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6.1 Domicile and Residency Requirements

6.1. Domicile and Residency Requirements

Maltese law follows common law when it comes to the distinction between domicile and residence. The distinction between these two terms is important when determining the taxation of individual taxpayers.

Domicile

The term domicile is not defined under Maltese law, but it adheres to the same principles as in English law. An individual is not considered to have a Maltese domicile if, broadly speaking, that person is not of Maltese origin (parents are not Maltese and not born in Malta) and does not intend to permanently live in Malta (i.e., forever).

The following are some of the aspects that may have a significant impact on the domicile of an individual:

  • the individual becomes a permanent resident — this typically requires an application for a permanent residence certificate which can only be requested after spending five years in Malta;
  • the individual becomes a long-term resident — this typically requires an application for long-term residence status which can only be requested after spending five years in Malta;
  • the individual marries a Maltese-domiciled person; and
  • the individual changes his/her intention to return to their home country with an intention to remain in Malta permanently.

Residence

The definition of residence under the Income Tax Act is rather vague and ultimately leaves the determination of residence to the Commissioner for Revenue.

An individual that has the intention to become a resident of Malta may register as a resident for tax purposes with effect from the first day.

An individual who does not have the intention of becoming a resident of Malta will become a resident if he or she spends more than 183 days there within a calendar year.

When applying for a tax residency certificate, the Commissioner for Revenue will carry out its own review and determination by requesting either proof that the taxpayer spent more than 183 days within a calendar year in Malta or evidence to support the individual’s intent to reside in Malta. The following are some of the criteria that are taken into consideration when determining an intent to reside in Malta:

  • number of days physically present in Malta;
  • regularity and frequency of visits to Malta;
  • business, investments and family ties in Malta; and
  • the nature of the individual’s visits to Malta.

6.2 Income Tax Base

6.2.1 Tax Base for Residents

Individuals who are both ordinarily resident and domiciled in Malta are taxed in Malta on their worldwide income and capital gains.

On the other hand, individuals who are resident but not domiciled (as well as domiciled but not resident) in Malta are subject to tax in Malta only on income and capital gains arising in Malta and on foreign income that is remitted to Malta (the remittance basis of taxation). Furthermore, resident but not domiciled individuals are not taxed in Malta on capital gains arising outside of Malta irrespective of whether such gains are remitted to Malta.

The remittance basis of taxation is not available to individuals who are ordinary resident and domiciled in Malta or who have acquired permanent resident status within the meaning of the Free Movement of European Nationals and their Family Members Order or long-term resident status within the meaning of the Long-term Residents (Third-Country Nationals) Regulations.

For the minimum tax imposed on certain individuals who are ordinarily resident but not domiciled in Malta, see Section 6.3.1.

6.2.2. Tax Base for Nonresidents

Nonresident individuals are taxable on a source basis which means that only income and capital gains arising in Malta are taxed in Malta.

Furthermore, nonresident individuals who have Maltese domicile are also taxed on a remittance basis for foreign-sourced income, subject to any protection granted by tax treaties.

6.2.3. Personal Income Subject to Income Tax

Malta residents are subject to tax on all types of income and gains derived from certain capital assets which are listed in Section 4.1.

Exempt income can be divided into three categories:

  • exemptions specific to organizations, such as the income of the University of Malta, the income of any retirement fund/scheme, the income of any institution engaged in philanthropic work, the income of a collective investment scheme and the income of a cooperative society;
  • exemptions specific to nonresidents, such as the income of a nonresident shipowner, interest, discounts, premiums or royalties and capital gains on the transfer of units in a CIS, transfer of units and such like instruments relating to long-term business of insurance, transfer of shares in a company (which is not a property company) and transfer of an interest in a partnership (which is not a property partnership); and
  • exemptions specific to individuals such as social allowances or benefits, child maintenance payments from one parent to the other, wound and disability pensions, income from a scholarship and lump sum pension.

Apart from employment income, Malta taxes the value of any benefit provided by reason of employment. Thus, as a general rule, fringe benefits derived by reason of employment are taxable in the hands of the employee together with employment income.

Fringe benefits are divided into three categories:

  • benefits relating to motor vehicles (e.g., use of a car or car cash allowances);
  • benefits relating to the use of property (e.g., vehicles other than cars and living quarters); and
  • other benefits (e.g., low-interest loan rates, free or discounted travel, entertainment, insurance, meals and school fees).

