Malta's New Elective Tax Regime

On the 2 September 2025, the Minister responsible for finance issued the Final Income Tax Without Imputation Regulations (the "Regulations") (L.N 188 of 2025). These Regulations provide certain entities with the possibility to opt for a final tax rate of 15% on their chargeable income, as an alternative to the application of the full imputation system under the Income Tax Act.

The Final Income Tax Without Imputation ("FITWI") seeks to align with the Pillar Two Council Directive (EU) 2022/2523 without impacting any of Malta's decisions to defer the introduction of the top-up tax mechanism under this Directive. Through the introduction of the Regulations, taxpayers are provided with the flexibility to assess whether it is more beneficial to apply the current imputation tax system or to resort to the new elective tax regime.

Scope

The entities falling within scope of the Regulations include companies, bodies of persons that elect to be treated as a company or are deemed to be a company in accordance with the provisions of the Income Tax Act, and trusts which elect to be taxed in the same manner as companies.

Features of Malta's tax regime

One of the key features of Malta's corporate tax regime is the full imputation system, which eliminates economic double taxation. Under this system, where dividends are distributed to shareholders out of taxed profits, the dividend carries an imputation credit equal to the tax paid by the company on the profits so distributed.

Apart from the full imputation system, shareholders of a Maltese company may also be entitled to claim certain tax refunds.

Whilst the above mechanisms remain in force, the introduction of the Regulations provides companies with the alternative to be subject to tax at the rate of 15% on their chargeable income. It should be noted that, for the purposes of FITWI, the following income falls outside the scope of "chargeable income":

• dividends received from profits which have not been allocated to the final tax account of another company registered in Malta; and
• income which has already been subject to tax at a final rate under other provisions of the Income Tax Act and allocated to the Final Tax Account.

Any tax paid under the FITWI regime is final and not available as a refund or credit, nor is it capable of being set off against the tax liability of shareholders.

In preserving fiscal integrity, the tax payable under this elective regime cannot be lower than the amount that would have been payable under the current system, including any refunds claimed in terms of Article 48 of the Income Tax Management Act.

Election and duration

Entities interested in adopting the FITWI regime may make such election in respect of chargeable income accruing or derived from year of assessment 2025 and subsequent years.

The Commissioner for Tax and Customs must be informed of the election through the submission of a prescribed election form.

Upon election, the entity will be subject to FITWI for five consecutive years of assessment commencing from the year of assessment in which the election is made. After the lapse of the five years, it is possible for the entity to revert to the full imputation tax system. If this is the case, however, the entity must remain under such system for at least five years before re-electing to apply the FITWI regime.

For those interested in applying for FITWI, the deadline for submitting the election form for the Year of Assessment 2025 is 28 November 2025.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.