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If you are a landlord in Malta, it is essential to know your tax obligations when it comes to tax on rental income in Malta. Rental income is considered as a source of taxable income in Malta, and it is subject to tax with an option to pay a flat rate of 15% on the gross income or pay tax the traditional way by adding the net rental income to the rest of the annual income and calculate from there. This also applies to companies.at progressive rates.
In this blog, we will guide you through the tax payment on rental income in Malta.
When is rental tax due in Malta? How is it Paid? Form TA24 together with the payment has to be submitted by not later than the 30th of April of the year following the relevant year.
Option 1 – 15% Flat Rate Tax On Rental Income In Malta
The 15% tax rate is optional for individuals or companies. Those who wish to use this reduced rate of tax on rental income in Malta need to fill in and file a prescribed form – TA24, as provided by the Inland Revenue Department. In this form, you should include the details about the residential or commercial property or properties being rented out, the gross income received in respect of each property and details about yourself or your company as the taxpayer. The form needs to be signed and submitted to the Commissioner for Revenue in original by not later than 30 April of the following rental year.
The tax is final and no set-off or refund can be claimed for any expenses incurred in the rent. Individual taxpayers who opt for this 15% tax rate should not declare this income in their tax returns.
Option 2 - Tax Rate of 35% on gross income less allowable deductions
When choosing this option, one would be charged at a rate of 35% tax on net rental income. This means you would be allowed to deduct certain expenses from the gross rental income:
- Any rent, ground rent or similar burden payable with regards to the rental income.
- Any Interest payable on the capital employed to purchase the property
- Any license or other fees payable that are necessary to rent out the property
- Any renovation or maintenance costs done to the rental property.
The net income derived from the annual rent is then added to the annual income received by the taxpayer and the normal tax rates are then calculated.
Frequently Asked Questions Regarding This 15% Tax On Rental Income in Malta
The following FAQ’s are taken from the Inland Revenue website. To check for further updates, a link to this page can be found below.
1. Is the 15% flat rate a final tax, and on which amount is it paid?
Yes. There will be no set-offs or refunds; the 15% flat fee is final. 15% of the total rental income must be paid.
2. Do non-residents also pay this amount of tax?
Yes. Both residents and non-residents may use this advantageous rate.
3. Does this rate apply to companies? If yes, where is such income to be allocated?
This rate applies also to companies. The distributable profits from such income, on which 15% tax has been paid, must be allocated by each business with a Maltese resident to the final tax account.
4. If I exercise this option, do I have to declare this rental income in my tax return?
No, given that you are an individual and have paid the 15% tax on your gross rental income, you should not include that income in your tax return.
5. Is the 15% optional or mandatory?
The 15% is optional. One may choose to declare the net rental income in his tax return and be charged with the normal rates rather than with the 15% flat rate. However, once such an option is exercised, it is applicable to the total rental income that individual received from all the properties they rented out during the relevant year. (subject that the tenements qualify for this rate).
6. From which date does this rate apply?
This rate applies from 1st January 2014 for residential property, and from 1st January 2016 for commercial property.
7. Can I take advantage of the 15% rate of tax on past undeclared rental income if I failed to declare rental income generated from residential properties or garages in the past years?
No. The choice to take advantage of such a deal was only available until June 30, 2015. Any unreported income must now be disclosed and is liable to taxation at the standard progressive rates.
8. With regards to companies, what is the procedure in case of undeclared rental income?
An AF2 must be submitted, and a 35% tax is applied, if a company received rental income in the past but did not declare it for tax reasons.
9. When is the rental tax due in Malta and are there any prescribed forms that I need to submit to pay the 15% tax on rental income?
Form TA24 together with the payment has to be submitted by not later than the 30th April of the year following the relevant rental year.
10. What are the penalties for non-declaration of the rental income?
Irrespective of whether the option to have the rental income taxed at the flat rate of 15% is exercised or not, any undeclared rental income will be subject to tax at the rate of 35% on the gross rental income, in addition to interest and additional tax payable under the Income Tax Acts, following an investigation carried out by tax authorities.
11. Is it possible to change one’s mind after electing to have renting income taxed at a 15% rate? Can one choose to report the rental income on their tax return and request a refund of the 15% tax?
The 15% tax is a final tax, and cannot be claimed back.
12. Should a person decide to take up the option of having the rental income taxed at 15%, is that person bound to the 15% final tax forever, or could that person opt-out?
The choice of whether to exercise the option or not is made annually. Therefore a person may have the rental income taxed at 15% one year, and the following year decides to declare the income in the tax return and have it taxed at the normal, applicable tax rates.
13. To qualify for the 15% tax rate on rental income, does the property have to be rented for residential or commercial purposes?
The 15% rental income tax applies to residential and commercial property. It excludes rent from related parties. [If the rent due is from an individual or body who owns or controls more than 25% of the tenement]
