Country report Malta

Economic overview

Malta, despite its small size (GDP of around 1.7 billion euros in 2021) is confirmed as one of the most dynamic economies in the European Union, continuing to record a positive trend in the main macroeconomic indicators. According to the most up-to-date estimates, Maltese GDP grew by 10.4% compared to 2020. The Maltese economy is highly service-based. Over a quarter of GDP is linked to tourism, followed by financial services (about 15%) and gaming (12%). Other main sectors of activity are maritime and navigation services, the air transport sector, the medical-health and pharmaceutical sector. Also noteworthy is the expansion of the technological (ICT) and digital sector.

In 2021 the deficit/GDP ratio improved, recording a deficit of 8% (mainly due to the extension of the economic measures implemented by the Government to counter the effects of the Covid19 pandemic), an improvement compared to the -9.4% recorded in 2020.

For 2021, there was an average annual inflation rate of 0.7%, down on 2020 (0.8%) but still lower than the European average. 

Malta continues to record a very low unemployment rate of 3% compared to the Eurozone average.

According to the National Statistics Office, both imports and exports have fallen due to the pandemic in recent years.

Main sectors of economy

Currently, the service sector remains the main driver of the Maltese economy.

The contribution of agriculture to internal growth is very small, due to the scarcity of water and the aridity of the soil, which allow for an extremely limited cultivation of fruit and vegetables and an insufficient production of meat and milk to meet national needs. Its leading sectors are related to naval activities (shipbuilding), tourism and the textile and clothing industry.

As in most developed economies, the manufacturing sector (which contributes to the formation of GDP by 17%) is starting to take on less importance than the tertiary sector. Some areas of the manufacturing sector have undergone great changes in recent years, above all the textile, clothing and footwear industries which have benefited from greater investments. Most of these industries are, in fact, foreign-owned.

Labor-intensive industries (processing of agri-food products and furniture) are particularly exposed to foreign competitiveness, also considering the removal of customs barriers and duties.

Within the sector, the tourism industry is the leader, despite the fact that it has suffered a sharp contraction in the last three years.

The boom in property prices has also increased the growth prospects of the construction industry, whose contribution to GDP is equal to 5% of the total.

Taxation for businesses Malta

The ordinary corporate income tax rate in Malta is 35%. However, the effective tax rate to which a shareholder with registered office in a foreign country is subject could be significantly reduced. This, in the event that a tax refund is claimed upon the distribution of dividends (or bonus shares) by that company. The effective tax rate can be further reduced when companies decide (on an annual basis) to deduct a notional amount of interest. Amount determined with reference to the value of the company’s risk capital.

The rate of tax refund that a shareholder can claim may vary based on several factors, such as:

The nature of the underlying earnings from which dividends are distributed, e

The application of the relief provided by virtue of double taxation by the Maltese distribution company on distributed profits.

Typically a shareholder acquires the right to 6/7ths of the tax burden in Malta originally borne by the Maltese company on profits which are distributed as dividends. Thus, the company pays its taxes, but the shareholder gets a refund of part of the taxes paid by the company. In the event that the distributed profits are derived from profits compounded by interest expense or royalties, the tax refund is reduced to 5/7th of the taxable burden in Malta. 

The distribution of dividends obtained from the profits assigned to the Foreign Income Account (Accounting from foreign source) and, for which, the company requests the application of the relief provided by virtue of the double taxation, entitles the shareholder company to obtain 2/3 of refund on the taxable load in Malta. Upon distribution of dividends, consisting of income derived from a particular investment, it is also possible to obtain a 100% tax refund.

Investing in Malta

The islands of the Maltese archipelago are known throughout the world for a thriving, booming tourism full of attractions. But tourism is not Malta’s only resource. Its tax system, its central position in the Mediterranean, a constant political commitment focused on facilitating bureaucracy and trade relations to guarantee an agile and sustainable economy, combined with an extraordinary ability to react to the European crisis, have made this nation a concrete example from which to draw inspiration, and more importantly an ideal place in which to establish one’s business and make it flourish.

Malta has no natural resources and does not live on tourism alone (which represents only a part of the national GDP) and to remedy this shortage it has developed its economy by strengthening industrial production, in particular the mechanical sector, the shipbuilding and textile sectors, but also the industrial and pharmaceutical sector. Since the early 1990s, Malta has transformed into a real financial center in order to encourage entrepreneurship and attract new investors to the area, for this reason the bureaucracy has undergone various improvements in step with its system fiscal, in order to facilitate the strong growth that reached its peak with the entry of Malta into the European Union and the subsequent entry into the “white list” of the countries of the world that adhere to the agreements for tax transparency.