Figures are for tax year 2026. Malta taxes by year of assessment, so income of calendar 2026 is assessed in year of assessment 2027. This Guide covers when a company is "resident in Malta" under the Income Tax Act (Cap. 123), what the Act says about a company that is not domiciled in Malta, the controlled foreign company (CFC) rule, the interest limitation rule and exit taxation in the European Union Anti-Tax Avoidance Directives Implementation Regulations (S.L. 123.187), and the facts a family must be able to show about where its company is managed. It is written for a family holding company and its adviser. The statute text is quoted from the consolidated texts on legislation.mt. Amounts in the worked examples are hypothetical and labelled as such.
The method, step by step
- Record where the company was incorporated and on what date. Under the definition of "resident in Malta" in article 2(1) of the Income Tax Act, Cap. 123, a company incorporated in Malta on or after 1 July 1994 is resident in Malta, wherever it is managed. Any other company incorporated in Malta is resident in Malta from 1 January 1995 where its management and control is exercised outside Malta.
- For a company incorporated outside Malta, find where "the control and management" of its business is exercised. If that is in Malta, the company is resident in Malta under the same definition in Cap. 123. This is a question of fact. See "Management and control: the facts to evidence" below.
- If the company may also be resident in another country under that country's law, stop and refer: the tie-breaker in the relevant double tax treaty decides treaty residence, and this Guide does not cover it.
- Decide what the company is taxed on. Article 4(1) of Cap. 123 charges income "accruing in or derived from Malta or elsewhere", whether or not it is received in Malta. Its proviso (i) taxes income arising outside Malta only on the amount received in Malta for a person not ordinarily resident or not domiciled in Malta. Read "Domicile of a company" below before relying on that proviso for a company.
- List every foreign entity and permanent establishment the company holds, alone or with associated enterprises. Test each one under regulation 7 of S.L. 123.187 (the CFC rule), then the carve-outs in regulation 7(3), then compute any inclusion under regulation 8.
- If the company pays interest or other borrowing costs, check the interest limitation rule in regulation 4 of S.L. 123.187.
- If the company will move assets, a permanent establishment or its tax residence out of Malta, check exit taxation under regulation 5 of S.L. 123.187.
- Keep the evidence of where the board meets and decides (the list below) on file for every year of assessment.
Ask the client first
- Where and on what date was the company incorporated? Has it ever redomiciled or merged?
- Where do the directors live, where are board meetings held, and who in fact takes the investment and dividend decisions?
- Does any other country treat the company as resident under its own law, or has any tax authority asked about its residence?
- Which foreign companies, funds, partnerships or branches does it hold, with what share of votes, capital and profits, together with family members' and sister companies' holdings?
- For each foreign entity: what does it earn (trading or passive), what corporate tax does it actually pay, and who decides on its assets and risks?
- Does the company borrow, and is it part of a group that prepares consolidated accounts?
Resident in Malta: what the Act says
The definition in article 2(1) of Cap. 123, for a body of persons, reads: "means any body of persons the control and management of whose business are exercised in Malta, provided that a company incorporated in Malta on or after 1st July 1994 shall be resident in Malta and any other company incorporated in Malta shall be resident in Malta from 1st January 1995 where the management and control of the business of the company is exercised outside Malta".
What follows from that text:
- Malta company managed from abroad. A company incorporated in Malta on or after 1 July 1994 is resident in Malta under the Act even if every director lives abroad and every board meeting is held abroad. A company incorporated in Malta before that date is resident from 1 January 1995 where it is managed and controlled outside Malta, and resident under the main rule where it is managed and controlled in Malta. Moving the board abroad does not end Malta residence under the Act. Another country may still treat the company as resident under its own law; refer that to the treaty tie-breaker.
- Foreign company run from Malta. A company incorporated outside Malta is resident in Malta where "the control and management" of its business is exercised in Malta. "Company" in article 2(1) includes "any body of persons constituted, incorporated or registered outside Malta, and of a nature similar to a company" constituted under Malta law (paragraph (b)(i) of the definition). Such a company is then charged under article 4(1) and article 56(6), subject to the domicile question below.
