Malta third highest in EU ranking of corporate tax income

Corporate income tax remains one of Malta’s most significant sources of revenue at almost 15% of its total tax income, the EU’s latest taxation report for 2023 says

By: maltatoday.com

Jul 17 2024
0
4255 Views

Malta third highest in EU ran

Corporate income tax remains one of Malta’s most significant sources of revenue at almost 15% of its total tax income, the EU’s latest taxation report for 2023 says.

Malta ranked third in the EU, after Cyprus (18.1%) and Ireland (21.5%) where corporate income tax forms a significant proportion of its state revenues.

Malta still has the highest top statutory tax rates on business profits at 35%, followed by Portugal (31.5%) and Germany (29.9%), while the lowest can be found in Bulgaria (10%) and Hungary (9%).

But Malta’s statutory income tax rate masks the rebates that lead to an effective tax rate of 5% for companies that are owned by non-residents, or by residents without domicile in Malta.

In Europe, various ‘tiny’ jurisdictions reported a very high number of companies per adult population, suggesting their use for shifting profits from high-tax regimes to lower tax countries – the highest number of limited liability entities per adult are Liechtenstein (809), Gibraltar (619), Isle of Man (597), Guernsey (528) and Jersey (495). In the EU, Estonia (348), Luxembourg (330), Cyprus (226), Belgium (168) and Malta (168).

To avoid taxes, multinational enterprises (MNEs) can use complex tax structures with entities in these jurisdictions to shift profits to subsidiaries where they will be less taxed.

A 2022 study cited by the EU’s taxation report identified Puerto Rico, Ireland, Luxembourg, Hong Kong, Switzerland, Singapore and the Netherlands as the main destinations for profit-shifting.

Malta has refunded over €13 billion in income tax to corporate shareholders in the last 14 years under its refundable tax credit system.

Every year since 2008, Malta refunded an average of 14.2% from the tax owing from these eligible companies. Currently there are 8,012 companies actively registering for tax refunds under the refundable tax credit system.

The number of companies benefiting from the refund has grown exponentially since 2008, when over €276 million in tax owing was whittled down to €39 million; to 2022, when a sheer €1.5 billion was whittled down to €216 million after refunds.

With tax revenues accounting for 40.4% of the EU’s GDP in 2022, the administration of taxes is a key element of the EU business environment.

The European Commission is assisting Malta in addressing the challenges of data quality. Malta is receiving support for the introduction of real time reporting of payroll and VAT.

“Simplification of revenue administration will reduce administrative burden, leading to improved tax compliance, increased tax revenues and a better business environment,” the EU’s taxation report says, especially for digital VAT reporting and real-time reporting of “gig economy” income.