Malta’s 15% Minimum Corporate Tax Delay: Navigating a Changing Tax Landscape

In a strategic maneuver, Malta has communicated its intention to postpone the introduction of a 15% minimum corporate tax rate to the European Commission. The delay, which extends by six years, places Malta in the company of four other EU member states opting for a deferred rollout of the new tax rules aimed at major corporations.

The European Union has mandated that member states introduce a minimum effective tax rate of 15% for companies with an annual group turnover exceeding €750 million within the next two years. These rules, rooted in global standards set by the Organisation for Economic Co-operation and Development (OECD), are scheduled for EU-wide adoption by 2025, with implementation kicking off next year. Notably, member states were granted the flexibility to extend the introduction of this supplementary taxation rate by six years.

The rationale behind Malta’s delay, according to a senior European Commission official, is the need for additional time as tax authorities grapple with the complexities of these new regulations. This decision mirrors those of Slovakia, Estonia, Lithuania, and Latvia.

This postponement should not be misconstrued as a signal of impending tax issues. The official emphasized that the intricacies of Pillar 2, as these rules are known, have prompted multiple jurisdictions, including some of the largest ones, to seek clarification on interpretation.

For Malta, these new tax regulations represent a seismic shift in its status as a low-tax jurisdiction. Currently, Maltese companies face a daunting 35% top tax rate, among the highest in the EU. However, they are beneficiaries of an imputation system allowing them to claim substantial refunds on profits that have been taxed locally, ultimately bringing their effective tax rate down to 5%.

Under the proposed regime, companies within the directive’s ambit will need to comply with a minimum 15% tax requirement. Nonetheless, countries retain the flexibility to introduce specific refunds that apply to all companies.

Finance Minister Clyde Caruana has not yet unveiled a comprehensive strategy for Malta’s response to these changes. He stated in September that tax authorities were diligently running simulations to gauge the impact on government revenue and the broader economy. Nevertheless, he assured that the new tax regime would ensure revenue neutrality, with any formal announcements slated for the budgeting process.

The uncertainty swirling around the EU-mandated alterations to the company tax landscape has stirred concerns among Malta’s industry leaders. The lack of clarity regarding the structural aspects of the new tax rules has intensified the prevailing uncertainty, as was reported earlier this year by MaltaToday.

While these rules will chiefly affect a relatively small number of companies in the fields of manufacturing and gaming, these businesses are among the largest and play pivotal roles in the export economy.

Furthermore, questions have arisen from tax practitioners regarding Malta’s initial haste to implement the new regime by 2025 when the directive afforded the option of delay. The decision to defer presents Malta with a valuable window of opportunity to better adapt to the impending changes.