Tax In Malta

It is important for all individuals to be tax compliant at all times. In such a fast moving business world, tax rules are likely to regularly change. We understand that this may seem like a difficult task for some individuals and families and we are therefore here to assist with our expertise in this field. 

Personal Income Tax

Malta operates a progressive personal income tax system, with income tax rates ranging from 0% to 35%. Taxation for individuals is based on the individual's residence, domicile status, and source of income.

Malta Tax Rates - Resident Rates

Malta Tax Rates - Non-Resident Rates

How is Income Tax Calculated - The Malta Tax System Explained

Taxation in Malta is defined by two connecting factors: residence and domicile. Depending on these two elements, the basis of taxation differs from one individual to another.

An individual who is not resident in Malta and not domiciled in Malta is subject to tax only on income and chargeable capital gains arising in Malta. The same basis of taxation applies to an individual who is not resident in Malta but is domiciled in Malta, with the addition of any income arising outside Malta that is received in Malta.

An individual who is resident in Malta but not domiciled in Malta is likewise taxable on income and chargeable capital gains arising in Malta, as well as on income arising outside Malta and received in Malta. The same scope applies to an individual who is ordinarily resident in Malta but not domiciled in Malta.

Finally, an individual who is both ordinarily resident and domiciled in Malta is subject to the broadest basis of taxation, being liable to tax on their worldwide income and chargeable capital gains, wherever these may arise.

Single Vs Married Vs Parents Tax Rates in Malta

Malta tax system recognises three different computation methods depending on an individual's personal status: single, married, and parent rates. Each category carries its own tax bands, meaning that the amount of tax payable on the same level of income can differ significantly depending on which computation applies.

Single rates apply to individuals who are unmarried or who do not qualify under any other computation. Married rates apply to couples and are generally more favourable than single rates, reflecting the recognition of shared financial responsibilities within a household. The parent rates, introduced to provide further relief, apply to individuals who maintain a child and tend to offer the most beneficial tax bands of the three computations.

It is important to note that each individual in Malta is assessed separately by default. However, married couples have the option to opt for a joint computation, which can be advantageous where there is a significant disparity in income between the two spouses, as it allows the combined income to be spread across the more favourable married tax bands. Where a joint computation is elected, both spouses are jointly and severally liable for the tax due.

The choice of the correct computation is therefore an important consideration in personal tax planning in Malta, as selecting the most appropriate rate can result in a meaningfully lower overall tax liability for the individual or household.

National Insurance contribution

National Insurance contributions in Malta, commonly referred to as Social Security contributions, are mandatory payments made by both employees and employers towards the country's social security system. These contributions fund, in principle, a range of social benefits, including retirement pensions, sickness benefits, and unemployment assistance.

For employees, the contribution is deducted directly from their gross salary each month by their employer through the Final Settlement System, meaning the employee never physically receives that portion of their wage. The employer is responsible for calculating, deducting, and remitting the correct amount to the Commissioner for Revenue on behalf of the employee. On top of the employee's contribution, the employer is also required to make its own separate contribution, effectively doubling the total amount paid to the authorities in respect of each employed individual.

Do expats pay taxes in Malta?

Whether an expat is required to pay taxes in Malta depends entirely on the two connecting factors discussed earlier , residence and domicile. There is no blanket rule that applies to all foreign nationals, as each individual's tax position must be assessed on the basis of their specific circumstances.

How do I pay my tax in Malta?

Income tax in Malta is collected through two main mechanisms depending on an individual's employment status.

For employees, tax is deducted automatically each month directly from their salary by their employer through the Final Settlement System (FSS). Under this system, the employer calculates and remits the correct amount of tax to the Commissioner for Revenue on the employee's behalf, meaning the process is largely seamless for the employee.

For self-employed individuals and those earning income outside of employment, tax is paid through the Provisional Tax system, whereby payments are made periodically throughout the year based on the prior year's income. A tax return must also be filed annually to reconcile the final tax liability.