- The Act does not define "management and control" or list the facts that decide it. No allowed page prints such a list. See the section on facts below.
Domicile of a company
- Article 4(1) proviso (i) of Cap. 123 reads: "in the case of income arising outside Malta to a person who is not ordinarily resident in Malta or not domiciled in Malta, the tax shall be payable on the amount received in Malta". Proviso (ii) reads: "no tax shall be payable on capital gains arising outside Malta to a person who is not ordinarily resident in Malta or not domiciled in Malta". Both use "person", and "person" in article 2(1) includes "a body of persons".
- The Act does not define when a company is domiciled or ordinarily resident in Malta. The saved consolidated text of Cap. 123 was searched for a definition of "domicile", "domiciled" and "ordinarily resident" and holds none. Whether a company incorporated outside Malta and managed and controlled in Malta is "not domiciled in Malta", and so taxed on the remittance basis for foreign income, is not settled by the Act text. Do not apply the remittance basis to a company without the adviser's written basis for it.
- The non-dom minimum tax in article 56(27) is written for "Any individual" who is ordinarily resident but not domiciled in Malta. It does not apply to a company. For individuals see
mt-non-dom.
Management and control: the facts to evidence
No allowed Malta page prints a substance test for a holding company, or the factors that decide where "control and management" is exercised. The pages read for this Guide were the Income Tax Act (Cap. 123), the Income Tax Management Act (Cap. 372) and S.L. 123.187 on legislation.mt. The Residency Malta family office page and the mtca.gov.mt site both refused access to the page reader and could not be read. The only "significant people functions" wording found is in two other rules: the CFC rule in regulation 7(2) of S.L. 123.187 (below), and the participation exemption in article 12(1)(u) of Cap. 123 for a subsidiary resident in a jurisdiction on the EU list of non-cooperative jurisdictions (see mt-holding-company-participation-exemption).
Where the company was incorporated outside Malta, or where another country claims it is resident there, residence turns on facts. The following are practice questions an adviser will ask. They are not law and no Malta statute lists them:
- Where are board meetings held, and do the directors attend in person in Malta?
- Where do the directors live, and how many live in Malta?
- Where are strategic decisions (investments, disposals, dividends, borrowing) actually taken, and do the minutes show real discussion rather than approval of decisions taken elsewhere?
- Does a family member who is not a director give instructions that the board follows?
- Who signs on the bank accounts, and from where are payments approved?
- Where are the books, the minutes and the statutory registers kept?
- Does the company have an office, staff or service providers in Malta, and do they match what the company does?
- Do the directors have the knowledge to take the decisions they minute?
The CFC rule (regulations 7 and 8, S.L. 123.187)
The regulations apply to "all companies as well as other entities, trusts and similar arrangements that are subject to tax in Malta in the same manner as companies", including non-resident entities with a permanent establishment in Malta taxed as companies (regulation 2(2)). The regulations call these "taxpayers". The "tax period" is "the year immediately preceding the year of assessment" (regulation 3), "referred to in articles 10 and 11 of the Act, as applicable"; for a company whose accounting period is the calendar year, 2026 income falls in year of assessment 2027.
| Item | Value | Note |
|---|
| Source | all figures below | https://legislation.mt/eli/sl/123.187/eng/pdf |
| Associated enterprise threshold (votes, capital or profits) | 25% | "twenty- five per cent (25%) or more of the profits of that entity" |
| CFC control threshold (votes, capital or profits), reg. 7(1)(a) | 50% | "participation of more than fifty per cent (50%) of the voting rights" |
| Carve-out (a): accounting profits | EUR 750,000 | "no more than seven hundred and fifty thousand euro (€750,000)" |
| Carve-out (a): non-trading income | EUR 75,000 | "non-trading income of no more than seventy-five thousand euro (€75,000)" |
| Carve-out (b): accounting profits as a share of operating costs | 10% | "of which the accounting profits amount to no more than ten per cent (10%) of its operating costs" |
When an entity or permanent establishment is a CFC (regulation 7(1)). The rule covers "an entity, or a permanent establishment of which the profits are not subject to tax or are exempt from tax". For an entity both conditions below must be met. Condition (a) is written "in the case of an entity", so a permanent establishment is tested on condition (b) only:
- (a) "the taxpayer by itself, or together with its associated enterprises" holds directly or indirectly more than the control threshold in the table above of the voting rights, or owns more than that share of the capital, or is entitled to receive more than that share of the profits. Any one of the three is enough.
