Malta is often presented as having one of the lowest effective tax rates in Europe thanks to its shareholder refund system. But for an entrepreneur forming a Latvian SIA, that 5% figure hides a mechanism heavier than Latvia's direct 0%. Here's the honest comparison.
Malta's refund system: a real 5%, but not free
Malta applies a nominal 35% rate on profits. When the company distributes a dividend, the shareholder can claim a refund of up to 6/7ths of the tax paid, bringing the effective rate down to around 5%. Since 2025, a flat 15% option (FITWI) also exists, without the refund mechanism.
What the 5% doesn't tell you
To fully optimise this system, the typical structure combines a holding company and an operating company (two-entity structure), which doubles formation and annual accounting costs. The refund isn't instant either: you need to front the 35% cash before recovering the refunded portion.
Latvia works differently: a direct 0% as long as profits stay within a single company, with no cash advance or two-entity structure.
The numbers-based comparison, point by point
| Criteria | Latvia (SIA) | Malta (Ltd) |
|---|---|---|
| Nominal CIT | 20% (0% if reinvested) | 35% |
| Effective CIT (after refund) | 0% reinvested / 20% distributed | ~5% (or 15% FITWI option) |
| Minimum capital | €1 / €2,800 | €1,165 |
| VAT | 21% | 18% |
| Formation time | 2 to 5 days | 2 to 3 weeks |
| Structure required | A single company | Often holding + operating |
| EU / Eurozone / Schengen | Yes / Yes / Yes | Yes / Yes / Yes |
| OECD member | Yes | No |
| Typical annual costs | €1,500 – 3,000 | €3,000 – 8,000+ |
| Opening a bank account | Relatively accessible | Enhanced KYC, slower |
Verdict
Malta can beat Latvia on paper with its 5% effective rate, but only by accepting a more complex structure, higher annual cost, and cash to advance. For a standard service or e-commerce business, Latvia remains simpler and often more profitable once structural costs are factored in.
Advantages of Latvia and Malta
Advantages of Latvia
- Direct 0% with no two-entity structure
- Notably lower formation and annual management costs
- OECD member, simpler banking reputation
- Dedicated support focused on a single country
Advantages of Malta
- 5% effective rate possible on large dividend volumes
- Common-law legal framework, English-speaking
- Recognised expertise in online gaming, finance, maritime
- Long-standing EU member, extensive tax treaty network
Who Latvia is the best choice for
If you run a standard consulting, e-commerce, or B2B service business, with no need for a two-entity structure, and you want to avoid fronting cash on tax you'll recover later, Latvia offers a more direct, less costly path to the same goal: not taxing the profits you reinvest.
Who Malta may suit better
Malta becomes relevant for companies with high, regular dividend volumes, able to absorb the structural costs (holding + trading) and the cash-flow timing of the refund system, or for regulated activities where Malta has recognised sector expertise (gaming, finance, maritime).
"Malta's 5% is real, but it's a 5% you have to earn: two companies to manage, a cash advance, heavier accounting. Latvia's 0% is earned with much less."
Frequently asked questions
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