In both cases, any outstanding tax due or refunds owed are settled once the annual tax return has been processed by the Commissioner for Revenue.

Tax rates for the Self employed in Malta

The tax rates applicable to self-employed individuals in Malta follow the same progressive rate bands as those applied to employed individuals, ranging from 0% to 35%. However, different specificities are required to be fulfilled in order to be in compliance with Maltese tax law.

What Income is Taxable?

In Malta, taxable income extends beyond basic salary and overtime earnings to encompass various sources. The Maltese tax framework incorporates fringe benefits into an individual's assessable income, making them liable to taxation. Fringe benefits, which can include perks such as company cars, housing allowances, or other non-monetary advantages provided by employers, are subject to taxation. Furthermore, income arising from employee share schemes is also included in the taxable bracket. When employees receive shares or stock options as part of their compensation, the market value of these shares at the time of acquisition becomes taxable income. It is imperative for individuals in Malta to be cognisant of these intricacies in income taxation, as adhering to comprehensive reporting and compliance with tax regulations is essential for maintaining fiscal responsibility.

Part-Time Employment Tax Rates

A person employed on a part-time basis is subject to a flat 10% tax rate, and this tax is conclusive. Consequently, the earnings from part-time employment do not need to be disclosed in the yearly income tax filing since they are not liable for additional taxation.

The 10% tax rate is applicable up to a maximum amount of €10,000 per year for part-time employment, and for part-time self-employment, the maximum limit is €12,000 per year.

Should the part-time earnings surpass these figures, it becomes necessary to report the surplus in your tax filing.

The 10% tax rate may apply to the following categories:

• Full-time employees
• Pensioners
• Full-time students (including apprentices)

Meeting this fundamental condition is essential; failure to fulfill it renders one ineligible for this tax rate.

Tax Computation

Malta imposes taxes on individuals who are both domiciled and ordinarily residing in Malta, encompassing their global income. If a person is ordinarily residing in Malta but not domiciled there, they are only taxed on income generated within Malta and any foreign income brought into Malta (i.e., income and chargeable gains originating in Malta and income earned outside Malta but received within the country). Such individuals are not liable for taxation in Malta on income generated outside Malta if it is not received in the country, as well as on capital gains occurring outside Malta, regardless of whether they are received in Malta or elsewhere.

However, individuals married to someone who is both ordinarily residing and domiciled in Malta are subject to global taxation (not limited to a source and remittance basis).

For non-resident individuals, taxation applies solely to income and chargeable gains arising within Malta.

Taxation for individuals is based on income generated in a calendar year (the basis year), which is then assessed in the following year (the year of assessment).

Earnings are subject to progressive taxation, with rates increasing gradually from 0% to 35%. The 35% tax threshold is applicable to annual chargeable income exceeding EUR 60,000.

Your tax bracket is determined by your filing status, whether you're an individual, a couple, or a parent. Under specific conditions, married rates are also applicable to single parents, widows/widowers, and separated parents.

Parent rates can be claimed by individuals responsible for a child under their custody or paying maintenance for their child, given that the child is below 18 years of age (or between 18 and 23 years if in full-time education). The child should not be gainfully occupied, or if employed, should earn less than EUR 3,400 per year. Parent rates offer more favourable tax bands compared to single/separate tax rates.

Individuals who, according to Maltese tax laws:

• are considered ordinarily resident but not domiciled in Malta (thus subject to income tax based on source and remittance),
• are not subject to any other minimum tax threshold under Maltese law, and
• during the preceding calendar year, earned (along with their spouse, for married couples living together) income outside Malta amounting to at least EUR 35,000 or its equivalent, which was not fully received in Malta, are required to pay a minimum tax in Malta of EUR 5,000 for that particular year.

