Personal Income Tax Malta
Classification of Taxpayers
The classification of the taxpayer will have an effect on the manner in which such tax is computed. A distinction is made between ‘Bodies of Persons’ and ‘Individuals’. Bodies of Persons can be distinguished between legal persons which are ‘transparent entities’ and legal persons which are ‘opaque entities’. On the other hand, individuals are classified as either residents or non-residents.
Basis for Taxation of Individuals
General jurisdiction rules are discussed in article 4 of the Income Tax Act. Malta asserts jurisdiction to tax on the basis of; territoriality, ordinary residence, domicile and remittance. All income and capital gains arising in Malta are taxable in Malta irrespective of the characteristics of the person who receives such income or gain. It is only the taxability of foreign source income which depends on the socio-economic factors of ordinary residence, domicile and remittance.
Individuals who are both ordinary resident and domiciled in Malta are subject to unlimited liability and taxable on a worldwide basis. On the other hand, Individuals who are either not ordinary resident but domiciled in Malta or not domiciled in Malta but ordinary resident are subject to limited liability and thus taxable on a remittance basis.
One must note that individuals taxable on a remittance basis are not taxed on foreign source capital gains even if remitted to Malta.
Individuals who are both ordinary resident and domiciled in Malta are subject to unlimited liability and taxable on a worldwide basis. On the other hand, Individuals who are either not ordinary resident but domiciled in Malta or not domiciled in Malta but ordinary resident are subject to limited liability and thus taxable on a remittance basis.
One must note that individuals taxable on a remittance basis are not taxed on foreign source capital gains even if remitted to Malta.
Taxable Income
As per section 4 of the ITA, income taxable in Malta includes gains and profits from any trade, business, profession or vocation; gains or profits from any employment or office; dividends and interest; pensions, annuities or other annual payments; and rents, royalties or other profits derived from ownership of property.
Rates of Tax
As per section 4 of the ITA, income taxable in Malta includes gains and profits from any trade, business, profession or vocation; gains or profits from any employment or office; dividends and interest; pensions, annuities or other annual payments; and rents, royalties or other profits derived from ownership of property.
Part-time Rate
Part-time work is subject to a withholding tax of 15% applicable up to a maximum income of € 7,000. This rate of tax is also applicable to individuals who carry out part-time work as self employed persons.
Investment Income Rates
- Dividend Income: Malta operates a full imputation system of dividend taxation whereby dividends paid by a company resident in Malta carry a tax credit equal to the tax paid by the company on the profits being distributed. A 15% withholding tax applies on the payment of a dividend by a resident company out of untaxed profits to resident individuals.
- Interest and Royalties: Article 33 of the ITA contemplates a potentially favourable tax rate which may be applied in respect of investment income. In fact, a 15% withholding tax is imposed on certain types of investment income such as interest paid to Maltese residents by banks and certain other institutions. Interest and Royalties paid to non-residents are exempt from tax in Malta if they are not effectively connected to a permanent establishment in Malta through which the non-residents engage in a trade or business.
- Rental Income (immovable property): Rent received on a short-let basis is considered to be income derived from business. On the other hand rental income received from long-term lets is considered to be investment income. In the case of such rental income allowable deductions are limited to; any rent/ground rent, license fees paid, interest for sums borrowed to acquire the property that is being rented out and a maintenance allowance of 20% of the rental income (net of any rent/ground rent and license fees paid)
Residence Permit Holders
Holders of permanent resident permit pay tax at a reduced rate of 15% on income arising in Malta and remittances from abroad of an income nature after double taxation relief but subject to a minimum annual tax of Euro 4,192.
Returned Migrants Rates
Returned migrants (individuals born in Malta who return to Malta) can elect to pay 15% income tax on local income only.
Inheritance & Gift Tax
There is no inheritance or gift tax in Malta. However stamp duty and capital gains tax may have to be paid on the transfer of inherited real property.
Net Wealth Tax
There is no net wealth tax in Malta.
Non-Residents Rates
The following rates should be used by taxpayers not residing in Malta for computing the amount of tax on their chargeable income in the respective basis year.
Capital Gains Tax
Maltese tax law does not contemplate a blanket tax on all capital gains but rather charges to tax capital gains derived from the disposal of certain capital assets. A gain on the transfer of capital assets is aggregated with a person’s other income and the total of income and capital gains is charged to income tax. Such capital assets include; (1) securities, business, goodwill, patents, copyright, trademarks, trade-names; (2) the beneficial interest in a trust. The transfer of valuable assets such as antiques, fine arts, coins, stones and gems will not give rise to tax liability.
Article 43 of the Income Tax Management Act (ITMA) creates a withholding tax mechanism which applies generally to all taxable transfers. The rate is generally 7% of the consideration and this is a provisional tax (implying that such gain will still have to be reported in the individual’s tax return). However special rules apply to certain transfers of immovable property (the property transfer tax) as put forward by article 5A of the ITA. The property transfer tax is a special tax on property transfers at a rate of 12% of the transfer value. This tax is final and distinct from income tax and income tax on capital gains. Different rates apply in the case of property acquired causa mortis before/after the 25th of November 1992.
Malta also has a special jurisdiction rule regarding the taxation of foreign source capital gains. In fact foreign source capital gains remitted to Malta are only taxable in the case of persons who are both ordinarily resident and domiciled in Malta.
Article 43 of the Income Tax Management Act (ITMA) creates a withholding tax mechanism which applies generally to all taxable transfers. The rate is generally 7% of the consideration and this is a provisional tax (implying that such gain will still have to be reported in the individual’s tax return). However special rules apply to certain transfers of immovable property (the property transfer tax) as put forward by article 5A of the ITA. The property transfer tax is a special tax on property transfers at a rate of 12% of the transfer value. This tax is final and distinct from income tax and income tax on capital gains. Different rates apply in the case of property acquired causa mortis before/after the 25th of November 1992.
Malta also has a special jurisdiction rule regarding the taxation of foreign source capital gains. In fact foreign source capital gains remitted to Malta are only taxable in the case of persons who are both ordinarily resident and domiciled in Malta.
Deductions
One must note that no deductions from taxable employment income are allowed. On the other hand, self employed individuals may deduct all expenses that are wholly and exclusively incurred in the production of the income, including capital allowances (tax depreciation) at the specified rates.
Social Security Contributions
Social security contributions must be made by all persons aged between 16 and 65 and that are gainfully occupied in Malta (including non-resident persons working in Malta). Below are the rates for 2013.
Assessment & Compliance
Individuals are subject to tax on income arising in a calendar year (the basis year), which is assessed to tax in the year following the year in which it arises (the year of assessment). Individuals in receipt of employment income apply the final settlement system that consists of a monthly deduction from the gross emoluments that is paid by the employer on behalf of the employee. In the case of self-employed individuals, provisional tax is payable in three installments during the year in which the income is earned. The balance is to be paid by the 30th of June of the year of assessment.
For more information about Personal Income Tax, Capital Gains Tax, or any queries about Tax in Malta please contact us on info@virtusmalta.com or by filling in the form in the Contact Us page.
For more information about Personal Income Tax, Capital Gains Tax, or any queries about Tax in Malta please contact us on info@virtusmalta.com or by filling in the form in the Contact Us page.
