Malta: Taxation Of Pension Income

S.L. 123.204 entitled "Pensions (Tax Exemption) Rules" was introduced to gradually exempt pension income over a five-year period starting in 2022 by exempting 20% of pension income derived during 2022 increasing annually to 40%, 60%, 80% and 100% of the pension income in subsequent years.

Such income is partially or fully exempt for the below years of assessment as follows:

The exemption for years of assessment 2025 and 2026 is 60% and 80% respectively and fully exempt in year of assessment 2027 subject to capped amounts as established by future budgets.

Tax on pension income is already relieved under the Tax Rebate (Pensioners) Rules, S.L.123.174. These rules grant a tax credit equal to the tax on pension, subject to capping. The effect is that while pension income, up to the allowed maximum, is not subject to tax, the non-taxed amount is taken into account in determining the tax rates on other income. Pension income is defined under these rules as, "income from any pension chargeable to tax under Article 4(1)(d) of the Income Tax Act" derived by individuals "who were at least 61 years of age in the year when such pension was received". S.L.123.174 introduced yearly capping on the tax rebate applicable to the qualifying pension income with such capping set to increase.

Tax Rebate on Pensions

All income except the exempt pension income as indicated in the above table is first to be charged to tax at the normal tax rates applicable at single, parent, or married rates as the case may be.

Calculation of the tax rebate

Rates Rebate

1 Single (Taxable Pension Income less €9,100) x 15%

2 Parent (Taxable Pension Income less €10,500) x 15%

3 Married (Taxable Pension Income less €12,700) x 15%

4 Married Further Rebate (All taxable Income less €12,700) x 15% less rebate as per 3

These rebates are subject to the following capping:

The tax due by the pensioner is therefore the tax calculated using the normal rates, less the above applicable rebate/s. A further rebate is available when a married couple earns income over and above their pension. The above tax rebates which are available to both employed and self-employed may not give rise to any refund or be carried forward.

Overseas Pensions

Pensioners resident in Malta and in receipt of overseas pensions may have to consult with the applicable double tax treaty (DTR). Generally, Maltese resident individuals in receipt of a pension from another EU country or from another country with which Malta has a double taxation treaty are taxed as follows:

• Pensions received from a country, a political sub-division or a local authority thereof in respect of services rendered to that country, political sub-division or local authority, shall be taxable in that country unless the recipient of the pension is a national and resident of Malta, in which case the pension would be taxable only in Malta.
• Other pensions are normally taxable only in Malta.

Pensions from a country with which Malta does not have a DTR Treaty that are received in Malta by an individual resident in Malta are taxable in Malta.
EU and other pensioners living in Malta may also benefit from the above tax rebates subject to the applicable double tax treaty provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.