Undeclared earnings could be settled without criminal charges under new tax reform bill

Taxpayers who fail to declare their earnings may soon be able to avoid criminal charges by paying a fine of up to €1 million, under sweeping new legislation proposed by the government.

The reform, announced on Friday, forms part of a broader effort to modernise Malta’s tax enforcement system and reduce the burden on the courts while strengthening compliance.

The bill proposes a formalised out-of-court settlement mechanism across all major tax laws, allowing individuals and businesses to regularise their tax affairs through agreements with the Commissioner for Tax and Customs. These agreements would include significant financial penalties ranging from €10,000 to €1,000,000 but would exempt taxpayers from criminal prosecution for the breaches covered under the deal.

While taxpayers would still be civilly liable for any undeclared amounts not included in the agreement, they would be shielded from criminal charges related to those covered in the settlement. The process would also pause the statute of limitations while negotiations are ongoing and would remain available even if criminal proceedings had already begun, so long as no final judgment has been issued.

The new framework is intended to offer a more pragmatic approach to tax enforcement, aimed at recovering public funds more efficiently while incentivising voluntary compliance. The government says this mechanism offers a chance for taxpayers, particularly those in breach of fiscal laws, to come forward and settle their dues without facing criminal courts, provided they are willing to pay a substantial penalty.

However, the bill does not offer blanket amnesty. It introduces the concept of “connected breaches”, acts that are related to or intended to facilitate the main tax offence, but explicitly excludes serious crimes such as corruption, extortion, bribery, and abuse of authority from being part of any settlement agreement.

To prevent exploitation of the new mechanism, the bill introduces two new criminal offences under the Criminal Code: fraudulent breach of a tax agreement with a government department, punishable by up to four years in prison or a €2.5 million fine; and unjustified breach of such an agreement, carrying up to two years in prison or a €500,000 fine.

These provisions are designed to ensure that the settlement system is used responsibly and that agreements with government agencies are honoured in full.