The fringe benefit rules provide for a number of exemptions (e.g., use of computers, telephones, certain equipment, and bank loans to bank employees).

Any income from services which is deemed to arise in Malta is subject to tax in Malta irrespective of who is the recipient of such income. The source country depends on the nature of the income.

Income derived from employment is deemed to arise in the country where the employment is physically carried out, therefore if employment is carried out in Malta, the income is deemed to arise in Malta and is therefore taxable in Malta. If the recipient is a nonresident, tax is imposed by way of withholding at the applicable nonresident rates, whereas if the individual is a resident, tax is withheld at the normal progressive tax rates applicable to resident individuals. For more information, see Section 6.3.1.

6.2.4. Deductions and Allowances

Individuals engaged in business activities are permitted certain business-related expenses, such as research expenses, bad debt losses, and other costs and deductions.

Deductions

There are also specific personal deductions granted to individuals:

  • alimony payments are fully deductible (and must be included in the recipient’s income);
  • school fees for each of the taxpayer’s children are deductible up to certain caps (1,600 euros for kindergarten, 1,900 euros for primary school, 2,600 euros for secondary school, and 935 euros for registered daycare centers);
  • fees paid to homes for the elderly up to 2,500 euros per year;
  • childcare expenses up to 2,000 euros per year;
  • tertiary education fees for the taxpayer up to 10,000 euros in the year the course of study is completed (with forward available if not fully used in that year).
  • deduction of the amount paid, capped at a maximum of 300 euro in respect of every child which has not attained the age of sixteen, attending sport activities organized either by a person registered under the Sports Persons Regulations or the Malta Sports Council; and
  • deduction of the amount paid, capped at a maximum of 300 euro in respect of every child which has not attained the age of sixteen, attending creative or cultural courses licensed or accredited by the Malta Council for Culture and Arts.

Student Tax Credits

With effect from January 1, 2017 for applications after that date, students completing a course of study are entitled to a tax credit. The tax credit may not exceed 70 percent of the study costs paid by the student.

Individuals who successfully complete, on or after January 1, 2018, a course or program for a Malta Qualifications Framework (MQF) 7 or MQF 8 qualification (equivalent respectively to Masters and Ph.D. degrees), and who were under the age of 40 when they commenced such a course or program, may claim credits against the tax chargeable on the income obtained by them, from whole-time employment in respect of services performed wholly or mainly in Malta, in the first year (for those obtaining an MQF 7 qualification) or first two years (for those obtaining an MQF 8 qualification) after the year in which the course or program was successfully completed

Where the course was commenced in 2017 or later, the credit is an amount equivalent to the tax chargeable for the relevant year of assessment on the income from whole-time employment, but where that income exceeds 60,000 euros the credit is calculated as if the income was 60,000 euros. For courses commenced before 2017, the credit is determined by a specified arithmetical formula. For those studying part-time, the credit is restricted to 50 percent of the amount otherwise applicable.

The credit is conditional upon the individual remaining continuously in whole-time employment and continuing to perform his/her services wholly or mainly in Malta up to the end of the fourth year (for those obtaining an MQF 7 qualification) or fifth year (for those obtaining an MQF 8 qualification) following the year in which the course or program of studies was successfully completed. If this condition is breached, the credit must be refunded.

No credit is allowed in respect of a qualification obtained by an individual who benefits, or has benefited, from any tax benefit or government/government agency financial assistance that is or was conditional on the attainment of the same qualification

Exemption for married persons re-entering the workforce

There is an exemption for income from employment earned by a married person who is over 40 years of age and starts employment after having been absent from employment for at least five years as long as the employee re-entering the job force has not been on the unemployment register during that time. This exemption does not apply to director’s fees. The married person re-entering the job force must be chargeable to tax jointly with his/her spouse and the income must not exceed a threshold amount. The exemption for married persons re-entering the work force applies for five consecutive years of assessment commencing from the basis year in which the person started work.

Exemption or tax credit for women who return to work after having a child

A tax credit up to a maximum of 2,000 euros is available for a women who has a child under 16 years of age and who returns to employment on or after January 1, 2008 after having been absent from work for at least five years, or for a woman who has a child born on or after January 1, 2007 and who returns to work on or after January 1, 2007.

