Malta Transposes The EU Global Minimum Tax Directive

The EU Minimum Tax Directive incorporates the GloBE rules, or Pillar Two tax rules of the OECD, into EU law. These regulations are intended to guarantee that large, multinational corporations face a minimum level of 15% tax on their income in each of the jurisdictions in which they conduct business. The Income Inclusion Rule, the Under-Taxed Profits Rule, and domestic top-up taxes are the methods used to achieve this minimal tax rate.

By publishing Legal Notice 32 of 2024 on February 20, 2024, Malta implemented the EU Minimum Tax Directive’s [2022/2523] rules. This legal notice sought to clarify the intent of the directive, its relationship to Malta’s deferral option, and the compliance requirements for local entities affected by the EU Directive. It was followed by a Guidance Note from the Malta Tax and Customs Authority. The legal notice went into force on December 31, 2023, for fiscal years beginning that day.

Key Aspects

Malta has opted to defer the implementation of certain components of the Directive, meaning that no top-up tax will be levied in Malta in 2024. Legal Notice 32 specifically transposes the essential provisions of the EU Minimum Tax Directive necessary for the effective operation of the Pillar Two regime.  The Income Inclusion Rule (IIR), the Qualified Domestic Top-up Tax (QDTT) and the Under-Taxed Profits Rule (UTPR) will not be introduced in Malta for the financial year 2024.

Key aspects covered in the legal notice include the filing obligations for constituent entities located in Malta, penalties for non-compliance, transitory provisions related to deferred tax assets and liabilities, transitional rates, and relief from top-up taxes for new international groups.

The filing obligations outlined in the legal notice require in-scope constituent entities in Malta to submit a Globe Information Return (GIR) to the Malta Tax and Customs Administration in addition to the standard income tax return. This GIR filing obligation applies unless the ultimate parent entity (UPE) or another designated group entity files the Pillar Two return on behalf of the Malta-based entity. In cases where the Malta entity is the UPE of an in-scope group, a foreign designated filing entity must be nominated to file the Pillar Two Return in a non-deferring Member State or a third country with which Malta has an agreement for automatic exchange of top-up tax information.

Furthermore, the legal notice prescribes penalties for certain non-compliance defaults, including failure to file a Pillar Two return, filing an inaccurate or incomplete return, and failure to submit required notifications to the Malta Tax and Customs Administration.

In addition to filing obligations and penalties, the legal notice incorporates transitory provisions to address various aspects of transitioning into the Pillar Two regime. The treatment of pre-regime deferred tax assets and deferred tax liabilities upon transition into the Pillar Two regime is outlined in Article 47 of the EU Directive. Transitory rates are provided by Article 48 of the EU Directive to compute the substance-based income exclusion for the first 10 years of the Pillar Two regime until fiscal years beginning in 2032. Furthermore, Article 49 of the Directive offers a 5-year transitional relief from certain top-up taxes for groups in the initial phase of their international activity, subject to the filing of the required notifications.

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For any further inquiries or information regarding these regulations, please do not hesitate to contact our experienced international tax advisors to assess the Minimum Tax Directive’s operational and financial impact on your organisation.