A higher licence fee for used cars registered before 2009 was deemed illegal by the European Court of Justice.
EU law prohibits taxes that favour domestic products over imports from other member states.
The European Commission had taken the matter before the European Court of Justice to rule whether Malta had breached EU laws.
The court ruled that taxes on second-hand cars registered before 2009 was not compatible with EU laws.
The commission had sent a letter of formal notice to Malta in 2019 before taking court action in 2021.
Malta argued that the licence was levied on cars according to carbon emissions and size, and was based on the polluter pays principle to encourage smaller, newer and clearer vehicles.
The commission countered that an unfavourable tax on imported goods was prohibited.
The court ruled that Malta had failed in its obligations under EU law.