Malta’s Tax Revamp: Island’s Corporate System For Foreign Businesses Is About To Change In A Big Way
Malta is set to overhaul its taxation system which allows foreign businesses to benefit from extremely low tax rates but it is as yet uncertain whether the businesses will be made to pay more tax in practice.
Finance Minister Clyde Caruana announced the upcoming reform today, stating that Malta hasn’t overhauled its taxation regime since the early 1990s and that it must fall in line with global developments.
“The name of the game has changed… we must be competitive but the system must also be fair,” he said.
“We know what is happening in the world and the industry’s key players have all come to terms with the fact that there must be a change in our tax regime. The reform is being carried out by practitioners themselves, while the government is facilitating the process.”
This was a reference to the European Commission’s recent proposed directive to set an effective minimum corporate taxation rate of 15% for large multinational groups, in line with a principle agreed upon by the Organisation for Economic Co-operation and Development (OECD).
Malta’s corporate tax rate currently stands at 35%, one of the highest rates in the world, although the PL has pledged to reduce it to 25%.
However, its imputation system, which is a crucial selling point for foreign investment, allows foreign businesses to benefit from significant rebates.
“We’re moving from an imputation system to a classical system, which reflects the systems in place in continental Europe,” Caruana explained.
“There is still a lot of work that needs to be done but the structure we will have is already in place.”
Caruana adopted a cautious stance when asked by Lovin Malta whether businesses will end up having to pay more tax, stating that the tax rates could “perhaps” change but that he won’t speculate on it.
He said that a consultation document will be launched in the coming weeks and months and that the government will consult with the European Commission to ensure the proposed system is compatible with EU law.
The plan is for the new tax regime to be in place by 2023.
“This will require a lot of training, both to the public sector and practitioners, but there are exciting times ahead,” he said.
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