Pillar 2 Dashboard: Malta

Malta has announced it is to repeal its Article 50 postponement of the EU Minimum Tax Directive and apply the Pillar 2 rules. Further details are to be announced in the Budget.

On April 17, 2025, Act No. IX of 2025 was published in the Official Gazette. This includes a new Section 22B in the Income Tax Act to provide that rules will be issued to provide for an elective tax (likely to give Pillar Two in-scope companies the option to subject their profits to the elective tax in Malta to ensure that no top-up tax is due elsewhere).

On February 28, 2024, the Maltese Tax Authorities issued a guidance note on the implementation of the EU Minimum tax Directive in Malta.

On February 20, 2024, the Government issued Legal Notice 32 of 2024 which includes Regulations to implement Article 50 of the EU Minimum Tax Directive.

However, as Malta intends to delay the application of the GloBE rules under Article 50 of the EU Directive, the law is not comprehensive and only covers limited aspects of the GloBE rules (as required for the application of Article 50).

On February 20, 2024, the Government issued Legal Notice 32 of 2024 (the ‘Regulations’) which includes regulations to enact Article 50 of the EU Minimum Tax Directive.

Article 50 of the EU Minimum Tax Directive provides that EU Member States in which no more than 12 UPEs of in-scope MNEs are located may elect not to apply the IIR and the UTPR for up to six consecutive fiscal years beginning from December 31, 2023 (ie until December 31, 2029).

Member states that have postponed the application of these rules must incorporate part of the provisions of the EU Minimum Tax Directive into national law in such a way as to ensure the operation of the GloBE rules in the EU, as established by the EU Minimum Tax Directive.

The Maltese Regulations, therefore, only transpose the necessary aspects of the EU Minimum Tax Directive (Chapters I, VIII and IX). It does not, however, transpose the relevant provisions by way of a direct reference (as Malta does when transposing the definitions in the EU Minimum Tax Directive). Instead it redrafts Chapters I, VIII and IX of the EU Minimum Tax Directive in Legal Notice 32 for domestic enactment.

GLOBE APPLICATION

General

Article 50(2) of the EU Minimum Tax Directive provides that where a UPE is located in a Member State that has elected to apply the deferral, other member states  are to ensure that the constituent entities of that MNE group are subject (in the Member State in which they are located), to the UTPR top-up tax amount from December 31, 2023.

The election for deferral under Article 50 of the EU Minimum Tax Directive applies to EU Member States in which no more than 12 UPEs of in-scope MNEs are located.

The Regulations aim to transpose and implement the relevant provisions of the EU Minimum Tax Directive and are limited to:

Chapter I: General Provisions

Chapter VIII: Administrative Provisions

Chapter IX: Transitional Rules

The Regulations specifically provide for:

Scope of application

Regulation 2(2) provides that it applies to entities located in Malta included in a group (both an MNE group or a domestic group), whose annual net sales income in the consolidated financial statements of its UPE is at least 750 million in at least 2 of the 4 financial years immediately preceding the relevant financial year.

Regulation 2(4) defines Excluded Entities as in the EU Minimum Tax Directive, however, unlike Malta for example, the Excluded Entity Election is included in the Regulation.

Definitions

The Regulations include reference to a number of terms which are integral to the application of the relevant rules. Similar to the Article 50 postponement laws for Lithuania and Latvia, the terms are expressly defined in the Regulation (in contrast, Malta directly transposes Articles 3 and 20 of the EU Minimum Tax Directive for the relevant definitions).

Regulation 3 includes definitions for:

-Non-profit organization

-Significant distortion of competition

-Excluded dividends

-Excluded equity gain or loss

-Partially-owned parent company

-Fiscally transparent entity

-Fiscal year

-Insurance investment entity

-Ultimate parent company

-Group

-Investment fund

-Investment entity

-Constituent entity

-Ownership

-Excluded entity

-Consolidated financial statements

-Controlling interest

-Parent company

-Intermediary parent entity

-Minimum tax

-Qualified/disqualified refundable tax credit

-Qualified/disqualified imputation tax

-Qualified UTPR

-Qualified IIR

-Net book value of tangible assets

-Eligible distribution tax system

-Real estate investment vehicle

-Permanent establishment

-Pension fund

-Pension services entity

-Acceptable Financial Accounting Standard

-MNE group

-Entity

-Top-up tax

Location of entities

Regulation 4 includes rules to determine the location of an entity/PE that is part of a group. This is important for determining which EU member state or third country they will be treated as being located in for Pillar 2 purposes.

