Another major overhaul in Malta’s corporate landscape has been announced, with Finance Minister Clyde Caruana revealing that a new corporate tax regime, moving away from the current imputation system, will be in place for the year 2025.
Minister Caruana was speaking at a press launch of Malta’s first mobile payments app called Moneybase, which describes itself as a “neobank”.
The Minister also revealed that a draft of the new tax regime has been concluded, developed by a working group and agreed upon by Malta’s financial services council.
“I cannot stress this enough, it is the practitioners themselves that have drawn up the changes, and not the Government. We will move towards the kind of system widely used across continental Europe, and away from the imputation system” he said.
This major overhaul marks the first tangible change in Malta’s corporate tax regime since the early 1990s, when the legal and regulatory system for the country’s financial services industry was created.
Mr Caruana said the new regime comes in response to feedback received by the European Commission and other foreign entities over the current system.
He said that the draft document will be made available for scrutiny in the coming weeks and months, and all of Malta’s major economic sectors will have the opportunity to provide their own feedback.
In tandem, the Government will be seeking advice from the EU Commission’s DG Tax.
Malta charges a 35 per cent corporate tax rate on local companies, while foreign companies based in the island benefit from an effective five per cent corporate tax through refunds and rebates, a benefit that has come under heavy fire by other EU countries for ‘taking’ corporate tax revenue from multinational companies through this incentive.
Minister Caruana said that through this tax overhaul, the Government is ensuring that it does not receive less corporate taxation revenue. In the meantime, the Labour party in Government has promised, through their electoral manifesto ahead of the 2022 general election, to lower the corporate tax rate for local entities to 25 per cent.
With these two considerations in mind, it would appear that foreign companies will be paying more than the five per cent tax rate come 2025, in a move towards parity in the corporate tax bill between foreign and local companies.
The Minister refused to speculate on the changing of corporate tax rates directly.
Local businesses have had to endure years of changes with regards to compliance and regulation. With a new corporate tax regime on the horizon, further change is to come. Asked by BusinessNow.mt about the impact on local businesses from a new tax regime, which would necessitate investing time, money and expertise in understanding the new system, he said:
“They should not be afraid. I understand that every change brings about some uncertainty but what we are going to do is necessary for the economy at large and for the businesses themselves. Times have changed, I mean the last major overhaul took place in the early 90s, and now time has come for another major overhaul which should serve us for the next 20 years or so.”
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