For share transfers, this should be agreed contractually.

Are there minimum or maximum amounts for distributions?

No, there are no legal limits. In practice, the administrative effort for very small amounts (under €10,000) often isn’t worth it. The only limit is how much profit is available for distribution.