An Overview of Malta’s New Optional Tax Framework
Promethean Advisory Limited presents an overview of the Final Income Tax Without Imputation Regulations (“FITWI”), 2025, which introduces a new optional system for the taxation of company profits in Malta. These regulations offer an alternative to the long-standing imputation system and are designed to simplify corporate tax compliance while aligning with evolving international tax standards.
General Overview
Under the current Maltese system, companies are required to allocate their distributable profits into five tax accounts for reporting purposes — the Final Tax Account (“FTA”), Immovable Property Account (“IPA”), Foreign Income Account (“FIA”), Maltese Taxed Account (“MTA”), and Untaxed Account (“UTA”). The standard imputation model allows shareholders to receive refunds of tax paid at the company level, reducing or eliminating double taxation.
By contrast, FITWI replaces this refund mechanism with a final tax on chargeable income at a flat rate of 15%, bringing greater simplicity and predictability. Once an entity elects FITWI, the company’s income is subject to a definitive tax that cannot be refunded or credited to any shareholder or entity.
Key Features of the FITWI Regime
- Optional system: Entities may opt to apply FITWI rather than the standard imputation system. Once opted in, the election remains binding for at least five years.
- Scope: Applicable to companies, trusts that elect to be taxed as companies, and bodies of persons treated as companies.
- Rate: A fixed 15% tax on ‘chargeable income,’ following the allocation of profits to the relevant tax accounts.
- Finality: The tax is considered definitive, with no refunds, credits, or set offs permitted.
- Lock-in period: Entities must remain within the FITWI system for at least five consecutive years before reverting to the standard regime.
FITWI vs. Standard Imputation System
| FITWI | Standard Imputation System |
| Simple and predictable – a single 15% tax rate with no refund mechanism. | Complex – involves multiple tax accounts, imputation, and refund procedures.
|
| Prevents multiple allocation of income and reduces compliance burden. | Requires detailed tracking of tax account movements and shareholder refunds. |
| Supports consistency and predictability for financial reporting. | Allows refund of up to 6/7 of tax paid, potentially reducing effective tax rate.
|
| No credits or refunds allowed. | Refunds and credits available to shareholders. |
| Aligned with international tax expectations and minimum tax standards. | May create challenges under OECD’s Global Anti-Base Erosion (“GloBE”) rules. |
Anti-Abuse Measures and Safeguards
The FITWI framework includes a specific anti-abuse rule to ensure that the effective tax under FITWI is not lower than the standard imputation tax reduced by any refundable credits.
Profits taxed under FITWI cannot be reallocated to other tax accounts, and the tax paid cannot be refunded or credited to any person. This ensures that the FITWI liability remains transparent and consistent with Malta’s commitments to international tax integrity.
Election Procedure
Companies wishing to adopt FITWI must notify the Commissioner for Tax and Customs by submitting the prescribed form.
- The deadline for the first election (for YA 2025) is 28 November 2025.
- Once elected, the regime applies for at least five years, after which reversion to the standard imputation system becomes possible.
Practical Implications
- All income subject to FITWI will be reallocated to the FTA.
- Dividends paid from the FTA will not attract any further tax in Malta.
- The regime simplifies tax reporting and supports a more stable effective tax rate, particularly relevant to multinational groups affected by the OECD’s GloBE rules.
- Since FITWI taxes are not refundable, they are treated as “final taxes” and excluded from “Covered Taxes” under GloBE, which may influence effective tax rate calculations.
The introduction of FITWI marks a significant step in modernising Malta’s corporate tax framework. By providing a straightforward 15% final tax option, FITWI enhances transparency, reduces administrative complexity, and supports international tax compliance. Companies are encouraged to assess whether this framework aligns with their business model and long-term tax planning objectives before making the election.
