What was announced in Malta’s Budget 2027?
The Budget announcement proposes reducing the corporate tax rate from 35% to 25% on profits retained by qualifying small and medium-sized enterprises. The stated turnover threshold is annual turnover of up to €1 million.
The purpose is to leave more money inside eligible companies for reinvestment and growth. The measure is aimed at businesses that retain profits rather than immediately distribute them to shareholders.
Which businesses may qualify?
Based on the announcement, the measure targets SMEs with annual turnover not exceeding €1 million. Turnover is business revenue before expenses; it is not the same as taxable profit.
The final legislation and official guidance will need to confirm the detailed eligibility conditions, applicable accounting period, treatment of company groups, anti-avoidance provisions and how the measure interacts with Malta’s wider corporate tax system.
What are retained earnings?
Retained earnings are profits that remain in the company after costs, tax and any distributions. A company might retain earnings to purchase equipment, recruit staff, improve technology, build working capital or finance expansion.
Retaining earnings is not simply leaving an invoice unpaid or holding cash temporarily. The accounting treatment and the company’s formal decisions matter, so directors should document the purpose and obtain advice before making assumptions about eligibility.
What happens when profits are distributed as dividends?
The announcement states that profits distributed as dividends will continue to be subject to the 35% corporate tax rate rather than the proposed 25% retained-earnings rate.
This creates an important distinction between profits kept inside the business and profits paid to shareholders. It does not automatically mean retaining every euro is the right decision: cash flow, shareholder needs, investment plans and the final tax rules all need to be considered.
A simplified example
Suppose a qualifying company has €100,000 of taxable profit that meets the final retained-earnings conditions. At 35%, the headline tax would be €35,000. At 25%, it would be €25,000—a €10,000 difference available to remain in the company.
This is an illustration only. It is not a tax calculation for a real company and does not account for deductions, tax refunds, tax accounts, prior losses, group arrangements or rules that may appear in the implementing legislation.
How SMEs can prepare now
- Keep monthly revenue, expense and profit records current.
- Separate turnover from taxable profit when reviewing the €1 million threshold.
- Prepare a realistic reinvestment plan for retained funds.
- Document dividend and retention decisions properly.
- Ask your accountant how the announced measure could interact with your company’s tax position.
- Wait for enacted legislation and official guidance before treating the 25% rate as available.
Reliable records make these conversations easier. Klarvo helps small businesses organise invoices, expenses and reports, while tax eligibility and company distributions should be confirmed with a qualified accountant or tax adviser.
What details are still needed?
The announcement provides the headline rate, turnover ceiling and distinction between retained and distributed profits. Businesses should still look for the effective date, precise legal definition of an eligible SME, calculation method, filing procedure and any conditions attached to later distributions.
This guide will be updated when detailed legislation or official implementation guidance becomes available.