Elective Tax

Article 22b of the Income Tax Act, introduced through the Budget Implementation Act 2025, empowers the Finance Minister to make regulations for the charging and levying of an elective basis of a tax higher than that established in relation to the profits of Malta entities as defined in such regulations.

On the 2^nd September 2025, such regulations were published through legal notice 188 of 2025.  The regulations provide that an entity (a company or any other entity that elects to be treated or is treated as a company for tax purposes), can opt to be taxed at either the standard corporate tax rate of 35% or a rate of 15% on its chargeable income, but excluding from such chargeable income:

• dividends received from profits that are not allocated to the final tax account (FTA) of another company registered in Malta, and

• income that has been subject to tax at a final rate of tax in terms of any other provision of the Income Tax Act and is allocated to the FTA.

  
  

The election can be take with effect from year of assessment 2025 through a formal notice and it must be applied for a minimum period of five years. After such a 5-year initial period, the entity can then opt to be taxed under the default provisions, which election to be taxed at 35%, would then need to be applied for a minimum period of five years.

Despite the above, if the election to be taxed at 15% is opted for, the tax charged under such option cannot in any year of assessment be lower than the tax that would have been charged under the 35% tax rate, less any refunds that the entity’s shareholders can claim under Articles 48 (4) and 48 (4A) of the Income Tax Management Act and applying the withholding tax provisions in terms of Article 43 (6) of the Income Tax Act.

The 15% elective tax is final and is not available as a credit or set off against the tax liability of any individual or entity, or as a refund to any person. Moreover, when the option is availed of, any profits less the tax are allocated to the FTA.