Another option is an exemption which is an equivalent to the tax suffered by a woman in the year of return. It is capped at 5,000 euro per child. The tax credit/exemption is also applicable when a child is adopted.

Voluntary Occupational Pensions

Qualifying employees making qualifying contributions into the qualifying scheme are eligible for a tax credit against their income for the year equal to 15 percent of the aggregate amount of the qualifying contributions made during a year, up to a maximum of 150 euros (or such other amount prescribed by the Minister).

Third Pillar Voluntary Personal Pensions

An annual tax credit equal to 25 percent of the contributions invested in a private pension during the year, capped at 750 euros, is available to individuals who invest in a qualifying private pension scheme.

Exemption for investment services/insurance expatriates

A tax exemption is available for expatriates employed by, or providing services to:

  • an investment services company holding an investment services license under the Investment Services Act, or a company recognized by the relevant competent authority whose activities solely consist of the provision of management, administration, safekeeping or investment advice to collective investment schemes (“investment services expatriate”); or
  • an authorized insurance company (“insurance expatriate”).

To qualify the expatriate:

  • must not be ordinarily resident or domiciled in Malta;
  • must not have been resident in Malta for at least the three preceding years; and
  • must have been engaged on a full-time basis in a similar position outside Malta during the previous three years.

For a 10-year period commencing from the year preceding the first year of assessment for which they become first liable to tax under the Income Tax Act, qualifying expatriates may opt not to be liable to tax on income relating to the following expenditure incurred by the company for their benefit or that of their immediate families:

  • removal costs in respect of relocation to or from Malta;
  • accommodation expenses incurred in Malta;
  • travel costs in respect of visits;
  • provision of a car for use in Malta;
  • a grant of not more than 600 euros per calendar month;
  • medical insurance and other medical expenses; and
  • school fees.

 

6.3 Main Rates and Bands

6.3.1 Individual Tax Rates

Malta has progressive bands of personal income tax.

The rates and thresholds for the 2022 income basis year are set out below.

Married residents who are living together may opt for joint computation as per the rates below. These rates are also possible for single parents:

  • up to 12,700 euros — 0 percent;
  • 12,701 euros to 21,200 euros — 15 percent (subtract 1,905 euros);
  • 21,201 euros to 28,700 euros — 25 percent (subtract 4,025 euros);
  • 28,701 euros to 60,000 euros — 25 percent (subtract 3,905 euros); and
  • 60,001 euros and over — 35 percent (subtract 9,905 euros).

Single residents and married residents opting for separate computation:

  • up to 9,100 euros — 0 percent;
  • 9,101 euros to 14,500 euros — 15 percent (subtract 1,365 euros);
  • 14,501 euros to 19,500 euros — 25 percent (subtract 2,815 euros);
  • 19,501 euros to 60,000 euros — 25 percent (subtract 2,725 euros); and
  • 60,001 euros and over — 35 percent (subtract 8,725 euros).

Parent rates are available to individuals who maintain a child under their custody/pay maintenance in respect of a child, where such child is not over 18, or not over 23 if the child is in full-time tertiary education and is not gainfully occupied or not earning annual income in excess of 3,400 euros. Parent rates are assessed on taxable income as follows:

  • up to 10,500 euros — 0 percent;
  • 10,501 euros to 15,800 euros — 15 percent (subtract 1,575 euros);
  • 15,801 euros to 21,200 euros — 25 percent (subtract 3,155 euros);
  • 21,201 euros to 60,000 euros — 25 percent (subtract 3,050 euros); and
  • 60,001 euros and over — 35 percent (subtract 9,050 euros).

Nonresidents’ rates are assessed on taxable income as follows:

  • up to 700 euros — 0 percent;
  • 701 euros to 3,100 euros — 20 percent (subtract 140 euros);
  • 3,101 euros to 7,800 euros — 30 percent (subtract 450 euros); and
  • 7,801 euros and over — 35 percent (subtract 840 euros).

Payments made to a nonresident individual for services of all kinds (including wages, etc., earned by a nonresident employee with respect to a Maltese employment and director’s fees received by a nonresident director of a Maltese company) are subject to a creditable withholding tax at the rate of 25 percent. Any withholding tax paid is set off against the nonresident individual’s final tax liability (computed on the basis of the progressive rates for nonresidents set out above) and any excess tax withheld is refunded.

