Malta’s 6/7 Tax Refund: Understanding Malta’s Corporate Tax Refund System

Malta’s corporate tax system is often misunderstood. On paper, Maltese companies are subject to tax at the standard corporate income tax rate of 35%. At first glance, this appears high when compared with other jurisdictions.

However, Malta operates a full imputation system, under which shareholders may, following a dividend distribution, become entitled to a refund of part — or in some cases all — of the tax paid by the company. The Malta Tax and Customs Administration explains that, where companies are taxed at the standard rate of 35%, shareholders may be entitled to a refund following the distribution of dividends, with the purpose of eliminating double taxation on distributed profits.

The most commonly discussed refund is the 6/7 refund, which can reduce the effective Malta tax leakage on qualifying distributed trading profits to approximately 5%.

How the 6/7 Refund Works

The 6/7 refund applies broadly where a Malta company distributes dividends out of qualifying taxed profits, typically active trading income, and the relevant statutory conditions are satisfied.

In simple terms:

A Malta company earns taxable profits.
The company pays corporate tax at 35%.
The company distributes post-tax profits as a dividend.
The shareholder may apply for a refund of 6/7 of the Malta tax paid by the company on those distributed profits.

For example:

Taxable profit: €100,000
Malta corporate tax at 35%: €35,000
Dividend available after tax: €65,000
6/7 refund of tax paid: €30,000
Net Malta tax retained: €5,000

This produces an effective Malta tax rate of approximately 5% on the distributed profits. KPMG’s Malta tax overview describes the 6/7 refund as the most common refund, stating that shareholders may be entitled to a refund of 6/7 of the tax paid by the Maltese company, resulting in an effective tax rate of 5%.

Why Malta Uses a Refund System

Malta’s system is built around the principle that the same profits should not be economically taxed twice — once in the hands of the company and again in the hands of the shareholder.

This is why Malta’s corporate tax system is not simply a low corporate tax rate regime. The company first pays tax at 35%. The refund mechanism operates at shareholder level, after a dividend is distributed and after the necessary refund claim is made.

This distinction is important. The refund is not automatic at company level. It is connected to the shareholder’s entitlement after distribution of profits.

When the 6/7 Refund Is Usually Relevant

The 6/7 refund is most relevant for companies carrying out active trading or commercial activities, particularly where the company is used as part of an international trading, services, consultancy, intellectual property, group holding or commercial structure.

It may be attractive for:

international trading companies;
service companies;
group structures with Maltese subsidiaries;
entrepreneurs expanding into or through Malta;
family-owned international businesses;
private client and holding structures, where properly planned.

The refund is generally associated with profits allocated to the Malta Taxed Account or Foreign Income Account, provided the relevant income does not fall within categories requiring a different refund treatment. PwC’s Malta corporate tax summary notes that shareholders receiving distributions from the Malta Taxed Account and/or Foreign Income Account may be entitled to refunds such as 6/7, 5/7 or 2/3 of the tax suffered by the distributing Maltese company.

Not Every Case Qualifies for 6/7

The 6/7 refund is not a universal rule for all income. Different refund rates may apply depending on the type of income and the tax treatment adopted by the company.

For example:

A 5/7 refund may apply where profits consist of passive interest or royalties, or certain dividend income from a non-qualifying participating holding.
A 2/3 refund may apply where the company has claimed certain forms of double taxation relief.
A full refund may apply in certain participating holding cases where the participation exemption has not been applied.

This is why each structure must be reviewed carefully. The nature of the income, source of profits, tax account allocation, shareholder profile, double tax relief position and distribution mechanics all matter.

Substance, Compliance and International Scrutiny

Modern Malta tax planning must be compliance-led. International tax structuring is no longer assessed only by reference to domestic tax law. Substance, management and control, beneficial ownership, transfer pricing, anti-abuse rules, exchange of information, DAC6, ATAD principles and OECD standards all need to be considered.

A Malta company should therefore not be treated as a paper entity. A robust structure should be supported by genuine commercial rationale, proper governance, accounting records, tax filings, corporate substance, board decision-making and appropriate local administration.

The 6/7 refund can be effective, but it must be used correctly and within a properly designed structure.

Timing and Practical Process

In practice, the refund process depends on several steps:

The company prepares financial statements.
The company files its tax return.
The company pays the tax due.
The company distributes dividends.
The shareholder files the tax refund claim.
The authorities process the refund.

The timing will depend on the correctness of the filings, whether the company is fully compliant, whether tax has been paid, whether all supporting documentation is available, and whether the shareholder refund claim has been properly prepared.

Why Professional Structuring Matters

The mathematics of the 6/7 refund are straightforward. The legal and tax analysis behind it is not always straightforward.

Before implementing a Malta company structure, it is important to assess:

where the company will be tax resident;
where management and control will be exercised;
whether the income is trading income, passive income, royalties, dividends or capital gains;
whether foreign tax credits or double tax relief are relevant;
whether the shareholders are resident, non-resident, individuals, trusts, companies or foundations;
whether withholding tax arises in another jurisdiction;
whether the structure is defensible under anti-abuse principles;
whether there is sufficient substance in Malta.

A structure that works well for one client may not be appropriate for another.



How ARK Associates Can Assist

ARK Associates assists clients with Malta corporate structuring, tax-efficient company planning and private client structures involving Maltese companies.

Our role includes legal structuring, coordination with tax advisers and auditors, company incorporation, governance planning, shareholder arrangements, substance considerations, dividend distribution planning and support with ongoing corporate compliance.

Malta’s 6/7 refund system remains one of the most distinctive features of the Maltese corporate tax landscape. Used correctly, it can provide an efficient and transparent tax outcome. Used incorrectly, it can create unnecessary compliance, audit and cross-border tax risks.

For international entrepreneurs, investors and family offices considering Malta, the starting point should always be a proper legal and tax assessment before implementation.