Directors' Fees and Taxes in Malta: A 2026 Guide

By the EGM Assurance Editorial Team · Last reviewed April 2026 · 10 min read

Directors of Maltese companies receive their remuneration in the form of fees, salaries, bonuses, or non-cash fringe benefits. Regardless of the form of payment and regardless of whether the director is resident in Malta, director's fees paid by a Maltese company are taxable in Malta — arising where the company is resident — and must be processed through Malta's Final Settlement System (FSS). This guide explains the tax treatment, the withholding obligations, the fringe benefit rules, and the position where a corporate service provider (CSP) acts as director.

1. Legal basis and source of income

Director's fees are emoluments arising under Article 4(1)(b) of the Income Tax Act (Cap. 123), which charges to tax all gains or profits from any employment or office, including cash payments and the value of any benefit provided by reason of that office. A director holds an "office", and fees paid to a director in that capacity are therefore within the charge whether or not the director also holds an employment contract with the company.

Under the OECD Model Tax Convention (which forms the basis of most of Malta's DTAs) and under Maltese domestic law, director's fees are treated as arising in the country of residence of the paying company. This means that director's fees paid by a Malta-resident company to a non-resident director are considered Malta-source income and are subject to Malta income tax, regardless of where the director physically performs their duties.

2. FSS withholding: the employer's obligations

The paying company is required to withhold income tax from director's fees through the FSS at the time of each payment. This applies universally — whether the director is resident or non-resident, and whether they receive fees only or also a salary. The FSS obligations are set out in the FSS Regulations (S.L. 123.14) and require:

• The director to complete an FS4 Payee Status Declaration Form (indicating their tax status — single, married, parent, or one of the 2026 family rate tables — and any other relevant information) before the first payment.

• The company to calculate and deduct income tax from each fee payment at the rate indicated by the FS4.

• The company to remit the deducted tax to the MTCA via the monthly FS5 form, by the end of the month following the payment month.

• The company to issue an FS3 (Statement of Earnings) to the director annually and file FS3 and FS7 forms with the MTCA by 15 February of the following year.

One practical point: director's fees paid through the FSS are specifically excluded from the low-income employment deduction available to single-rate taxpayers (which is available only for employment income other than director's fees up to EUR 12,445 in 2026). Directors who receive both a salary and fees should discuss with their tax adviser how the different components interact.

Non-resident directors

The FSS withholding obligation applies to non-resident directors in exactly the same way as resident directors. The Maltese company must deduct tax at source and remit via FS5. Non-resident directors are generally required to file a Maltese tax return (because they have Malta-source income) to declare the fees and any other Malta-source income. Tax withheld through FSS is credited against the return liability. Relief from double taxation on the same fees in the director's country of residence must be sought under the applicable DTA or under that country's domestic unilateral relief provisions.

3. Fringe benefits

Fringe benefits provided to directors are taxable as part of their emoluments from the office of director. The Fringe Benefit Rules (Subsidiary Legislation 123.55) specify the taxable value of common benefit categories:

Motor vehicle use

Where a company vehicle is made available to a director for private use, a fringe benefit arises. The taxable value is calculated as a percentage of the car's value (or annual lease cost), adjusted for the extent of private use. The Rules provide prescribed tables and formulae. The company adds the calculated fringe benefit value to the director's emoluments for FSS purposes each month.

Property use

Where a company-owned or company-leased property is made available to a director for residential use, a fringe benefit arises. The taxable value is generally based on a percentage of the property's capital value or the annual rental value, depending on the circumstances.

Other benefits

A broad category covering medical insurance paid by the company, school fees, low-interest or interest-free loans (the benefit being the notional interest on the loan at a prescribed rate), and other non-cash advantages. The general principle is that any benefit provided to a director by reason of their office — whether or not contractually required — is a fringe benefit and is taxable.

4. Directors who hold no employment

Where a person holds only the office of director and receives no other income from the company, the fees and benefits are still fully within the FSS. The company must maintain an FSS registration (PE number) regardless of the fact that the only recipient of emoluments is a director rather than an employee. Many small companies overlook this, treating the company as "not an employer" because there are no employees — but the Companies Act and FSS Regulations treat director remuneration as emoluments that trigger FSS obligations.

5. Corporate service providers as directors

A widely-used structure in Malta involves the appointment of a corporate service provider (CSP) — a licensed company providing company management services — as director of a client's company. Where the CSP acts in its corporate capacity (as a body corporate, not through a named individual), the fee is invoiced by the CSP company to the client company as a business service charge, not as director's fees to an individual.

In this structure, no FSS obligation arises at the client company level, because the payment is made to a company (the CSP), not to an individual in their personal capacity. The individual employee of the CSP who physically attends board meetings remains an employee of the CSP and is taxed through the CSP's own payroll. The service fee received by the CSP is income of the CSP, taxed under its corporate tax return.