A person making payments to a nonresident for services must deduct the withholding tax at the time of payment and pay it over to the Maltese tax authorities within 30 days.

The Income Tax Act provides for a number of special tax rates, with the main ones being set out below.

Minimum tax payable by nonresidents

A minimum annual income tax of 5,000 euros is imposed on individuals who during the year preceding the year of assessment:

  • are ordinarily resident, but not domiciled in Malta;
  • are not already paying a minimum tax under any scheme under the Income Tax Act; and
  • have an income of at least 35,000 euros (or such other amount as may be prescribed) arising outside Malta, but which is not received in Malta.

In computing the minimum tax, account is taken of tax paid under the Income Tax Act, whether by withholding or otherwise, in respect of all income (excluding tax on the transfer of immovable property—for which see Section 9.3.1) arising in Malta or otherwise. If the nondomiciled individual can prove that if he or she had not been subject to the remittance basis of taxation (for which, see Section 6.2.1), the total tax payable would have been less than the minimum tax, the tax liability is capped at the lower amount.

Preferential tax rate on overtime

Starting January 1, 2020, a preferential tax rate of 15 percent applies to overtime carried out by employees who are not in a managerial position and whose basic wage does not exceed 20,000 euros per annum. The preferential rate applies to qualifying overtime up to an amount not exceeding:

  • 10,000 euros; and
  • the amount resulting when the actual number of hours of qualifying overtime in respect of which the individual has derived qualifying overtime income is multiplied by the maximum hourly rate (i.e., the hourly rate paid to the individual for overtime, capped at twice the hourly equivalent of the basic weekly wage, calculated on a 40-hour week).

The remainder is taxed at the progressive rates applicable to the individual.
Previously, the preferential rate applied to the first 100 hours of qualifying overtime worked during the tax year. Individuals may opt out of the preferential regime.

Preferential tax rate for qualifying part-time work

Individuals deriving income from employment or self-employment which for tax purposes qualifies as part-time income, may benefit from a special tax rate of 10 percent (from the year of assessment 2023; 15 percent previously) on such income, up to a maximum of 10,000 euros for employed individuals and 12,000 euros for self-employed individuals. The remaining income remains taxable at the progressive rates applicable to the individual.

Amongst other conditions, in order to avail of the beneficial rates, such part-time income must be declared in Form TA22 and filed by the end of April of the year following to which the income was earned.

Preferential tax rate on income from work performed outside Malta

Individuals who are residents of Malta and who perform work outside of Malta may elect to be taxed at a special rate of 15 percent on income derived from their work performed abroad.

There are various conditions for the application of this preferential rate, including a requirement that:

  • the contract of employment is for a period of not less than twelve months and that it makes specific reference to the work performed abroad;
  • the employment cannot consist of services rendered on board ships, aircraft or to the government of Malta; and
  • the work is performed physically outside Malta.

The preferential tax rate is not applicable if, in the year immediately preceding the year of assessment, the individual was present in Malta for a period that exceeds or for periods that in aggregate exceed thirty days (excluding periods of vacation or sick leave and any period preceding the commencement or following the termination of the contract).

Preferential tax rate on income from sporting activities

Individuals who derive income from a full-time or part-time sporting activity recognized by the Malta Council for Sports may elect to have such income taxed at a preferential rate of 7.5 percent on the gross amount of any income derived from such activity.

Preferential tax rate on income from artistic activities

Individuals who derive income from a full-time or part-time artistic activity recognized by the Arts Council Malta may elect to have such income taxed at a preferential rate of 7.5 percent on the gross amount of any income derived from such activity.

Preferential tax rate on income received by highly qualified persons

Under the Highly Qualified Persons Rules (SL 123.126), individuals employed in an eligible office by a company licensed/recognized by the competent authority regulating the financial services, gaming, civil aviation or reproductive technology sectors may opt for a 15 percent flat rate on income arising under a qualifying employment contract.

For basis year 2022, such income must be at least 88,242 euros (the income threshold is adjusted annually in line with the Retail Price Index). The flat rate applies up to a maximum income of 5 million euros, any excess is exempt from tax.

