Finance Minister Clyde Caruana has said he prefers Malta make changes to its corporate tax regime now rather than wait for the EU to force it to abolish its five per cent rate.
“I prefer swallowing the bitter pill now and introducing changes to the corporate tax regime gradually than having the EU chasing us or even imposing changes on us,” he told financial services practitioners.
Caruana first announced an overhaul of the country's corporate tax regime in April last year when he said this new system must be in place by 2025.
He was speaking at the launch of the country’s new long-term strategy for financial services in Malta.
Caruana also warned about the impending introduction of an EU-wide minimum corporate tax which is expected to impact around 660 multi-national companies that also have a base in Malta and that employ around 20,000 people. The 15 per cent tax rate would be introduced for companies that have a turnover of over €750 million.
The proposal was first tabled by the European Commission in December 2021 to impose a minimum effective tax rate for the global activities of large multinational groups. The proposal delivers on the EU’s pledge to bring fairness, transparency and stability to the international corporate tax framework.
“The government will not start this new rate as from next year, because of changes that need to be made, but the change will be a gradual one, say over three years. This will affect the economy as a whole so we need to do something that is well-prepared as it is a system we need to live with for the next, at least, 20 years,” Caruana said.
He, however, insisted that the changes would retain Malta’s competitive advantage but at the same time revenue neutral. He expects to be in a better position to announce changes in the next budget.
This will bring about a change in the local culture – better enforcement and better compliance.
Caruana reiterated his call for higher tax compliance by businesses, saying it was impossible that 70 per cent of businesses were either making a loss or simply breaking even.
“We are already seeing better compliance among local businesses but we can no longer entertain that local revenue arises from only 30 per cent of firms. It cannot be that the rest of loss-making or just breakeven,” he said.
Caruana mentioned how Malta witnessed significant shocks in the past few years, including greylisting by the FATF which spurred the implementation of wide-ranging reforms.
He said the impact of the COVID-19 pandemic and the war in Ukraine also put significant stress on the EU’s resources.
“We are still not aware but it seems the war is going to cost the EU between €400 and €500 billion. We have an EU that is very much adamant to continue forcing significant changes in various aspects, including a push for its own resources because the bills that will come our way are going to be huge.
We need to ensure that we continue to retain our competitive edge,” he said.