Double Taxation Relief in Malta

The treaty question usually starts with a list of countries. That list matters less than founders assume, because Maltese law provides relief whether or not your country appears on it.

When you open a company in Malta, the risk you are trying to avoid is simple. The same profit taxed once where it arises and again where the company is resident. Malta addresses this with four separate relief mechanisms, only one of which depends on a treaty existing. This page sets out how each works, in what order they apply, and what they deliver.

Why a Treaty Is Not the Only Route

Malta has over 70 double taxation agreements in force, most based on the OECD Model Convention. That network covers the major trading nations and much of Europe, Asia and Africa.

What sets Malta apart is what happens when there is no agreement. Maltese tax law contains domestic rules that ensure foreign income is not taxed twice even where no treaty exists, and these apply hierarchically. Treaty relief comes first. Where no treaty is available, unilateral relief applies. Where neither is available, the Flat Rate Foreign Tax Credit applies. Commonwealth relief sits alongside them in a narrow set of cases.

The practical consequence for a founder is worth stating plainly. If your country has no treaty with Malta, you are not exposed to double taxation. You are simply relieved through a different mechanism.

Treaty Relief

Where a double taxation agreement exists, relief is granted under it. Malta applies the ordinary credit method in most treaties, on a source by source and country by country basis.

Foreign tax suffered is allowed as a credit against the Malta tax charged on the same income. The credit is capped at the Malta tax payable on that income, so it reduces the Maltese liability but never produces a refund of foreign tax.

Where the foreign tax equals or exceeds the Maltese 35%, the result is that no Malta tax remains payable on that foreign income.

Treaties also allocate taxing rights between the two countries and can reduce withholding tax on payments into Malta. Rates vary by treaty and depend on beneficial ownership and other conditions, so the applicable rate is checked against the specific agreement rather than assumed.

Unilateral Relief, When There Is No Treaty

Unilateral relief works much like treaty relief but applies outside any treaty. A Maltese resident company that has paid tax abroad on foreign source income can credit that foreign tax against its Malta tax on the same income, again capped at the Malta tax payable.

The condition is evidential. The taxpayer must prove the foreign tax actually paid, with satisfactory documentation for the Commissioner for Revenue. Keep official receipts and tax certificates from the foreign authority, because without them this route closes.

Two features make unilateral relief more powerful than it first appears.

It covers underlying tax on dividends. Where a Maltese company receives a dividend paid out of profits that were taxed abroad, it can claim credit for the subsidiary’s own foreign tax, not merely any withholding tax deducted on the dividend. This credit can be claimed through multi-tier structures provided the Maltese company is related to the overseas company, and one source of relief requires holding more than 10% of the voting power of the company paying the dividend.

It can beat the treaty. Because unilateral relief extends to underlying taxes rather than being limited to withholding tax, it may be claimed not only where no treaty exists, but also where its provisions are more favourable than those of an applicable treaty. This is a point most summaries omit, and it is worth checking case by case rather than defaulting to the treaty.

Commonwealth Relief

Commonwealth relief is a credit for income tax paid to Commonwealth countries other than Malta and the United Kingdom, and it operates in the same way as treaty relief where treaty relief is not available.

We mention it for completeness rather than for planning. The relief is narrow, requires the other country to grant reciprocal relief on Maltese source income, and is rarely invoked in practice. If your structure depends on it, that is a signal to look at the other three mechanisms first.

The Flat Rate Foreign Tax Credit

The FRFTC is Malta’s answer to the situation where foreign tax was paid but cannot be evidenced, or where little or no foreign tax was paid at all. It applies to a company registered in Malta receiving foreign income or gains allocated to its Foreign Income Account, and it is available only where treaty and unilateral relief are not.

How it works? The company receives a notional credit of 25% of the foreign income or gains, computed on the amount receivable after deducting any foreign tax but before other deductions. The 25% is added to the foreign income, attributable expenses are deducted to arrive at chargeable income, that income is taxed at 35%, and the FRFTC is then deducted from the tax charge.

No proof of foreign tax is required: The credit is deemed suffered, so it can be claimed irrespective of whether tax was actually paid abroad. The only condition is a certificate from a certified public accountant and auditor confirming that the income arose overseas and stands to be allocated to the Foreign Income Account. It can be claimed on dividends, capital gains, interest, royalties, rents and other income allocated to that account.

The 85% limitation: The credit deducted against Malta tax is limited to 85% of the Malta tax chargeable on the income allocated to the Foreign Income Account, before the FRFTC and after any other double tax relief credits. This limitation bites where deductible expenses are high relative to the income, which is why the FRFTC does not have to be applied to all Foreign Income Account income, only to the portion producing the optimal position.

The trade-off nobody mentions: Claiming the FRFTC changes what the shareholder can recover. Where the company has claimed it, the shareholder refund is limited to two-thirds of the Malta tax paid, not the 6/7ths that applies to ordinary trading income. Before expenses, the corporate effective rate falls from 35% to around 18.75%, and after the two-thirds refund the combined effective charge lands in the region of 6.25%, varying with the expense profile.

That is an excellent outcome for foreign income that could not otherwise be relieved. It is not the same as the 5% route, and any adviser presenting it as such is skipping a step.

How the Four Mechanisms Rank?

Mechanism	When it applies	What it requires
Treaty relief	A double taxation agreement is in force with the source country	Foreign tax suffered, credited up to the Malta tax on the same income
Unilateral relief	No treaty available, or its terms are less favourable	Proof of foreign tax actually paid, extends to underlying tax on dividends
Commonwealth relief	Treaty relief unavailable and the Commonwealth country grants reciprocal relief	Rarely used in practice
Flat Rate Foreign Tax Credit	Neither treaty nor unilateral relief is available	Auditor certificate that the income is allocated to the Foreign Income Account

Where Malta Has Treaties?

Region	Treaty partners include
Europe	UK, France, Germany, Italy, Spain, Netherlands, Switzerland, Luxembourg
Asia and Middle East	China, India, Singapore, Hong Kong, UAE, Qatar, Saudi Arabia, South Korea
Africa	South Africa, Egypt, Morocco, Tunisia, Libya, Botswana, Mauritius
Americas and Oceania	USA, Canada, Mexico, Uruguay, Barbados, Australia

The full list of agreements in force is published by the Commissioner for Revenue and changes as new treaties are signed and ratified. We check the current position for your specific country before advising on a structure.

What Relief Does Not Cover?

Double taxation relief operates at the level of the Maltese company. It addresses tax on the same income in two countries, and it does that well.

It does not settle your personal tax position in your country of residence. Dividends you receive personally remain taxable where you live, under your own country’s rules, and the anti-avoidance provisions of that country apply to you regardless of how the Maltese company is relieved. Relief at company level and taxation at shareholder level are separate questions, and treating them as one is the most common structuring error we see.

We handle the Maltese side and set the structure up correctly. For your personal position, a qualified adviser in your own jurisdiction is essential, and we can coordinate that review as part of onboarding.