Taxation of individuals

The tax year corresponds to the calendar year and the types of income subject to tax are:

• business income;

• self-employment;

• employee;

• investment income;

• capital gain income.

Taxation of individuals depends on the place where they have established their ordinary residence or domicile. In fact, the Income Tax Act distinguishes the following cases:
 

1. natural persons with domicile and ordinary residence in Malta: they are required to pay income tax wherever it is produced, according to the world wide income principle;

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2. natural persons who reside separately or are resident in Malta: they are subject to taxation on income generated in Malta, on income generated abroad but received in Malta and on capital gains generated in Malta.​

The tax is subject to progressive rates, by brackets, up to a maximum of 35%   differently articulated, depending on whether they are single or married persons. Self-employed workers are required to pay the provisional tax in three installments (20% in April, 30% in August and 50% in December) and to pay the balance within the first half of the following year.

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3. natural persons who are not resident or domiciled: they are subject to taxation on income produced exclusively in the territory, as well as on income produced abroad but remitted to Malta. The income from participations and royalties is tax free, as is the capital gain on collective investment units and on securities not deriving from Maltese real estate properties .

4. temporary residents (for a period of less than six months): they are subject to taxation only for income produced in the territory;

5. permanent residents who intend to transfer their tax residence to Malta and who, subject to certification by the tax offices on the basis of the "Permanent Residence Scheme", are entitled to the following tax benefits:

• tax rate of 15% on the income remitted to Malta, above € 4,193 per year;

• exemption for capital gains remitted to Malta;

• exemption from inheritance tax;

• special regime for refunds and tax relief.

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Social Contribution  

For the calendar year 2021, both the employer and the employee are required to pay social security contributions each to the extent of 10% of the salary of the  employee and at fixed rates of 48.57 EUR a week for annual wages exceeding EUR 25,258, provided that the worker was born on or after 1 January 1962.

For self-employed workers, social security contributions amount to 15% of the net annual income received in the previous year. The maximum contribution for persons born after 1 January 1962 is EUR 72.86 per week.

A measure has been introduced to determine retirement income for those born from January 1, 1956 to December 31, 1961 for the base year 2020. In this case, the pre-COVID wage or wage applies. This measure applies to people who work in the private sector or who are self-employed whose sector has been adversely affected by the COVID-19 pandemic.

All rates are generally revised upwards at the beginning of each calendar year.

Taxation of legal persons

There is no separate taxation system for corporate profits, so companies and other legal persons are subject to the same tax regime with specific rules governing the different categories of taxpayers.
Companies are subject to a flat tax rate of 35% which also corresponds to the maximum rate of personal taxation. This means that no additional tax is payable by the recipients of the dividends and the shareholder who is subject to a lower rate can request a refund for the excess paid by the company.
Therefore, income produced everywhere is subject to taxation for resident subjects and, for non-resident subjects, those produced in the territory.
However, some types of companies, such as general partnerships and limited partnerships, are considered transparent for tax purposes and, therefore, the profits are taxed directly on the part of the shareholders.
In addition, other categories (e.g. trade unions, political parties, cooperatives and the Collective Investment Scheme CIS) enjoy an exemption regime.
Special tax regimes are envisaged for insurance companies and for oil companies.
To avoid double taxation, legal persons, as appropriate, can benefit from the following tax benefits:

• double taxation relief;

• commonwealth looming tax relief;

• unilateral relief;

• flat rate foreign tax credit.

 

Tax benefits
Overall, the Maltese tax system manages to attract numerous investors both for the efficiency and the extreme simplification of the procedures and for the undeniable tax advantages: tax rate of 35%, no currency restrictions, no Cfc legislation, no regulation on thin caps, nor on transfer pricing, no withholding taxes on dividends, interest and royalties to non-residents, no tax on assets. In addition to a diversified system of refunds, aimed at avoiding double taxation, respectively in the amount of 6/7, 5/7 and 2/3, depending on whether the tax paid derives respectively from withholding taxes on dividends, taxes on interest or withholding taxes on royalties.

Value Added Tax - VAT

For the sale of goods and the provision of services, the ordinary VAT rate of 18% is applied, but special rates equal to:

• 0% (exemption with credit) for:

1. food and pharmaceutical products. Malta has negotiated this exemption, in the process of joining the European Union, for a transitional period;
2. e.g. national and international transport of passengers and goods, exports, supply and repair of airliners and boats, intra-community trade;

• 5% for: e.g. hotel services, antiques and works of art, shoes and leather products, home care services, clothes and linens for the home, electricity supply, admission to museums, theaters and concerts, confectionery products;

• 7% for housing services;

On the other hand, the following are exempt: services rendered by non-profit organizations, insurance services, banking transactions and financial services, education, advertising, water supply, real estate, social services, cultural and sporting activities, lotteries, education and health.

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Declarations, instrumental obligations

For individuals, the fiscal year coincides with the calendar year. The tax return, together with the self-assessment of taxes, must be submitted by the end of June of the year following the tax year . 

The fiscal year for companies coincides with the calendar year, but it is possible to request a change to make it coincide with the financial year. The tax return for companies must be submitted within the term of nine months following the end of the financial year or by 31 March following the reference year (however, in recent years, the Tax Department has provided for facilitated extensions to these legal terms in the event that the tax return is filed electronically). Sanctions are envisaged in the event of late submission of the declarations . 

Companies pay the tax in the currency in which their share capital is denominated.

During the base tax year, a company is generally required to make interim tax payments (PT) every four months. In general, PT payments are based on the latest self-settlement submitted by the company and the payments are split into three installments of 20%, 30% and 50% respectively. Any tax debt still due at the date of the tax return after having deducted all tax credits and the advances paid must be paid immediately with the presentation of the return. Interest of 0.33% per month is charged on any unpaid taxes as of January 1, 2020. From June 1, 2022, the interest rate on income taxes and outstanding VAT balances increased to 7.2% per annum.

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