To benefit from the preferential rate, an individual must satisfy certain conditions. These include the following:

  • possession of the necessary professional qualifications and at least five years professional experience;
  • employment through an eligible contract of employment subject to the laws of Malta;
  • receipt of a stable and regular income sufficient to maintain his/her family without recourse to the Maltese social assistance system;
  • residing in accommodation regarded as normal for a comparable family in Malta;
  • not benefitting from the regime for investment services and insurance expatriates (for which, see Section 6.2.4);
  • possession of a health insurance policy;
  • not being domiciled in Malta; and
  • possession of a valid travel document.

Nationals of the EU/EEA/Switzerland can benefit from the preferential regime for five years, extendable twice for further periods of five years. Nationals originating from other countries can benefit from the regime for four years, again extendable twice, but for further periods of four years.

The scheme is due to be terminated on December 31, 2030.

Preferential tax rate for qualifying employment within the maritime, oil and gas industries

Under the Qualifying Employment in Maritime Activities and the Servicing of Offshore Oil and Gas Industry Activities (Personal Tax) Rules (Legal Notice No. 140 of 2018), senior employees engaged in an eligible employment/office within the maritime, oil and gas industries can opt for a 15 percent flat tax rate on income arising under a qualifying employment contract. To benefit from the scheme, conditions similar to those applicable under the highly qualified persons scheme (see above) must be met.

The qualifying contract of employment must give rise to a salary for the basis year of at least 65,000 euros, excluding the annual value of fringe benefits.

6.3.2. Individual Returns, Filing Dates, and Payment

Malta allows married couples who are living together, the choice of filing either a joint or a separate income tax return. No other members of the family are covered by the return.

A couple, once married, will automatically receive a joint tax return with the possibility to opt for either a separate or joint computation. The tax computation in a joint tax return, however, still requires the couple to declare certain secondary income on the highest income earner (for example, rental income not derived from a business or profession) even if it was earned by the other spouse. This has led to obvious issues in the case of couples who have opted for separation of assets during their marriage and other cross-border issues when a foreign law provides for a similar system.

With effect from the 2020 income basis year, a couple may opt for the filing of a separate tax return. Once the election is made, the income of each spouse is charged to tax in the name of the respective spouse separately from the income of the other spouse, and each spouse is responsible for complying with the provisions of the Income Tax Act. Deductions and expenses are deemed to have been incurred by the spouse in whose name the receipt is issued, and where a receipt is issued to both spouses jointly, the relevant expense is deemed to have been incurred by both spouses in equal portions.

Any returns and tax payments must be filed by June 30 of the year following the calendar year to which the income relates. There’s been a practice for some years for the authority to grant annually an extension for electronic filing. Extensions are generally published on the website of the Commissioner for Revenue. Electronic tax returns may be filed using the Commissioner for Revenue eServices portal. For a link to the portal, see Section 1.4.

Self-employed individuals

A self-employed individual is required to make three provisional tax payments during the year based on tax due in the benchmark year (i.e., the last year for which a return has been filed at the time the first provisional payment is due).

Provisional tax payments are due as follows:

  • first provisional tax payment — due on April 30 — 20 percent of the tax due in the benchmark year;
  • second provisional tax payment — due on August 31 — 30 percent of the tax due in the benchmark year; and
  • third provisional tax payment — due on December 21 — 50 percent of the tax due in the benchmark year.

For information on interest and penalties on late payment, see Section 2.9.4.

6.4 Dividends

6.4.1 Domestic Corporations

The Income Tax Act provides that the income of any individual includes dividends of the individual accruing in or derived from Malta. One of the essential characteristics of Maltese tax law is the full imputation system. Through this system, the tax paid at company level is regarded as a prepayment for the tax due by the shareholder on the eventual distribution of profits. Hence, after the dividends are paid out, the income tax paid by the company is credited in full against the shareholder’s tax liability, irrespective of the tax residency of the shareholder. Thus, Malta does not impose tax on the payments of dividends if tax is paid by the company.

An exception to this rule applies to distributions of dividends from untaxed profits (from the untaxed account) where a 15 percent withholding tax will apply if distribution is made to:

  • a Maltese resident individual;
  • a nonresident person that is directly or indirectly owned and controlled by, or acts on behalf of, a Maltese domiciled and ordinarily-resident individual; or
  • an EU/EEA individual who has declared that at least 90 percent of worldwide income is derived from Malta.