- (b) "the actual corporate tax paid on its profits by the entity or permanent establishment is lower than the difference between the tax that would have been charged on the entity or permanent establishment under the Income Tax Acts and the actual corporate tax paid". The regulation adds: "the tax that would have been charged in Malta means the tax as computed according to the Income Tax Acts". A further proviso reads: "the permanent establishment of a controlled foreign company that is not subject to tax or is exempt from tax in the jurisdiction of the controlled foreign company shall not be taken into account". The regulation does not say how Malta exemptions, elections or shareholder refunds enter the comparator; state the literal test and refer the computation.
A shared 25% holder links entities; relatives' separate holdings are not added together. An "associated enterprise" (regulation 3) includes an entity in which the taxpayer holds the associated enterprise threshold in the table above or more, and an individual or entity holding that share or more in the taxpayer. The definition continues: "If an individual or entity holds directly or indirectly a participation of twenty-five per cent (25%) or more in a taxpayer and one or more entities, all the entities concerned, including the taxpayer, shall also be regarded as associated enterprises". This applies only where the same individual or entity itself holds that share or more, directly or indirectly, in each entity. A family member who individually holds that share in the Malta company and in a sister company makes the sister company's holdings count towards the control threshold. For the CFC rule, the regulation does not aggregate different family members' separate, smaller holdings (the rule on a person who "acts together with another person" in regulation 3 applies only "For the purposes of regulations 9 and 10"): two relatives who each hold less than the threshold in the Malta company are not associated enterprises on that basis alone.
What is included (regulation 7(2)). Only "the non-distributed income of the entity or permanent establishment arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage". An arrangement is non-genuine to the extent the CFC would not own the assets or bear the risks that generate its income "if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income", provided "the said company is the taxpayer and the said significant people functions are carried out in Malta". A CFC is not taxed in full: the inclusion is limited to income linked to significant people functions performed in Malta by the Malta taxpayer.
The carve-outs (regulation 7(3)). Regulation 7(2) does not apply to an entity or permanent establishment:
- (a) "with accounting profits of no more than seven hundred and fifty thousand euro (€750,000), and non-trading income of no more than seventy-five thousand euro (€75,000)"; both limits in the table above must be met; or
- (b) "of which the accounting profits amount to no more than ten per cent (10%) of its operating costs for the tax period". The proviso reads: "the operating costs may not include the cost of goods sold outside the country where the entity is resident, or the permanent establishment is situated, for tax purposes and payments to associated enterprises".
Either (a) or (b) is enough. Each is a cliff: an entity just above a limit falls fully outside that carve-out.
"No more than" includes the limit itself: an entity with accounting profits exactly at the profits limit and non-trading income exactly at the non-trading limit in the table above is inside carve-out (a).
Computing the inclusion (regulation 8).
- The income included is limited to amounts from assets and risks linked to significant people functions carried out by the controlling company, attributed at arm's length (see
malta-transfer-pricing).
- It is included in proportion to the taxpayer's participation.
- It is included in the taxpayer's tax period in which the entity's tax year ends.
- When the CFC later distributes those profits and the dividend is included in the taxpayer's taxable income, or the taxpayer sells the participation, amounts already included are deducted so the same income is not taxed twice.
- A credit is allowed for tax paid by the entity or permanent establishment, calculated under articles 77 and 82 of Cap. 123.
The foreign country may have its own CFC rules for the same structure. Compare them in cfc-and-substance-rules-compared.
