Malta’s shift to a 15% minimum tax

In late August, Prime Minister Robert Abela announced that the Cabinet had approved a domestic 15% tax on foreign-owned companies in Malta whose groups exceed the €750m threshold. Such companies currently pay only 5% effective tax in Malta, resulting from the standard 35% rate with a 6/7 refund. Under the new measure, which is set to be introduced by the October budget, they will instead pay 15% to the Maltese Treasury.

This new 15% corporate tax for large groups has quickly made headlines, as it mirrors the OECD’s Pillar Two global minimum tax rules, which require multinationals with more than €750 million in revenues to pay an effective tax rate (ETR) of at least 15% in each jurisdiction. Pillar Two establishes that if a country’s local tax is below 15%, excess profits must be “topped up” first by a domestic top-up tax (the so‑called Qualified Domestic Minimum Top‑Up Tax, or QDMTT), then by the parent country under an Income Inclusion Rule (IIR), and finally by other group members under an Under‑Taxed Profits Rule (UTPR).

Malta is bound by the EU’s Pillar Two Directive (2022/2523) but had originally postponed implementation. A legal notice (LN 32/2024) transposed the Directive in February 2024, but the government opted for the EU’s six-year derogation, as Malta has fewer than 12 in-scope multinational parent entities. In practical terms, Malta delayed adoption until at least 2029. As a result, until now, Maltese subsidiaries in very large groups (with consolidated revenues of more than €750m) paid only Malta’s usual corporate tax, which is often as little as 5% effective after generous refunds, and any shortfall to 15% would have been collected by the parent’s country of residence.

Officially, the government calls the new tax a domestic simplification measure. The Prime Minister’s office clarified that it is separate from the EU’s global minimum tax directive and is not formally a QDMTT under Pillar Two. Instead, the stated goal is to simplify the full‑imputation system of refunds and reduce administrative burdens. The government assures that revenue will remain stable or increase despite changing the refund system. In practice, by effectively converting the refund formula for these large companies, Malta ensures these firms pay at least 15% locally.

Abela noted that there are only around 10 such companies in Malta that fall under the new rule, which constitutes a small pool. However, the change is expected to generate new and substantial income. The Cabinet chose this route so that the extra 10% tax (to reach 15%) stays in Malta, rather than being collected abroad by the parent country. To observers, this appears to effectively reverse the earlier pledge to delay Pillar Two by postponing the implementation of the EU directive.

While the government denies that the new measure is introducing the global minimum 15% corporate tax and thus reversing its decision to defer implementation, Malta is set to collect substantial new revenue. The country is heavily reliant on revenue from a few large taxpayers, which could make this shift significant. About 80% of Malta’s corporate tax comes from large multinationals and high-net-worth individuals. Taxing those approximately 10 in‑scope firms at 15% can be expected to raise tens of millions extra. The government has remarked that the increased tax revenue can be reinvested in Malta´s social programmes and infrastructure.

Taking a broader perspective, the 15% global minimum corporate tax under Pillar Two, though intended to curb the “race to the bottom” and recover lost revenues, has faced strong criticism for being blunt and uneven.  Especially Small Island states and countries labelled tax havens fear the loss of their competitive edge, warning they must now rely on infrastructure or skills rather than tax incentives. More generally, critics argue that the 15% threshold is too low to tackle aggressive tax planning, adds complexity, and entrenches existing privileges, which could risk entrenching global disparities rather than resolving them. In this context, many states, particularly developing economies, have called for a fairer UN-led framework such as the UN Framework Convention on International Tax Cooperation, which is currently being negotiated.

All in all, Malta’s decision to charge 15% on its largest multinational subsidiaries seems to be a pragmatic response to the shifting global tax landscape. It ensures that Malta keeps tax revenue that otherwise might flow abroad, potentially boosting the budget from a handful of big payers. Yet it also signals Malta’s diminishing role as an ultra-low-tax refuge, aligning the island with EU norms and more generally with international standards on corporate taxation. Malta’s experience ostensibly shifting from deferral to adoption highlights how even small states must navigate these new rules carefully, weighing revenue gains against concerns about investment and fairness in the global tax order. Local firms and investors will be watching how Malta´s October Budget will reflect this change, especially also with regard to speculated corporate tax relief for SMEs.