Tax Alert - Final Income Tax Without Imputation Regulations

Executive summary

• Malta has delayed the implementation of IIR and UTPR and opted against introducing a QDMTT. This position remains unchanged.
• Separately, Malta has published regulations for an elective tax, which aims to provide Maltese constituent entities of groups in scope of Pillar Two the faculty to pay top-up tax in Malta.
• Under these rules, an entity may elect to have its chargeable income subject to tax in Malta at the rate of 15%, instead of the applicable statutory corporate income tax rate.
• Profits subject to the 15% rate of tax are allocated to the final tax account, and thus, no refund in terms of the refundable tax credit system would be claimable on those profits.
• The election to apply the 15% rate is made by means of a notice to the Commissioner for Tax and Customs and shall remain in place for at least five years.

Background

• On 15 December 2022, the EU Member States unanimously adopted the Directive aimed at ensuring a global minimum level of taxation for MNE Groups and large-scale domestic groups in the Union. The minimum level of taxation shall be achieved by the application of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rules (UTPR).
• Member States had until 31 December 2023 to transpose the Minimum Tax Directive into national legislation with the IIR and UTPR to be applicable for fiscal years starting on or after 31 December 2023 and 31 December 2024, respectively.
• Notwithstanding this timeline, by means of a derogation from the provisions of the Directive, Malta was eligible, and opted, to delay the implementation of the IIR and the UTPR. Indeed, so far, Malta has not introduced either mechanism, and it has also not introduced a qualified domestic minimum top-up tax (QDMTT).
• Although Malta has not implemented any of the top-up tax rules, an enabling provision was enacted to facilitate the introduction of a minimum elective tax. Such an elective tax gives constituent entities located in Malta that are in scope of Pillar Two outside of Malta the faculty to pay top-up tax in Malta. As this is an elective tax, the enactment of this provision does not alter Malta’s current intention to delay application of an IIR and UTPR and not to introduce QDMTT.
• The Framework vis-à-vis such elective tax has recently been published in Legal Notice 188 of 2025, entitled ‘Final Income Tax Without Imputation Regulations, 2025’, (the Regulations).

Detailed discussion

• Under the Regulations, ‘entities’ shall be subject to income tax in Malta in terms of either the established income tax rules, as set out in the Income Tax Act and Income Tax Management Act or at a rate of 15% on the chargeable income as computed under the provisions of the Income Tax Act, excluding:
  • dividends received from profits that are not allocated to the final tax account of another company; and
  • income that has been subject to tax at a final rate of tax in terms of the Income Tax Act and which are allocated to the final tax account.
• Essentially, when invoked, the 15% rate on the chargeable income would apply in lieu of the applicable corporate income tax rate.
• Entities may elect to apply the 15% rate of tax as from year of assessment 2025 and subsequent years.
• The tax resulting under this method may not be lower than the tax that would have been charged under the generally applicable corporate income tax rules established in the Income Tax Act and the Income Tax Management Act. In making this assessment, entities must take into account any refund claimed or claimable in terms of the Maltese refundable tax credit system and also considering the provisions of article 43(6) of the Income Tax Act.
• The tax charged under the 15% method shall be final and accordingly profits subject to this tax shall be allocated to the Final Tax Account.
• The election shall be made by means of a notice to the Commissioner for Tax and Customs and cannot be revoked before the lapse of five years from the first year of assessment from when the entity applied the elective tax at the 15% rate.

Next steps and implications

• Entities subject to tax in Malta shall assess whether the newly introduced elective tax could benefit them in comparison with the generally applicable corporate income tax rules as established in the Income Tax Act and the Income Tax Management Act, including the application of the refundable tax credit system.
• Entities subject to Pillar Two shall make such assessment in light of the top-up tax regulations applicable to them. In particular, groups shall analyse the comparability between the chargeable income in Malta and the GloBE Income or Loss under the GloBE Rules and impact of invoking the 15% withholding tax on the calculation of the Malta % Effective Tax Rate for both Transitional CbCR Safe Harbour and GloBE purposes.
• Furthermore, it being a five-year election, entities shall assess the benefit of the elective tax over a five-year period, considering, inter alia, the five-year projection of the group’s exposure to Pillar Two, any corporate restructurings envisaged and the Maltese constituent entities’ projected activities and items of income. 

Contacts for further information