Malta’s subsidiary legislation SL 123.187 transposes key provisions of the EU Anti-Tax Avoidance Directive (ATAD) into domestic law, targeting aggressive tax planning and ensuring a level playing field across the EU. One of the ATAD provisions is the Controlled Foreign Company (CFC) Rule.
This rule targets profit shifting to low-tax jurisdictions by attributing certain income of a Controlled Foreign Company (CFC) to the Maltese parent. A foreign entity is regarded as a CFC if the Maltese taxpayer holds more than 50% control (ownership, voting rights, or profit entitlement) and the foreign entity is taxed at less than 50% of the tax that would have been due in Malta.
Passive income such as interest, royalties, dividends, and financial leasing may be attributed to the Maltese parent and taxed accordingly.
No attribution of income is necessary if the CFC carries on substantial economic activity supported by staff, equipment, and premises.
The measure will not apply to a CFC with accounting profits of not more than €750,000 and non-trading income of not more than €75,000 or to a CFC whose accounting profits amount to not more than 10% of its operating costs for the tax period.