The 15 percent withholding tax does not apply in the case of dividends from shares listed on a stock exchange recognized by the Commissioner, if those dividends are distributed to an individual with holdings of less than 0.5 percent of the paid-up share capital of the company.11112 Thus, taxpayers holding less than 0.5 percent of the paid-up share of capital of a listed company can claim the credit for the income tax paid by the distributing company under the normal rules of full imputation.

6.4.2. Foreign Corporations

Maltese resident and domiciled individuals are taxed on dividends received from foreign corporations, with the possibility of claiming double taxation relief.

Maltese resident but not domiciled individuals, are only subject to tax in Malta on dividends received from foreign corporations if such dividends are received in Malta.

Malta adopts the credit system of double taxation relief (see Section 2.7.1) where any foreign withholding tax suffered is granted as a credit against the Malta tax liability on the foreign income. The credit must not exceed the total tax liability in Malta on the receipt.

Nonresidents are not subject to tax on dividends received from foreign corporations even if such income is received in Malta.

Dividends are taxed at the standard progressive rates of tax applicable to individuals (see Section 6.3.1).

6.5 Interest

6.5.1 Domestic Borrowers

The Income Tax Act provides that the income of an individual includes interest (which includes gains from any sum of money in whatever currency deposited with a bank) of an individual accruing in or derived from Malta.

Interest is considered as taxable income of the recipient individual only when received.

Resident individuals

Residents are taxed on interest income derived from bank deposits and bonds.

Withholding of 15 percent

Under the Maltese investment income provisions, resident investors are entitled to benefit from a reduced tax rate of 15 percent on certain types of investment income, two of which are interest from bank deposits and interest from bonds.

The 15 percent tax is paid by way of a withholding tax and is deducted at source. The tax may be considered by the recipient to be a final tax and in such case, the investment income need not be reported in the recipient’s income tax return. At the option of the recipient, such tax may not be considered to be a final tax. In this case, the recipient may opt to declare such income in their personal income tax return and claim a refund if the individual’s personal tax rate is lower than 15 percent.

Exemptions apply to interest up to 1,000 euros in any year payable to an individual in the individual’s own name by:

  • EU member state banks on a sum of money deposited into a special individual saving account; and
  • certain interest-bearing securities credited for the benefit of the individual into a special individual saving account.

Withholding of 25 percent

In very limited instances, resident borrowers are required to withhold 25 percent on certain payments to nonresidents (for example, payments of debenture interest) when the payment is not a payment of interest on debt and when other conditions are met.

Nonresident individuals

Provided that certain statutory requirements are satisfied, nonresident individuals are not taxed on interest received from a Maltese payor.

6.5.2 Foreign Borrowers

Maltese residents and domiciled individuals are taxed on interest received from foreign corporations, with the possibility of claiming double taxation relief.

Individuals who are resident, but not domiciled, in Malta are only subject to tax in Malta on interest received from foreign corporations if such interest is received in Malta. Any foreign tax suffered on the interest is granted as a credit against the Maltese tax liability. The credit must not exceed the total tax liability in Malta on the receipt.

The reduced rate of 15 percent in terms of Malta’s investment income provisions also applies with respect to interest from foreign banks, provided that the recipient of the income is a resident individual and the foreign interest is received through an authorized financial intermediary.

6.6 Social Security/National Insurance Payments

6.6.1 Employer Tax or Contribution

Employed persons

In 2023, employers are required to pay class 1 national social security contributions on salaries paid to employees resident in Malta at 10 percent of the employee’s basic salary if the employee’s basic weekly wage does not exceed 515.98 euros.11113

If the employee’s basic weekly wage exceeds that amount, the weekly contributions are capped at 51.60 euros. Reduced contributions are applicable to employees born before January 1, 1962.

Maternity contributions

Employers in the private sector are obliged to pay a maternity leave contribution for all their employees. The contribution was introduced to alleviate and defer the economic effects that the statutory paid maternity leave can have on businesses.