Interest limitation (regulation 4, S.L. 123.187)
| Item | Value | Note |
|---|
| Source | all figures below | https://legislation.mt/eli/sl/123.187/eng/pdf |
| Exceeding borrowing costs deductible up to this share of EBITDA, reg. 4(1) | 30% | "only up to thirty per cent (30%)" |
| Exceeding borrowing costs deductible in any case, reg. 4(3)(a) | EUR 3,000,000 | "deduct exceeding borrowing costs up to three million euro (€3,000,000)" |
- Exceeding borrowing costs are deductible in the tax period in which they are incurred only up to the EBITDA share in the table above. EBITDA is the tax-adjusted figure, and "Tax exempt income shall be excluded from the EBITDA" (regulation 4(2)). A holding company whose income is mostly exempt dividends therefore has little EBITDA for this test.
- The taxpayer may deduct exceeding borrowing costs up to the fixed amount in the table above in any case. Where a group is treated as one taxpayer, that amount is "considered for the entire group".
- A "standalone entity" may fully deduct exceeding borrowing costs. The regulation defines it as "a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment". A family holding company with subsidiaries usually has associated enterprises, so check this before relying on it.
- Excluded: costs on loans "concluded before 17 June 2016", but not any later modification of them (regulation 4(4)(a)); and financial undertakings (regulation 4(7)).
- Disallowed exceeding borrowing costs carry forward "without time limitation"; unused interest capacity carries forward "for a maximum of five (5) years" (regulation 4(6)).
Exit taxation (regulation 5, S.L. 123.187)
- Regulation 5 is marked "Applicable from 1st January, 2020". A taxpayer is taxed on a capital gain equal to the market value of the transferred assets at the time of exit, less their value for tax purposes, where it transfers assets from its Malta head office to a foreign permanent establishment, or from a Malta permanent establishment abroad, or transfers the business of a Malta permanent establishment abroad, in each case "in so far as Malta no longer has the right to tax" the gains; or where it "transfers its tax residence from Malta to another EU Member State or to a third country, except for those assets which remain effectively connected with a permanent establishment in Malta".
- The tax is due "by not later than the taxpayer’s tax return date". It may be paid in instalments over five years where the transfer is to an EU Member State or to an EEA state that has a recovery assistance agreement with Malta or the EU, and only "where the Commissioner has approved a request made in writing for such deferment". Interest is charged under article 44(2A) of the Income Tax Management Act (Cap. 372). Deferral ends and the tax becomes recoverable at once on a sale or other disposal of the assets or business, a later transfer of the assets, residence or business to a third country (other than an EEA state with a recovery assistance agreement), bankruptcy or winding up, or failure to pay instalments that is not corrected within a reasonable period of no more than twelve months (regulation 5(4)).
- A foreign-incorporated company that is resident in Malta only because it is managed and controlled in Malta can cease to be resident by moving its management abroad. Regulation 3 defines "transfer of tax residence" as "an operation whereby a taxpayer ceases to be resident for tax purposes in Malta, whilst acquiring tax residence in another EU Member State or third country". A company incorporated in Malta stays resident under article 2(1) of Cap. 123 wherever it is managed (a company incorporated before 1 July 1994 from 1 January 1995). Whether a treaty tie-breaker result in favour of another country counts as ceasing to be resident under regulation 5 is not settled by the regulations; refer it.
- Where assets or residence move into Malta from another EU Member State, the Malta starting value is the value set by that state, unless the Commissioner finds it does not reflect market value (regulation 5(5)).
Worked hypothetical 1: Malta company, all directors in the United Kingdom
Hypothetical facts: a family holding company was incorporated in Malta in 2015. Its three directors all live in the United Kingdom. Every board meeting is held in London. It holds shares in two trading companies.
- Malta residence: incorporated in Malta on or after 1 July 1994, so resident in Malta under article 2(1) of Cap. 123. Where it is managed does not change that.
- Charge: under article 4(1) it is charged on income "accruing in or derived from Malta or elsewhere". The Act does not say whether a Malta-incorporated company can be "not domiciled in Malta"; do not apply the remittance basis without a written basis.
- The United Kingdom may also treat it as resident under its own law because it is managed there. That is dual residence. Refer to the Malta and United Kingdom double tax treaty tie-breaker; this Guide does not apply it.