Social Security Contribution

Social Security Contribution Individuals who are 16 years or older but have not reached the retirement age of 65, and are engaged in insurable employment, must contribute to Social Security. These contributions are made on a weekly basis, with each year of employment contributing 52 or 53 times, depending on the number of Mondays in a given year, to the individual's contribution record.

Both the employer and the employee must each contribute 10% of the individual employee's salary towards social security. Fixed weekly rates apply to annual salaries surpassing a statutory threshold, and these are subject to annual revision. For individuals who are self-employed, social security contributions equate to 15% of the net income earned in the previous year. The highest contribution for individuals born on or after January 1, 1962, is EUR 83.89 per week.

Tax Refunds

In Malta, tax refunds are subject to specific criteria that individuals must meet to qualify for reimbursement. One common scenario for tax refunds is related to overpaid income tax, typically arising from excessive tax deductions or miscalculations. Individuals may also be eligible for a tax refund if they have overpaid their provisional tax. Additionally, certain tax credits and incentives, such as those related to investments in qualifying assets, may lead to a refund if the credits exceed the taxpayer's liability. It is crucial for individuals to keep accurate records of their financial transactions, including receipts and documentation supporting their claims for deductions and credits. Compliance with tax regulations and timely filing of tax returns are essential for ensuring eligibility for tax refunds.

Tax Residence

Tax residence in Malta is determined by the number of days an individual spends in the country, as well as by specific criteria outlined in the Income Tax Act. Individuals who reside in Malta for more than 183 days in a calendar year are considered tax residents. However, even if the physical presence threshold is not met, an individual may still be deemed a tax resident if the person has a "durable connection" with Malta. This connection is evaluated based on various factors, including the location of a person's permanent home, the center of vital interests, and habitual abode. Malta's tax residency status is significant as it determines the scope of income subject to taxation in the country. Tax residents are generally liable for tax on their worldwide income, while non-residents are only taxed on income arising in Malta. Individuals seeking clarity on their tax residency status in Malta should refer to the specific guidelines and regulations provided by the Maltese tax authorities or seek professional advice to ensure compliance with the applicable rules.

What Expenses Can Be Deducted From Income Tax?

In Malta, individuals and businesses may be eligible to deduct certain expenses from their income tax, thereby reducing their taxable income. Common deductible expenses for individuals include fees paid to private independent schools, private childcare services and tertiary education, fees payable for the services of a facilitator, fees paid for approved sports activities, fees paid for private homes for the elderly or disabled, fees paid for approved creative or cultural courses and school transport fees. Business expenses that can be deducted include costs associated with generating income, such as rent, utilities, and employee salaries. Furthermore, capital allowances may be claimed on eligible assets, providing a means to recover the cost of acquiring or improving qualifying business assets over time. It is crucial for taxpayers to stay informed about the latest tax regulations and consult with a professional tax advisor to ensure accurate and compliant deductions.

Foreign Workers & Double Taxation Relief

Malta provides relief from double taxation for foreign workers through its network of Double Taxation Agreements (DTAs). These agreements are established to avoid the situation where an individual is taxed on the same income in both their home country and Malta. Foreign workers in Malta can benefit from these agreements, which typically determine the taxing rights of each country on various types of income, such as employment income, business profits, and dividends. The relief is often provided through a tax credit or an exemption, ensuring that individuals are not subject to the burden of paying taxes twice on the same income. This not only encourages international mobility but also promotes a fair and efficient tax system.

Personal Taxation Services

How Can We Assist?

The first step would be to understand the primary objectives of our clients, whether it is to assess any implications of tax on capital gains, international tax planning or family succession planning or simply personal tax advisory and compliance services. Protecting your wealth is a primary concern and effective tax planning has a large part to play in this process. Once the commercial objective is established, we will then be able to use our expertise to assist in finding the most efficient way forward. We will then guide you and ensure that one remains compliant with all personal tax obligations. 

We assist self employed individuals, business owners along with individuals deciding to reside in Malta.