The contribution is borne totally by the employer and must be paid for all employees, with only some minor exceptions. Maternity leave contributions are payable by the employer at 0.3 percent of the employee’s basic salary if the employee’s basic weekly wage does not exceed 515.98euros. If the employee’s basic weekly wage exceeds that amount, the weekly contributions are capped at 1.54 euros. Reduced rates of maternity leave contributions are applicable for employees born before January 1, 1962.

6.6.2 Employee Tax or Contribution

Employed persons

In 2023, employees are required to pay class 1 social security contributions at a rate of 10 percent if their basic weekly wage does not exceed 515.98 euros.11114

If the basic weekly wage exceeds that amount, the weekly contributions are capped at 51.60 euros per week. Reduced contributions are applicable to employees born before January 1, 1962.

Self-employed persons

Self-employed and self-occupied individuals are required to pay class 2 social security contributions at rates depending on their yearly income. The rate of contribution for self-employed individuals is calculated on the net income for the year preceding the year in question. The rate of contribution for self-occupied individuals is based on the net profit of the year preceding the contribution year.

Individuals earning less than 910 euros per annum are exempted from such payments.

The contributions are as follows:

  • Individuals earning from 910 euros to 11,362.80 euros required to pay 32.78 euros weekly.
  • Individuals earning from 11,362.80 euros 26,831 pay 15 percent of their yearly income.
  • Anyone earning income of 26,831 euros or over pays the maximum weekly national insurance contribution which amounts to 77.40 euros.

National Insurance must be paid by self-employed and self-occupied individuals to the authorities in three installments, together with the provisional tax contributions (see Section 6.3.2), payable April, August and December of every year.

Reduced contributions are applicable to self-employed and self-occupied individuals born before January 1, 1962 and for full-time farmers.

6.6.3 Employee Tax Collection Mechanism

Tax on employment income is collected via the Final Settlement System (FSS), a withholding tax process, which is similar to the PAYE system, under which an employer withholds income tax on the salaries paid to employees on a monthly basis. The FSS system, if applied correctly, ensures that the correct amount of tax is deducted at source by the employer, with the employee having no tax balance to pay (or refund to receive) at the end of the year.

An employer does not have the option not to withhold tax from the employee’s salaries and is ultimately responsible in terms of Maltese tax law to withhold tax at source before effecting payment of salaries to their employees.

6.7 Royalties and Rents

6.7.1  Domestic Licensors

Overview

The Income Tax Act provides that the income of any individual includes royalties, rents and other profits arising from property of that individual accruing in or derived from Malta.

Persons who are ordinarily resident and domiciled in Malta are taxable on the receipt of royalties and rents from domestic use of property and from foreign use of property.

Persons who are either not resident or not domiciled in Malta are taxable on the receipt of rents and royalties received for the use of domestic property (in Malta) and rents and royalties for the foreign use of property if the amount is received/remitted to Malta.

Royalties

Royalty income is generally taxed at normal tax rates. There is no withholding tax applicable to resident persons in receipt of royalty income. Such income must be declared in the recipient’s income tax return and taxed accordingly.

With effect from January 1, 2021, authors had the right to opt for a flat 15 percent rate of tax on royalties from qualifying literary works. This beneficial flat rate has been updated to a 7.5 percent rate of tax on the condition that the qualifying royalty income has been derived after the 1 January 2023.

This option must be exercised no later than April 30 of the relative year of assessment, or such other date as may be prescribed.

Rent

Rental income can be taxed in different ways, depending on the type of rental taking place. The first option is the standard procedure where the taxpayer must prepare a profit and loss account, and then apply a progressive tax rate according to the profit, while the other two alternatives are simpler and less laborious.

The options available are as follows:

  • Standard provision — taxation as a self-employed;
  • Alternative 1 — taxation as a self-employed with a 20 percent deduction for repairs and maintenance; and
  • Alternative 2 — taxation at a 15 percent flat rate on the net rental income.

Standard provision (taxation as a self-employed)

Rental income received is considered as income from a business and, therefore, falls under the general rules for business taxation, unless a specific alternative tax treatment is applied (see below).

The taxpayer will need to maintain a set of accounts showing the total income and all expenses incurred which are directly related to the production of this income. Such expenses will typically involve interest on any bank loans on the property, maintenance work carried out on the property, fees for the Malta Tourism Authority (MTA) license, advertising and local agent fees, telecommunications expenses, water and electricity and capital allowances for regular wear and tear.