6. VAT treatment of directorship services

The VAT treatment of director's fees has been clarified by EU case law and MTCA guidance. As a general rule, an individual acting as a director in a personal capacity is not considered to be carrying on an economic activity for VAT purposes — because they act under the direction of the company and bear no independent economic risk. Their director's fees are therefore outside the scope of VAT, and no VAT invoice is issued.

Where a CSP provides directorship services in its corporate capacity, the position is different: the CSP is providing a taxable service as a business. VAT at the standard rate (18%) is applicable on the directorship service fee. The client company, if registered for VAT under Article 10, can reclaim the input VAT on the fee to the extent it relates to taxable business activity.

7. Tax return obligations

For resident directors who receive only director's fees already taxed through FSS, the MTCA will typically classify them as non-filers: no annual return is required if the FSS deductions represent the full tax liability. However, if the director has other sources of income (rental income, self-employment income, investment income), a full tax return must be filed. Directors should not assume that FSS withholding is always a final settlement of their personal tax obligation.

For non-resident directors, a Maltese tax return is generally required in all cases, to declare the Malta-source fee income and any other Malta-source income, with FSS tax withheld reflected as a credit.

8. Frequently asked questions

Is the company required to pay employer's SSC on director's fees?

Yes. Class 1 social security contributions apply to director's fees in the same way as to employee salaries. The company (as employer) must pay the employer's SSC share on the fee, and deduct the employee's SSC share from the fee payment, then remit both to the MTCA via FS5. The SSC rate and category structure (Categories A through D) apply based on the director's age, year of birth, and the weekly equivalent of their fees.

What if a director receives no fees — does FSS still apply?

If no fees or benefits are paid to the director, no FSS obligation arises in respect of that director. However, if fringe benefits are provided (even with no cash fee), those benefits are emoluments and FSS withholding is required on the calculated benefit value. The company must also register as an employer and file FSS returns even where the only payments are non-cash fringe benefits.

Can a director receive fees as dividends instead to avoid FSS?

No. Characterising what is economically a director's fee as a dividend does not change its tax treatment. The MTCA applies a substance-over-form analysis: if payments are made to a person by reason of their office as director, those payments are emoluments regardless of what they are called in the board minutes. Attempting to avoid FSS by labelling fees as dividends exposes the company and the director to additional tax, interest and penalties.

How does a DTA affect a non-resident director's tax position?

Most of Malta's DTAs include a specific article on directors' fees (Article 16 of the OECD Model), which typically gives the country of residence of the paying company the right to tax those fees. This means the DTA generally confirms Malta's taxing right over fees paid by a Malta company to a non-resident director, not limiting it. The director's country of residence should give credit for the Malta tax under the DTA, preventing double taxation.

What fringe benefits are exempt from tax in Malta?

The Fringe Benefit Rules contain a specific list of exempt benefits that do not give rise to a taxable fringe benefit even when provided by a company to a director or employee. Key exemptions include: health-related costs and medical examinations; mobile phones and fixed telephony services used for the business; travel costs between Malta and Gozo for business purposes; relocation costs; and certain costs incurred for business travel. Benefits that are primarily personal in nature will not qualify for exemption even if there is some business element. Directors should review each benefit against the exempt list in S.L. 123.55 rather than assuming that all non-cash benefits are taxable.

Can a director invoice through their own company or as a self-employed person to avoid FSS?

No, not in substance. The tax treatment of director's fees follows the economic reality of the arrangement, not its legal form. A director who incorporates a personal services company to invoice the fees is not thereby escaping FSS — the MTCA applies a substance-over-form analysis. Where the individual is in practice performing the functions of a director — attending board meetings, exercising management and control, signing company documents — the remuneration for those functions is emoluments regardless of whether it is routed through a personal company. Genuinely arm's length consultancy services provided by a company with its own staff, infrastructure and independent client base are treated differently. The line between a genuine corporate service provider and a personal service vehicle used to reclassify director's fees is one the MTCA actively scrutinises.

Related guides from EGM Assurance

• Payroll and FSS Obligations for Maltese Employers — egmassurance.com/articles/payroll-fss-obligations-malta-employers

• Personal Income Tax in Malta 2026 — egmassurance.com/articles/personal-income-tax-malta-2026

• Corporate Filings and Beneficial Ownership: Directors' Guide — egmassurance.com/articles/corporate-filings-beneficial-ownership-malta

Authoritative references

• Income Tax Act (Cap. 123) — legislation.mt/eli/cap/123

• Fringe Benefit Rules (S.L. 123.55) — legislation.mt/eli/sl/123.55

• Malta Tax and Customs Administration — Fringe Benefits guidance — mtca.gov.mt

This article is prepared by EGM Assurance for general informational purposes and reflects the legal and regulatory position in Malta as at April 2026. It does not constitute legal, tax or professional advice. Always confirm current obligations with a qualified professional before acting.