Taxation

Individuals

Overview

Individuals who are resident and domiciled in Malta are subject to Malta tax on the aggregate of their worldwide income and capital gains. Individuals are taxed progressively on all their income the highest margin rate of tax is 35%. Individuals are taxed at varying tax rates. There are no wealth and gift taxes in Malta.

Sole Traders

The self-employed are liable to income tax on their profits as adjusted for tax purposes in broadly the same way as profits are adjusted for corporation tax. Interest on loans to provide capital for the business is an allowable deduction.

The Maltese fiscal year runs from 1 January to 31 December each year.

Partnerships

Partnerships are taxed in the same way as the self-employed, so that the individual partners are taxed on their share of the profits as adjusted for tax purposes. A partner is not liable for the unpaid tax of another partner. Reinvestment tax credits are also available to partnerships.

Taxation

Employees resident in Malta are subject to income tax and social security contributions on all earnings and most benefits provided by an employer. Benefits include cars, accommodation, cheap loans and health care insurance.

FSS

Income tax and social security contributions are deducted at source by the employer under the FSS (Final Settlement System). It is the employer's responsibility to ensure that the FSS system is operated correctly. Failure to operate properly the rules governing FSS can lead to penalties and interest on unpaid tax.

Taxation of Investment Income

Investment income is generally taxed at source at 15%. This is a final withholding tax and hence there is no further tax on such an income. Such withholding tax is never given as credit or refund. Investment income includes interest on cash deposits held with banks, interest earned from government and corporate bonds, and capital gains arising from the sale of units in a collected investment scheme which has been defined as a non-prescribed fund. Investment income other than bank interest income derived from prescribed funds is taxed at 10%. (Non-Prescribed Funds are those funds whose assets are situated outside Malta whereby Prescribed Funds are those funds whose assets are situated in Malta).

Income from Land and Property

The net income from these sources is added to the individual's other income and taxed . Interest on loans relating to land or property that is let may be deducted for tax purposes. A maintenance allowance of 20% is available as a deduction against all Rental Income with the exception of Ground Rents Received.

Capital Gains

Capital gains arising on the transfer of securities, business goodwill and copyrights, patents, trademarks and trade names, and any assignment or termination of rights thereon, are subject to income tax at normal income tax rates. Transfers of immovable property may be subject to a final withholding capital gains tax of 12% which is levied on the sales proceeds. The previous capital gains tax regime based on a maximum tax rate of 35% on the profit, may still be levied on certain property transfers which are to be defined shortly through changes in the tax legislation.

Capital Gains arising on the disposal of real property is computed using the inflation method, whereby all cost incurred in arriving at the Capital Gain are inflated up to year of sale by using a retail price index. Capital Gains arising from the sale of shares in private limited companies are subject to special rules. Shares carrying a controlling interest in the company have to be valued at market value for Capital Gains Tax purposes such a revaluation, is obligatory should the company own immovable property, a minimum 10% investment in another company and reported profits for the previous 5 years. Inflation deductions are also allowed to share transfers in companies owing immovable property.

Finally there exists a final withholding tax of 15% on capital gains realised on the sale of a category of collective investment schemes whose main assets are situated outside Malta.

Inheritance Tax

There is no inheritance tax in Malta.

Administration

Malta operates a system of self-assessment for tax on income and capital gains. A tax return for the year ended 31 December must be filed annually normally by 30 June in the following year, together with a payment of the balance of any tax due for the relevant year. Provisional tax is paid quarterly by 30 April, 31 August and 21 December of each year. Provisional tax is computed on the benchmark year of assessment determined by the Commissioner as being that year whose tax return date falls before 1 January of every calendar year.