Transfer Pricing in Malta: The €70,000 Reason Your Cousin’s Invoice Won’t Work Anymore

Transfer pricing (TP) in Malta: what businesses need to know
By Hot Malta Business Desk

Walk into any café on Strait Street at 9 a.m. and you’ll hear three languages at once: Maltese, English and Excel. Between sips of ħelwa tat-Tork, CFOs of gaming start-ups whisper about “arm’s length” and “benchmarking” the way fishermen once spoke of lampuki seasons. The reason? Transfer-pricing rules have quietly become the hottest topic on the rock since the 2018 VAT hike on pastizzi.

What is transfer pricing and why should Malta care?
In plain Maltese, transfer pricing is the price at which a Maltese company sells goods, services or know-how to its own sister company abroad. Because Malta’s corporate tax rate can effectively drop to 5 % with the refund system, the taxman wants to be sure profits aren’t being whisked out of the country at artificially low prices. The stakes are high: mis-priced inter-company loans or management fees can wipe out the €15 m in tax Malta collects yearly from just one mid-size iGaming group.

The legal backdrop
Malta first introduced detailed TP rules in 2019, transposing the OECD’s Base-Erosion and Profit-Shifting (BEPS) Action Plan into local law. The threshold is deceptively small: if annual related-party transactions exceed €10 m, you must prepare a Local File and a Master File. Fail to file and you’re looking at penalties of €7 000 to €70 000—enough to cancel the summer yacht charter. For companies above €750 m global turnover, Country-by-Country Reporting is mandatory, a fact that raised eyebrows at the Malta Financial Services Authority when 138 entities suddenly qualified last year.

Cultural quirks: when “ħobż biż-żejt” meets arm’s-length principle
Maltese business culture prizes relationships. A cousin who owns the Cyprus office is expected to “help out” with a friendly invoice. That mentality clashes with the cold OECD requirement that every transaction be priced as if the parties were strangers. “We’ve seen family-run shipping agencies forced to commission €20 000 benchmarking studies for a €50 000 management fee,” laughs Maria Cassar, TP partner at GTG Advocates. “Nonna’s recipe for rabbit stew isn’t a valid intangible asset, no matter how secret the rosemary ratio.”

Community impact: jobs, rents and the Żabbar ripple
Get TP wrong and the fallout lands locally. In 2022 the Commissioner for Revenue issued €43 m in additional assessments across 14 multinationals. One IT firm near SmartCity downsized 120 contractors the following quarter; the vacant offices became a ghost floor that still depresses surrounding cafeteria revenue. Conversely, compliance has created a mini-boom for St Julian’s accountants: salaries for newly-qualified ACA with TP experience start at €42 k, 30 % above the national average. The University of Malta has responded by launching an elective in “International Tax & TP” taught in the old physics lab—students joke that the only thing splitting faster than atoms is profit.

Practical checklist for Maltese businesses
1. Map your flows: any royalty, loan or service fee to Dubai, Dublin or your sister in Gozo counts.
2. Document early: revenue officers now ask for files during VAT audits, not just corporate-tax time.
3. Use local comparables: the MFSA’s new database includes 600 Maltese companies—handy when justifying that 8 % marketing margin.
4. Consider APA safety: an Advance Pricing Agreement costs €35 k but freezes risk for three years, cheaper than a single €50 k penalty.
5. Train your bookkeeper: cloud accounting is great, but if your Xero still tags inter-company invoices as “miscellaneous”, expect questions in Maltese and English.

The road ahead
With the EU’s forthcoming BEFIT directive pushing for common consolidated rules, Malta’s 5 % effective rate could shrink unless companies can prove genuine substance—real offices, real decision-makers, real TP files. The buzzword in Sliema co-working spaces is “value creation”, not “tax optimisation”. As one founder told us over a post-Budget espresso, “We used to chase the refund; now we chase the story we can tell the OECD.”

Conclusion
Transfer pricing is no longer a grey chapter in an offshore manual; it is woven into Malta’s economic fabric like limestone and festa fireworks. Treat it as a bureaucratic tick-box and you risk fines, reputational damage and local job losses. Embrace it as a strategic narrative—documenting how your Maltese team designs the algorithm, codes the game, captains the ship—and you secure both the tax refund and the community goodwill that keeps the island’s economy humming. In short, arm’s length may be an international rule, but the length you go to comply will decide how warmly Malta hugs your business home.