Through Legal Notice 188 of 2025, published on 2 September 2025, the Minister responsible for finance introduced the Final Income Tax Without Imputation Regulations, 2025 (the "Regulations") in relation to Article 22B of the Income Tax Act.
This Legal Notice establishes an optional alternative basis of taxation in Malta, available to companies as well as to other persons taxed in the same manner as companies and certain trusts.
Under the traditional full imputation system, entities are subject to a 35% corporate tax rate, with shareholders entitled to claim refunds. By contrast, under the new regime, entities may elect to be taxed at a final rate of 15% on their chargeable income in lieu of the imputation system that has long characterised Malta's corporate tax regime.
The objectives of this system include simplifying compliance obligations, reducing refund-related complexities, and providing greater certainty on the final tax position of entities. It also enhances predictability for multinational groups that fall within the scope of the OECD Pillar Two regime. By offering this alternative final tax of 15%, Malta seeks to provide greater clarity and alignment with international tax developments, particularly following global tax reform developments including the G7 agreement allowing the U.S. tax system to operate in a side-by-side manner with Pillar Two, while preserving flexibility for taxpayers.
Scope
The Regulations apply to companies, to bodies of persons that elect or are deemed to be treated as companies, and to trusts that have opted to be taxed in the same manner as companies.
Election
Entities may decide either to remain under the standard rules of the Income Tax Act or to switch to the final tax regime. The choice must be communicated to the Commissioner for Tax and Customs by means of a formal notice, in the manner and within the deadlines that the Commissioner prescribes.
The Malta Tax and Customs Administration has made available the official election form, which must be completed and submitted by a Director of the entity. The form requires:
- The name of the Director signing the form
- The name of the entity making the election
- The entity's Tax Identification Number as issued by MTCA
- The year of assessment from which the election takes effect
- Confirmation that the Director understands the minimum five-year binding period
The completed election form should be submitted to the Malta Tax and Customs Administration via email to [email protected].
Entities may elect for the new regime in respect of chargeable income derived in the fiscal year preceding the year of assessment 2025 (i.e., basis year 2024) and subsequent years.
The regime takes effect from the year of assessment in which the election is made and is binding for a minimum period of five consecutive years. Upon reverting to the ordinary imputation system, an entity must remain under that system for at least five years before being eligible to re-elect for the final tax regime.
Given the binding nature of the election, entities should carefully consider several procedural aspects before proceeding. A board resolution should be obtained authorising a Director to make the election on behalf of the entity, and a detailed comparative tax analysis under both regimes should be completed prior to submission. The timing of the election should also be reviewed in relation to the entity’s financial year-end and tax return filing deadlines.
Additionally, entities should retain copies of the submitted election form and any acknowledgment received from the MTCA for record-keeping purposes, and ensure that the decision aligns with their medium- to long-term tax strategy and overall group structure.
Key Features
The final tax regime applies a flat tax rate of 15% on chargeable income. Certain types of income are excluded from this computation, such as dividends received from profits that have not been allocated to the final tax account of another Maltese company, and income that has already been subject to final tax under other provisions of the Income Tax Act.
Importantly, tax paid under this regime is final: it cannot be refunded, credited, or offset against the tax liability of shareholders or any other person. All profits taxed under this system are automatically allocated to the entity's Final Tax Account.
Safeguards and Limitations
The Regulations include safeguards to preserve fiscal integrity. The tax paid under the 15% regime must never be less than the amount that would have been payable under the standard system after taking shareholder refunds into account. Specifically, this "higher of" test ensures that the tax payable under the 15% final tax regime cannot be less than the effective tax that would have been payable under the ordinary system, after accounting for refunds available to shareholders under Article 48(4) or (4A) of the Income Tax Management Act.
Furthermore, the 15% tax is deemed final and cannot generate refunds or be credited or offset against the tax liability of any other person.
Strategic Considerations for Businesses
Entities now face an important strategic decision: whether to remain under Malta’s traditional full imputation system, with its 35% tax rate and shareholder refund mechanism, or to opt for the new 15% final tax regime. Choosing the new regime means accepting the five-year lock-in period and the finality of the tax but may offer greater simplicity and alignment with international tax frameworks.
When evaluating which option is more suitable, entities should consider factors such as the composition of their shareholder base, expected dividend distribution patterns, and the potential impact of OECD Pillar Two requirements on their global tax profile. It is also essential to assess how the election fits within the company’s long-term business structure and overall tax strategy, supported by comparative tax modelling under both regimes to ensure an informed decision.
Practical Steps for Making the Election
Entities considering the Final Income Tax Without Imputation regime should follow these steps:
- Carry out a comprehensive tax analysis – Compare potential tax outcomes under both the 15% final tax regime and the traditional imputation system, taking into account shareholder refunds, dividend distributions, and the overall effective tax rate over the five-year commitment period.
- Review Pillar Two implications – For multinational groups, assess how the election could affect the group’s global effective tax rate and any top-up tax exposure under the OECD Pillar Two framework.
- Obtain board approval – Secure a formal board resolution authorising the election, as this is a binding and strategic decision with a minimum five-year commitment.
- Complete and submit the election form – Have an authorised Director complete the official MTCA election form with all required information and submit it via email to [email protected].
- Maintain proper documentation – Keep copies of the board resolution, completed election form, submission confirmation, and supporting analysis for record-keeping and audit purposes.
- Coordinate with tax compliance – Ensure the election is correctly reflected in the company’s tax return and that the Final Tax Account is accurately maintained from the year of assessment in which the election becomes effective.
How CSB Can Assist
CSB can assist with the assessment of the optimal approach based on your entity's specific circumstances. We may assist with providing our consultation before making this election to ensure the decision aligns with the entity's overall tax and business strategy. We may also assist in the preparation of the relevant information which is required to substantiate this election.
For tailored advice on the Final Income Tax Without Imputation Regulations and how they may affect your business, please contact us on here on or [email protected]
About the Author
This article has been authored by Malcolm Manara - Manager - Tax, and Gabriele Andreone - Senior Tax Advisor.
