Final Income Tax Without Imputation

Through Legal Notice 188 of 2025, published on 2 September 2025, Malta has introduced the Final Income Tax Without Imputation Regulations, 2025 (the “Regulations”), enacted under Article 22B of the Income Tax Act.

This new system marks a significant development in Malta’s corporate tax landscape, presenting an optional alternative basis of taxation for companies, entities taxed as companies, and certain trusts.

A Shift from the Traditional Full Imputation System

Under Malta’s long-standing full imputation system, entities are taxed at 35%, with shareholders able to claim tax refunds upon distribution of dividends. While effective and internationally recognised, this system can be administratively complex and results in substantial refund flows.

The newly introduced regime offers an alternative:
✔ A final tax rate of 15% on the entity’s chargeable income
✔ No shareholder refunds
✔ No tax credits or offsets

Under this option, tax becomes final at entity level, lowering administrative complexity and increasing predictability—particularly for groups impacted by the OECD Pillar Two global minimum tax rules.

Malta has positioned this regime to enhance tax certainty, streamline compliance, and maintain competitiveness in an evolving global tax environment, especially following recent international reforms and the G7 agreement recognising coexistence with Pillar Two.

Scope of the Regulations

The regime is available to:

• Companies registered in Malta

• Bodies of persons that elect or are deemed to be treated as companies

• Trusts that have opted to be taxed as companies

Entities may remain under the ordinary rules or elect to transition to the 15% final tax regime.

How to Elect for the 15% Final Tax System

The election is made through a formal notice submitted to the Commissioner for Tax and Customs (MTCA). The Malta Tax and Customs Administration has issued an official form requiring:

• Name of the signing Director

• Name of the electing entity

• Tax Identification Number

• The first Year of Assessment for which the election will apply

• Confirmation of the five-year binding period

Completed forms must be sent to:
📧 ictuforms.mfin@gov.mt

Timing

Entities may elect for income generated in basis year 2024 (YOA 2025) onwards.

Binding Period

• Election is binding for 5 consecutive years

• After reverting to the ordinary system, the entity must remain there for at least another five years before re-electing

Recommended Preparatory Steps

• Obtain a board resolution authorizing the election

• Conduct a comparative tax analysis under both regimes

• Review timing in relation to year-end and tax filing deadlines

• Ensure documentation and acknowledgments are retained for audit purposes

Key Features of the New Regime

1. Flat 15% Final Tax

All chargeable income is taxed at a single final rate of 15%.

2. Excluded Income

Some income does not qualify, including:

• Dividends received from profits not allocated to a Final Tax Account of another Maltese company

• Income already subject to other final tax provisions under the Income Tax Act

3. No Refunds or Credits

Tax paid:

• Is final

• Cannot generate refunds

• Cannot be credited or offset against shareholder tax liabilities

All profits taxed under the regime are allocated automatically to a Final Tax Account.

Safeguards and Anti-Avoidance Measures

To ensure fiscal integrity, the Regulations introduce a “higher of” safeguard test:

The tax due under the 15% regime must never be lower than the tax that would have been payable under the standard system after shareholder refunds under Article 48(4) or (4A) of the Income Tax Management Act.

This ensures the new regime cannot be used to achieve an effective tax rate below Malta’s internationally accepted thresholds.

Strategic Considerations for Businesses

Choosing between the traditional imputation system and the 15% final tax regime requires careful analysis. Key factors include:

• Shareholder composition and refund expectations

• Dividend distribution patterns

• Impact on the group’s Pillar Two effective tax rate

• Long-term group structure and tax strategy

• Administrative simplicity versus refund-driven optimisation

For some entities, the predictability and simplicity of the 15% final tax may outweigh the potential benefits of shareholder refund mechanisms.

Practical Steps When Considering the Election

1. Perform a detailed tax comparison
   Analyse the five-year profile of both regimes, including refunds, distributions, and effective tax rates.

2. Assess OECD Pillar Two implications
   Essential for multinational groups assessing potential top-up tax liabilities.

3. Secure board approval
   Document the strategic rationale and authorisation to file the election.

4. Submit the election form
   Ensure accuracy and send via email to MTCA.

5. Maintain documentation
   Keep the board resolution, election form, confirmation emails, and tax analysis for audit readiness.

6. Coordinate with ongoing tax compliance
   Ensure correct reporting in the tax return and proper maintenance of the Final Tax Account.

The Final Income Tax Without Imputation regime introduces a significant alternative for entities operating in Malta. Offering a 15% final tax rate, simplified compliance, and greater alignment with international standards, the regime may be attractive for businesses seeking stability and administrative ease.

However, given the five-year commitment and the strategic nature of the decision, entities should undertake a comprehensive analysis before opting into the regime.

For many businesses, this reform represents an important opportunity—one that should be carefully evaluated within the broader context of Malta’s evolving corporate tax landscape

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_{The sole practitioner at Equitas Advisory is a member of the Malta Institute of Accountants and the Association of Chartered Certified Accountants and is authorised to practice the profession of Accountancy in Malta in line with the Accountancy Profession Act. Cap.281. by the Malta Accountancy Board – Warrant number 121176.}