MALTA: Jurisdiction expected to have new tax regime ‘by 2025’, in major overhaul.

As published on timesofmalta.com, Friday 29 April, 2022.

A new tax regime will be in place by 2025, in a major overhaul of the current system, Finance Minister Clyde Caruana announced on Friday.

Addressing a press conference, Caruana said the time had come to revamp the financial services industry by putting in place a new corporate tax regime to replace the existing one, which he said was drawn up over 20 years ago by then finance minister John Dalli.

A “first draft” of the new tax plan has already been drawn up, Caruana said.

The finance minister declined to give specific details about the impact on the current corporate tax rates.

“In the next couple of weeks and months, this document will be made public. We need to get the numbers right to make sure the island does not see a drop in tax revenues,” Caruana said.

Caruana said a public consultation process will take place on the proposed tax regime, which will also need to be greenlit by the European Commission. Once that is done, the new regime is envisaged to be put in place as early as 2025, Caruana said.

“The key players in the Maltese financial services industry have all come to terms with the need for change. The work has been carried out by the practitioners themselves, while the government is facilitating the process.

“We will be moving from the imputation system to a classical system,” Caruana said.

Malta’s favourable tax regime for foreign-owned companies has long attracted criticism by other EU countries.

The current system sees foreign-owned companies receive a 6/7ths refund on the 35% tax rate, meaning the effective rate of tax paid by these companies is just 5%.

The system, and other similar ones like it in other jurisdictions, has come under pressure from OECD-led efforts to introduce a global minimum corporate tax rate. Details of that system are still being ironed out, but the plans have raised alarms in countries that seek to attract foreign-owned companies, such as Malta.

Caruana declined to say whether under the new regime, Maltese and foreign-owned companies will be paying tax at the same effective rate.

“I will not speculate about the tax rates, from a fiscal perspective, the government still needs revenues. We are not expecting to rake in more money [under the new regime], but need to maintain current levels,” Caruana said when questioned by Times of Malta.

On the FATF’s greylisting, Caruana said international assessors had completed their examination of Malta’s efforts to better fight financial crime.

A decision on whether to remove Malta from the grey list is expected in June.

Just this week, a European Parliament committee voted in favour of introducing a 15% minimum corporate tax rate across the EU for large multinational corporations. The concern is that the rule will eventually be extended to apply to all corporations.

In a statement on Friday, MEP Alfred Sant warned that the blanket minimum rate would benefit countries like France, which base their economies on high corporate tax rates, while eroding the competitive advantage of smaller economies like Malta.

Sant was one of six MEPs to abstain in the vote on the report, which was approved by a large majority.

"The Maltese government, mindful of EU membership, agreed to go along with this measure to respect the wishes of the large majority. While I appreciate and understand the reasons that led to this decision, I still feel that the proposed measure will hurt Malta's economy," Sant said.

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