Malta Budget 2026: What It Means for Businesses

Payroll costs, workforce retention, and investment support explained

The Malta Budget 2026 introduces a mix of wage-support, retention, and investment measures aimed at stabilising employment and encouraging business reinvestment. This article breaks down the key measures that directly affect businesses — from payroll subsidies and wage support to tax credits for capital expenditure — and explains how to apply them strategically within your 2026 planning.

👥 1. Payroll cost and workforce retention

🧾 Wage-Increase Subsidy for Long-Serving Employees

One of the most impactful measures for employers is the new wage subsidy designed to reward employee loyalty while easing payroll pressure on businesses.

Under this scheme:

Employers can claim 65% of the wage increase cost, up to €780 per employee per year in Malta. The support will be availble for two years.

For Gozo-based businesses, the rate increases to 80%, up to €960 per employee per year.

Eligible employees are those who have been continuously employed with the same company for at least four years.

💡 Example:

If you give an employee a €1,200 annual pay rise (≈€100/month):

You can claim 65% = €780 → this hits the maximum subsidy cap.

The remaining €420 is covered by the employer.

If the increase were smaller — say €800/year — you’d receive 65% (€520) as a direct benefit.

In other words: The €780 (or €960) figure is the maximum benefit per employee, not the wage increase amount itself.

✅ Business impact

This incentive directly reduces the cost of rewarding long-serving employees, helping firms improve retention, morale, and competitiveness without fully absorbing the wage increase cost.

It’s especially relevant for businesses facing inflationary wage pressures or operating in sectors where retaining skilled labour is critical (hospitality, manufacturing, audiovisual production, etc.).

💶 Cost-of-Living Adjustment (COLA)

For 2026, the COLA is set at €4.66 per week, equivalent to an annual cost of approximately €266.55 per full-time employee, including employer social security contributions.

(This figure represents an average estimate; actual costs may vary slightly depending on wage thresholds and contribution rates.)

Compared to previous years, this is a moderate increase, allowing businesses to maintain payroll stability while ensuring employees are protected from rising living costs.

💡 Combining wage subsidies and COLA

Companies can combine the COLA adjustment with targeted pay rises under the wage-increase subsidy.

This allows you to maintain competitiveness in your pay structure without excessive payroll inflation — while securing government support on loyalty-based increases.

💰 2. Business investment and support measures

⚙️ 60% Tax Credit on Capital Expenditure

A standout Budget 2026 measure is the 60% tax credit on qualifying capital expenditure, spread over four years.

Eligible costs include:

• Machinery and production equipment

• IT systems and software

• Cybersecurity infrastructure

• Digitalisation or automation projects

✅ Business impact

This credit substantially reduces the effective cost of larger investment projects — encouraging businesses to modernise, automate, or expand production capacity.

🧭 Suitability

This measure is ideal for larger projects and established companies, since capping thresholds are expected to be much higher than those under the MicroInvest scheme. It rewards capital-intensive, growth-oriented investments that contribute to Malta’s productivity and competitiveness goals.

💡 How it differs from MicroInvest

While both offer tax credits, MicroInvest targets SMEs and smaller operational upgrades.

By contrast, the 60% tax credit targets larger-scale projects — with no fixed published cap so far — and focuses on strategic investments in technology, machinery, and automation.

Feature	MicroInvest	60% Tax Credit
Target	SMEs & self-employed	Established / medium-large firms
Focus	Payroll & small investment	Major CAPEX / digital transformation
Rate	45–65%	60%
Cap	€65k (Malta) / €80k (Gozo)	Not yet specified
Duration	3-year claim period	4-year claim period
Administered by	Malta Enterprise	Tax authorities

🧪 175% R&D Tax Deduction

To stimulate innovation and digital transformation, companies can now deduct 175% of qualifying R&D and innovation costs. This covers eligible expenses related to product development, digital systems, software creation, or process innovation.

Example:

If your business invests €100,000 in eligible R&D activity, you can deduct €175,000 from your taxable income.

✅ Business impact:

A powerful driver for companies investing in AI, automation, or digital transformation, reducing the net cost of R&D by up to one-third.

💼 €50 Million Business Support Fund

The government is also allocating €50 million to assist self-employed individuals, micro-enterprises, and SMEs. This includes easier access to finance, working capital support, and micro-grants aimed at business modernisation and recovery.

💻 Digital and Innovation Ecosystem

Additional measures include:

• A €100 million expansion of the Digital Innovation Scheme

• Eased audit requirements for co-operatives

• New incentives to strengthen Malta’s seed-capital and innovation ecosystem

  
  

Together, these reinforce Malta’s commitment to digital competitiveness, R&D, and sustainable enterprise growth.

🧭 3. Strategic takeaways for 2026 planning

1️⃣ Retention Strategy

Use the wage-increase subsidy to create structured loyalty pay for long-serving employees instead of one-off bonuses.

This builds engagement while leveraging government support to offset wage costs.

2️⃣ Payroll Budgeting

Account for both COLA (€266.55 per employee) and wage subsidies when revising your 2026 payroll models.

A blended approach can help you maintain a competitive compensation structure without increasing total payroll spend.

3️⃣ Investment Timing

If your business plans significant capital upgrades or digital transformation, align project timing with the new 60% tax credit and 175% R&D deduction to maximise returns.

4️⃣ SME Growth & Funding

For smaller firms, the expanded MicroInvest caps and €50 million fund create valuable entry points for incremental investment — especially in energy efficiency, digital upgrades, or modest expansion projects

📈 4. Key takeaway

The 2026 Budget represents a balanced approach between social stability and business competitiveness.

It rewards loyalty, eases the cost of wage growth, and opens powerful incentives for innovation and capital investment.

For employers, now is the time to review 2026 payroll and investment plans through a funding and optimisation lens — ensuring your strategy makes full use of Malta’s latest incentive framework.

🧭 Next steps for your business

Understanding the full impact of these measures on your business — and accessing the right funding instruments — requires deliberate planning.

Over the coming months, the technical details of these schemes will be fleshed out through Malta Enterprise and tax authority guidelines. Staying abreast of these developments will be key to maximising your benefits.

Start now by:

• Assessing which measures your company can benefit from (payroll, retention, investment, or R&D).

• Integrating business support measures into your 2026 budgeting process — both for operational and CAPEX projects.

• Embedding funding and incentive alignment directly into your project planning and execution workflow.

We help businesses translate Malta’s budget measures into actionable plans — mapping eligibility, building funding forecasts, and integrating incentives into operational and capital budgets.

Contact us to discuss how to inbuild funding and business-support measures into your 2026 strategy and project planning.

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