Transition rules

Regulation 8 includes the Transitional Rules from the EU Minimum Tax Directive/OECD Model Rules. This includes the rules in Article 9.1.1-9.1.3 of the OECD Model Rules for:

-Deferred tax in transition year + recasting

-Deferred tax on transactions after Nov 30 2021

-Transfers of assets after Nov 30, 2021

The additional provisions of the July 2023 OECD Administrative Guidance are not included, this includes the provisions that effect:

-Deferred tax assets with respect to tax credits under Article 9.1.1              

-Applicability of Article 9.1.3 to transactions similar to asset transfers                       

-Asset carrying value and deferred taxes under 9.1.3.                      

Substance-based income exclusion

Regulation 9 applies the transitional Substance-Based Income Exclusion rates (although the Substance-Based Income Exclusion itself is not provided for given the Article 50 postponement).  

Initial phase of exclusion from the IIR and UTPR of MNE groups and large-scale domestic groups

Regulation 10 provides for the initial phase of the international activity exemption.

This provides that in the first 5 years of the initial phase of the international activity of the MNE group/domestic group, the top-up tax due by a UPE located in Malta (or by an intermediate parent entity located in Malta when the ultimate parent entity is an excluded entity) shall be reduced to zero.

This also applies to Maltese constituent entities forming part of an MNE group in its initial phase of international activity, when the UPE of the MNE group is located in a third-country jurisdiction.

The 5 year period starts from the beginning of the fiscal year in which the MNE group falls within the scope of Pillar 2 (or December 31, 2023 for groups already in scope when the Directive came into force).

Administrative Guidance

The Regulations do not reflect the provisions of the OECD Administrative Guidance. In addition, as the detailed definitions are transposed from the EU Minimum Tax Directive, they also do not reflect the OECD Administrative Guidance updates (eg it does not provide that intermediate parent entity and partially owned parent entities do not include insurance investment entities).

Safe Harbour and Penalty Relief Guidance

Not applicable, as Malta is opting for the Article 50 postponement of the EU Minimum Tax Directive.

ELECTIONS

Elections in the OECD Model Rules

As Malta is opting for the Article 50 postponement of the EU Minimum Tax Directive, most GloBE elections are not relevant. As such the only election from the OECD Model Rules included in the Regulations is the Excluded Entity Election.

Elections in the Administrative Guidance

No elections from the OECD Administrative Guidance are included in the Regulations.

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

As Malta intends to delay the application of the GloBE rules under Article 50 of the EU Minimum Tax Directive, the Regulations are not comprehensive and only cover limited aspects of the GloBE rules (as required for the application of Article 50).

Member states that have postponed the application of these rules must incorporate part of the provisions of the EU Minimum Tax Directive into national law in such a way as to ensure the operation of the GloBE rules in the EU, as established by the EU Minimum Tax Directive.

In particular, even though the application of the GloBE rules in Malta is to be delayed, Malta is required to implement domestic law which ensures that a group filing entity located in another Member State is provided with the necessary information to enable it to complete a GloBE Information Return.

Whilst the Regulations transpose relevant aspects of the EU Minimum Tax Directive, they do not reflect any relevant aspects of the OECD Administrative Guidance.

Most aspects of the GloBE rules, including the detailed calculation rules and operation of the IIR and UTPR are not included in the Regulations given the postponement of the rules in Malta.

QDMTT

Malta is not implementing a QDMTT.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included in Regulation 5, as provided in the EU Directive.

The approach is that every Constituent Entity located in Malta will have an obligation to file a GIR in Malta. However, this obligation can be discharged if the GIR is filed by:

-The Ultimate Parent Entity, or

-The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Revenue.

The notification must contain:

-Details of the entity that is filing the GIR, and

-The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

Both the GIR and associated notifications must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

However, as Malta is opting for the Article 50 postponement, the standard filing obligations are amended in Regulation 11.

It provides that:

1) The UPE of an MNE group, located in Malta, must appoint another MNE group entity located in another member state (or in certain cases, in a third country) to submit a top-up tax information declaration to the tax authority of that country on behalf of the MNE group;

2) The group entities located in Malta must submit the data required to fill out this declaration to the designated group filing entity.

Payment

Not provided in the Regulations.

Penalties

Regulation 7(1) states that failure to file the GIR results in a penalty of 200 EUR plus an additional 100 EUR per day of default (subject to a 20,000 EUR cap).

Regulation 7(2) provides that failure to report the required information in the GIR results in a penalty of 200 EUR plus an additional 50 EUR per day of default, (subject to a 5,000 EUR cap).

Regulation 7(3) provides that failure to notify the Commissioner of the identity of the entity that is filing the GIR as well as the jurisdiction in which it is located results in a penalty of 200 EUR plus an additional 500 EUR per day of default, (subject to a 5,000 EUR cap).

None issued.

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