- CFC: if it holds a CFC, regulation 7(2) of S.L. 123.187 includes income only where the significant people functions "are carried out in Malta". With every decision taken in London, ask where those functions are carried out before including anything.
Worked hypothetical 2: a low-taxed subsidiary with passive income
Hypothetical facts: a Malta-incorporated family holding company, whose board meets and decides in Malta, owns 100 percent of the shares, votes and profit rights of a foreign company. The foreign company pays no corporate tax in its country. It holds a bond portfolio. The Malta board chooses the bonds and manages the risks; the foreign company has no staff. Its figures for the tax period, all hypothetical:
| Item | Hypothetical value | Working |
|---|
| Source | all figures below | https://legislation.mt/eli/sl/123.187/eng/pdf |
| Interest income (non-trading) | EUR 900,000 | Assumption |
| Operating costs | EUR 50,000 | Assumption |
| Accounting profits | EUR 850,000 | EUR 900,000 less EUR 50,000 |
- Control, regulation 7(1)(a): the Malta company holds all the votes, capital and profit rights, which is more than the control threshold in the CFC table above. Met.
- Tax test, regulation 7(1)(b): the actual tax paid is nil. Interest of this kind would be chargeable under the Income Tax Acts if earned by the Malta company (assumed here; confirm no exemption applies), so the Malta comparator is more than nil. Nil is lower than the comparator less nil. Met. The foreign company is a CFC.
- Carve-out (a), regulation 7(3)(a): accounting profits are above the profits limit in the CFC table, and non-trading income is above the non-trading limit. Fails.
- Carve-out (b), regulation 7(3)(b): accounting profits of EUR 850,000 are more than the share of operating costs in the CFC table (operating costs are EUR 50,000). Fails.
- Inclusion, regulation 7(2) and 8: the bonds and their risks are managed by the Malta board in Malta, so the foreign company would not hold them if not controlled by the Malta company. The non-distributed income linked to those functions, attributed at arm's length and in full (100 percent participation), is included in the Malta company's tax base for the tax period in which the foreign company's tax year ends. No foreign tax credit arises because no foreign tax was paid.
- Later: if the foreign company distributes those profits and the dividend is included in the Malta company's taxable income, amounts already included are deducted under regulation 8(d). Whether the dividend is instead exempt under the participation exemption is in
mt-holding-company-participation-exemption.
If instead the foreign company had its own staff who chose and managed the bonds in its own country, the income would not arise from functions carried out in Malta, and regulation 7(2) would include nothing even though the entity is still a CFC.
When to refuse or refer
- Refer treaty residence: any company that another country also treats as resident, and any question whether a treaty tie-breaker ends Malta residence for exit tax.
- Refer the remittance basis for a company. The Act does not define a company's domicile.
- Refer the foreign country's own CFC, management and control or substance rules; compare them in
cfc-and-substance-rules-compared.
- Refer the arm's length attribution of CFC income and any transfer pricing work (
malta-transfer-pricing).
- Refer hybrid mismatch questions (regulations 9 and 10 of S.L. 123.187) and the general anti-abuse rule (regulation 6); this Guide does not cover them.
- Refuse to state that a company "has substance" or is "managed in Malta" on the client's say-so. It is a finding of fact on evidence.
- For setting up the structure see
mt-family-office-setup; for choosing a country see family-holding-company-location-compared.
Sources
- Income Tax Act, Cap. 123, consolidated text: https://legislation.mt/eli/cap/123/eng/pdf (art. 2(1) "resident in Malta", "company", "person", "body of persons"; art. 4(1) and provisos; art. 12(1)(u); art. 56(6); art. 56(27)).
- European Union Anti-Tax Avoidance Directives Implementation Regulations, S.L. 123.187 (Legal Notice 411 of 2018, as amended by Legal Notices 348 of 2019 and 29 of 2020): https://legislation.mt/eli/sl/123.187/eng/pdf (regs. 2 to 8).
- Income Tax Management Act, Cap. 372 (art. 44(2A) interest on deferred exit tax), read on legislation.mt.
This Guide is a working reference. It is not tax advice for any particular company.