TL;DR Malta has long been one of the most tax-efficient jurisdictions available to UK businesses operating internationally, offering an effective corporate tax rate of around 5% through its full imputation and refund mechanism. In September 2025 Malta introduced a new optional 15% flat tax regime called FITWI, creating a dual-track system. This post explains how both routes work, how to evaluate which suits your business structure, and what UK entities need to understand before making a decision. Professional tax advice is essential given the recent changes.
Expanding a UK business internationally requires careful consideration of jurisdiction, and Malta has consistently stood out as one of the most compelling options within the European Union. Its corporate tax framework, its extensive double taxation treaty network, and its status as an English-speaking EU member state all make it an attractive destination for UK entities looking to establish an international presence.
However, the Maltese corporate tax landscape changed materially in September 2025 with the introduction of a new optional tax regime. UK businesses researching Malta now need to understand both the traditional system and the new alternative before making any structural decisions.
Malta’s long-standing corporate tax system operates on a full imputation basis. The nominal corporate tax rate is 35%, but this headline figure is substantially misleading when you understand how the refund mechanism works in practice.
When a Maltese company distributes profits as dividends to its shareholders, those shareholders are entitled to claim a refund of a significant portion of the tax the company has already paid. In the most common scenario, where profits arise from trading income, the shareholder refund is 6/7 of the tax paid by the company.
The arithmetic works as follows. On €100,000 of profit, the Maltese company pays €35,000 in corporate tax, leaving €65,000 available for distribution. When those profits are distributed as dividends, the shareholder can claim a refund of 6/7 of the €35,000 paid, which equals €30,000. The net tax burden therefore amounts to €5,000 on €100,000 of profit, representing an effective corporate tax rate of approximately 5%.
This has made Malta one of the most tax-efficient jurisdictions in the EU while remaining fully compliant with EU state aid rules, a combination that few other jurisdictions can match.
In September 2025, Malta introduced the Final Income Tax Without Imputation regime, widely referred to as FITWI, under Legal Notice 188 of 2025. This creates a dual-track system in which Maltese companies must now choose between the traditional imputation and refund mechanism and the new flat tax alternative.
Under the FITWI regime, a qualifying Maltese company elects to pay a flat 15% on its chargeable income. This 15% is treated as the final tax liability. No additional tax is due at shareholder level when profits are distributed as dividends, and crucially, no refunds or imputation credits are available under this route.
The key features of the FITWI regime are as follows. The election is optional; no company is required to move to the new system. Once elected, the regime must be maintained for five consecutive years. Profits taxed under FITWI are allocated to a Final Tax Account, and dividends paid from that account carry no entitlement to the traditional refund mechanism.
It is worth noting that the tax payable under the FITWI regime cannot be lower than the effective tax due under the traditional imputation system, ensuring that the new route does not create a lower effective rate than the existing 5% floor.
The introduction of the FITWI regime creates a genuine choice for UK entities structuring through Malta, and the right answer depends on your specific circumstances.
The traditional imputation and refund system remains advantageous when:
The shareholder structure is relatively straightforward and the administrative requirements of claiming refunds are manageable. The business generates consistent trading profits that qualify for the 6/7 refund rate. The shareholders are comfortable with the timing difference between tax being paid at company level and the refund being received at shareholder level, as refunds are only issued after distribution. Long-term, the effective 5% rate is lower than the FITWI rate of 15%, making it the more tax-efficient option on paper for businesses whose primary objective is minimising their overall tax burden.
The FITWI regime may be preferable when:
Simplicity and cash flow certainty are priorities. The traditional refund mechanism, while highly efficient, involves administrative steps and a timing lag between the company paying tax and the shareholder receiving the refund. Under FITWI, the 15% is final, which reduces complexity significantly. The business is part of a larger international group subject to the OECD Pillar Two global minimum tax rules, where the interaction between the traditional imputation system and Pillar Two creates complications. For groups caught by Pillar Two, the FITWI route may actually produce a more predictable and compliant outcome overall.
The UK-Malta Double Taxation Treaty, originally signed in 1994, remains in full force and provides important protections for UK businesses operating through a Maltese entity regardless of which tax regime the Maltese company elects.
The treaty ensures that income arising in one country and paid to residents of the other is not taxed twice, with reduced withholding tax rates on dividends, interest, and royalties as applicable. Malta does not levy withholding taxes on dividends, interest, or royalties paid to non-residents, provided the non-resident does not have a Maltese permanent establishment, which further simplifies the repatriation of profits from Malta to the UK.
The treaty also covers capital gains, provides for the exchange of information between the two countries’ tax authorities, and ensures that UK entities operating through Malta have a clear and stable framework within which to plan their international tax position.
Malta’s participation exemption is an additional tool available to UK holding companies managing multiple international subsidiaries. Under this exemption, dividends and capital gains derived from a qualifying “participating holding” in a foreign entity may be exempt from Maltese tax entirely.
A participating holding generally arises where a company holds at least 10% of the equity shares of a foreign entity, or meets other specific qualifying criteria. For UK groups with international subsidiaries, structuring those holdings through a Maltese company can allow dividends and capital gains to flow through Malta tax-free, significantly improving the overall efficiency of the group’s international structure.
This exemption applies under both the traditional imputation system and the FITWI regime, subject to the standard qualifying conditions.
Malta continues to offer compelling advantages for UK entities with genuine international operations or a need for an EU-based holding structure. The combination of a low effective tax rate, an extensive double taxation treaty network covering over 80 countries, no withholding taxes on outbound payments, and full EU membership makes it one of the most strategically attractive jurisdictions available to UK businesses post-Brexit.
However, the introduction of the FITWI regime in September 2025 means that the decision about how to structure a Maltese entity is now more nuanced than it was previously. The choice between the traditional 5% effective rate under the imputation system and the flat 15% FITWI route depends on factors including the shareholder structure, the nature of the income being generated, the group’s international tax obligations, and the administrative capacity available to manage the compliance requirements of each option.
Before taking any steps, it is essential to consult with tax professionals who are well-versed in both UK and Maltese tax law and who are up to date with the post-September 2025 regulatory changes. A structure that was optimal under the old system may need to be reconsidered under the new dual-track framework.
At G&G Worldwide, we work with UK SMEs on international expansion strategy and can connect you with the right professional advisors for your specific situation. Book a free consultation today to discuss your international growth plans.
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