Malta: Malta’s 175% Research and Innovation deduction: supporting the next phase of business growth

One of the most significant Malta tax updates announced for 2026 is the introduction of a 175% tax deduction for eligible expenditure in Research and Innovation.[1] This measure reflects Malta’s continued policy direction towards encouraging investment in technology, knowledge, and innovative development, while strengthening the competitiveness of businesses operating in both local and international markets.[1]

From Reanda Malta’s perspective, this is a particularly important development. Innovation is no longer limited to large technology companies or formal research laboratories. For many businesses, it now includes digital transformation, automation, artificial intelligence, cybersecurity, improved internal systems, new service models, and product or process development. These areas are increasingly central to productivity, resilience, and long-term growth.

The measure was subsequently reflected in Malta’s Budget Measures Implementation Act, 2026, published in the Government Gazette on 10 March 2026.[2][3] The Act introduces a deduction for expenditure incurred on research, development and innovation activities by persons engaged in a trade, business, profession or vocation, provided that the expenditure is incurred for the use and benefit of that activity.[2]

In practical terms, the deduction can make qualifying innovation projects more tax-efficient. A business incurring eligible expenditure may be able to claim a deduction greater than the amount actually spent, thereby improving the after-tax cost of investment. This may be particularly relevant for companies seeking to modernise operations, improve competitiveness, or develop new products and services.

However, the benefit should not be viewed as automatic. The legislation provides that qualifying expenditure must be proved to the satisfaction of the Commissioner, and further rules may define the activities that constitute research, development and innovation and prescribe applicable conditions. [2] Businesses should therefore identify relevant projects early, maintain technical and financial documentation, and ensure that cost records, staff time, invoices, and project objectives are clearly retained.

The measure also fits within Malta’s broader institutional framework supporting R&D activity. Malta Enterprise describes R&D support as aimed at assisting industry in undertaking industrial research and experimental development activities, particularly where projects address scientific or technological uncertainties and lead towards innovative products and solutions.[4][5]

For internationally active groups, the new deduction should be considered alongside substance, transfer pricing, intellectual property ownership, and cross-border cost allocation. Reanda Malta is well positioned to assist clients in assessing the opportunity and translating this policy measure into practical, compliant, and commercially valuable action.

Reference/Citation
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[1] Budget Speech, 2026 | Ministry for Finance, Malta – https://finance.gov.mt/wp-content/uploads/2025/11/Budget-Speech-2026.pdf

[2] Act No. III of 2026 – Budget Measures Implementation Act | Parliament of Malta – https://parlament.mt/14th-leg/acts/act-iii-of-2026/

[3] III of 2026 – Budget Measures Implementation Act, 2026 | Legislation Malta – https://legislation.mt/eli/act/2026/3/eng

[4] Research & Development | Malta Enterprise – https://maltaenterprise.com/researchanddevelopment

[5] Research and Development – Incentive Guidelines V1.0 | Malta Enterprise – https://maltaenterprise.com/sites/default/files/Research%20and%20Development%20-%20V1.0%2001.2024.pdf

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