It is important to note that all receipts for which a deduction is claimed must be kept for a period of 10 years as the tax department reserves the right to request them for inspection.

Any profit from the rental activity is then added to the chargeable income of the individual and taxed in the same manner as other income under the applicable tax bracket.

Alternative 1 — Taxation as a self-employed with a 20 percent deduction

In order to simplify the compliance burden on taxpayers, it is possible to deduct a fixed rate for wear and tear without the need to maintain receipts for all expenses.

Under this option, the taxpayer is not required to prepare a full set of accounts, but may only deduct the following expenses:

  • any rent or ground rent or similar burden paid to third parties;
  • MTA license fee, when applicable;
  • any interest payable on loans relating to the purchase of that same property; and
  • a further deduction equal to 20 percent of the rental income remaining after deducting the above expenses, covering any wear and tear.

If a taxpayer elects to use this method, there is no need to keep receipts relating to wear and tear as the authorities will not ask for any proof.

The resulting profit from the rental activity is then added to the chargeable income of the individual and taxed in the same manner as other income under the applicable tax bracket.

Alternative 2 — Taxation at a 15 percent flat rate

This option is available for any rental income deriving from the rental of a residential or commercial tenement. A final flat rate of 15 percent tax is levied on any rental income gained in the relevant year. In this case a special form (TA24) must be filled and filed with the tax department and any rental income declared under the scheme is considered separate from the entity’s chargeable income, meaning that no further declaration is needed. The TA24 must be filed before the end of April.

Under Legal Notice No. 258 of 2020, persons who derive income from a private residential lease, registered with the Housing Authority as a long lease, are eligible, subject to certain conditions, for a tax rebate against the tax chargeable on such rental income derived from January 1, 2020. The rebate varies depending on the number of bedrooms, but the maximum is 400 euros for leases of at least two years and 500 euros for those of at least three years. The total tax rebate is capped at 15 percent of the rent derived from the lease in the relevant year.

For the avoidance of doubt, it is worth mentioning that no tax deductions can be applied in this case.

This option/rate only applies to the letting of residential or commercial tenements when the income is considered as rent and not trading income. For example, income from the rental of a room in a hotel or guesthouse is trading income, whereas the rental of a house, in part or in full, is considered rent.

It is notable that further special tax rates are applicable for the rental of properties restored in accordance to a Malta Environment and Planning Authority (MEPA) scheme. In this case, the tax applicable is that of 10 percent on the chargeable income, instead of 15 percent. The requirements to fall under this category are outside the scope of this Country Guide.

6.7.2. Foreign Licensors

Overview

The Income Tax Act provides that the income of any individual includes royalties, rents and other profits arising from property of that individual accruing in or derived from Malta. The tax is payable on the amount of royalty or rental income received in Malta, even if the income arises outside of Malta to an individual who is a nonresident (foreign licensor).

Royalties

Royalties paid to nonresidents (foreign licensors) are exempt from Maltese tax if the amounts are not received in Malta.

Rent

With respect to rent, Malta follows the lex situs principle that income from immovable property is deemed to arise in the country where the immovable property is situated. Thus, nonresidents are taxed on all income derived from immovable property in Malta subject to double taxation treaty relief.

Foreign licensors may pay tax at standard progressive rates or may opt for a 15 percent fixed rate tax:

Standard rates

Rental income derived from immovable property situated in Malta is subject to tax at the normal progressive rates of tax applicable to nonresidents. The amount withheld will be granted as a credit against the recipients’ tax liability reported in the annual income tax return.

Optional flat-rate tax

Malta has an optional 15 percent flat-rate tax on income derived from rented properties owned by individuals. This final tax rate can be applied on receipts of rent, including ground rents derived from the granting of an emphyteutic concession (a special type of land tenure contract) in respect of a residential tenement and a commercial tenement. It can be applied both on receipts of rental income that are chargeable to tax either as business income or as rental income. A “tenement” is considered to include all types of immovable property (e.g., undeveloped land, rooftops, etc.).

The person opting for the flat-rate tax is deemed to have claimed the deduction for wear and tear. That is, there is set-off for this final tax. If an individual derives rental income from letting more than one property, the flat-rate tax option must be applied to the total rental income received.

 

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