Malta's highly desired taxation system has made the country a favourite jurisdiction of choice for many foreign companies planning to relocate their business interests or looking for a better market within Europe. In addition to its favourable income and taxation rate system, Malta takes pride in its efficient English workforces, which draw more traffic and feed their economy exponentially over the years.
If you are thinking about making the big move to start benefitting from Malta's advantageous taxation system, this article will provide you with some helpful information about how Malta's taxation system works.
Type of Taxes in Malta
Taxation is the most significant source of government revenue in almost all countries across the world. The country's tax revenue in 2019 amounted to $4,291.7 million (source: https://nso.gov.mt/en/News_Releases/Documents/2020/10/News2020_174.pdf). Malta has 3 main tax revenue sources, including:
- Indirect Taxes
Indirect taxes are a type of tax levied on goods and services that are ultimately passed and paid for by another entity or individual. The manufacturer or suppliers are tasked to collect the taxes and then remit them to the government. Here are different types of indirect taxes.
- Value-Added Tax (VAT):
This is the most common type of indirect taxes and one which is experienced with nearly each and every purchase which companies and individuals alike make on a daily basis. VAT charged on goods and services at the generic rate of 18% is one of the lowest charged rates in the European Union, second only to Luxembourg's 17% rate.
The 18% is not applied on all the products and services. Few services can benefit from the reduced rates of 7% applicable to certain accommodation while the 5% reduced rate applies to electricity, certain medical accessories, confectionery and similar items printed matters, exclusive items used by persons with disability, importation of certain artworks, collector's items and antiques, minor repairs of shoes and leather goods, bicycles, and household lines, domestic care services, museum admissions, art exhibits, concerts, and theatres, and use of sports facilities.
Lastly, there are additional products or services which are completely exempt from VAT such as banking services, the provision of certain licensed online gambling activities and others.
- Import Duties:
Typically, import duties were mostly paid for by companies importing products from outside of the European Union. Individuals too were subject to pay import duties, however only on importation of high value items from outside of the European Union. Many small household items acquired over the internet such as many eBay purchases, books and other trivial items were exempt. However, recent changes which became effective as of 2021 will capture many other less valuable items. Import duties are charged at the rate of 10%.
- Excise Duty:
This type of tax is imposed on certain goods and commodities
which fall within the remit of the Excise Duty Act – Chapter
382 of the Laws of Malta. This type of tax is charged on excise
goods irrelevant of their place of origin. Certain goods such as
wines and spirits and manufactured tabocco products are
"Harmonised Goods" which means that the excise duty is
taxed on these type of products in all of Europe, albeit at
different rates. Other goods classified as "Non Harmonised
Goods" are classified in the 5th schedule of the same law.
Some examples include cement, tyres, mobile telephone services
etc...
- Stamp Duty:
The most common type of stamp duty is levied on insurance policies, transfer of capital assets which fall within the remit of the duty on documents and transfers act, chapter 364 of the laws of Malta and transfers of immovable properties in Malta. The transfer of shares in Maltese companies are subject to stamp duty.
- Direct Tax
Direct taxation in Malta can be perceived to be complex for those who are unfamiliar with the system. Many ask how is it possible that a Maltese company pays taxation at the rate of 35% whereas another Maltese company pays tax at the rate of 5%. Similarly, there are individuals in Malta who earn the same level of income on a yearly basis and are charged differently. This is mainly attributed to the residence and domiciliation status of the individual or the company.
For Maltese residents and domiciled individuals, i.e. those who were born and live in Malta, unfortunately there isn't much that can be done to reduce your tax burden. However, for those individuals who were born outside of Malta and have relocated to Malta or have a company in Malta, there are endless possibilities on what can be done to benefit from Malta's advantageous tax system. Read about fiscal units in Malta and about the taxation refunds in Malta.
Tax liability depends on whether the individual or entity deriving an income is domiciled and/or ordinarily resident in Malta. Malta taxes all the income and capital gains of people who are both domiciled and ordinarily residents. Domiciled or ordinarily residents in Malta are obligated to pay tax on income and capital gains emergent in Malta and income originated outside Malta irrelevant whether such income is remitted to Malta or not. People neither domiciled nor ordinarily resident in Malta are only imposed to pay tax on income and capital gains arising in Malta and there are a number of exemptions too.
Individuals who are residents of Malta but not domiciled in Malta
are not taxed on their world wide income but only on the income
which is derived to Malta or arised in Malta. These individuals can
benefit the most if they run their company in Malta as the company
can receive taxation refunds which reduces the overall tax burden
to as low as 5%. Read about the taxation refunds in
Malta.
- Personal Income Tax:
Progressive tax rates are imposed on both resident and non-resident individuals in Malta. Maltese residents (i.e. anyone who spends more than 6 months in a year in Malta or those who have a fixed contract of work to work in Malta) can benefit from the residential progressive rates.
There are 3 residential rates which are called
- Single rates
- Married rates
- Parent rates
Married persons are given the option to use the single rates as well as the parent rates. Married rates are mostly used when only 1 partner of the relationship (not necessarily have to be married) is in full time employment. In most other cases where both partners are in employment, it is more beneficial to use the single or parent rates as opposed to the married rates.
Here is a quick guide to Malta's income tax rates for 2020 and 2021`:
Single resident taxpayers (or married individuals who want a separate computation)
| Taxable Income (EUR) | Rate (%) | Deduct (EUR) |
|---|---|---|
| 0 to 9,100 | 0 | 0 |
| 9,101 to 14,500 | 15 | 1,365 |
| 14,501 to 19,500 | 25 | 2,815 |
|
19,501 to 60,000 |
25 | 2,725 |
| 60,001 and up | 35 | 8,725 |
Married resident taxpayers
| Taxable Income (EUR) | Rate (%) | Deduct (EUR) |
|---|---|---|
| 0 to 12,700 | 0 | 0 |
| 12,701 to 21,200 | 15 |
1,905 |
| 21,201 to 28,700 | 25 |
4,025 |
| 28,701 to 60,000 | 25 | 3,905 |
| 60,001 and up | 35 | 9,905 |
Parents Rate
| Taxable Income (EUR) | Rate (%) | Deduct (EUR) |
|---|---|---|
| 0 to 10,500 | 0 | 0 |
| 10,501 to 15,800 | 15 |
1,575 |
| 15,801 to 21,200 | 25 |
3,155 |
| 21,201 to 60,000 | 25 | 3,050 |
| 60,001 and up | 35 | 9,050 |
- Corporate Income Tax:
Resident and non-resident companies are liable to pay a 35% tax rate. However, Malta allows shareholders to claim a tax refund on some of the dividends they receive from Maltese companies.
Social security contributions are often shared between the employer and the employee or by the self-employed individuals.
- Employed Individuals:
The social security contribution rate for employed individuals is 10% (maximum of €42.57 per week) of their basic weekly wage. The employer is obligated to contribute the same amount paid by the employee as well as the Maternity Fund on a weekly basis.
- Self-Employed Individuals:
he social security contributions of self-employed individuals are divided into 3 installments in a year and the rates varies based on the annual net income derived in the preceding year.
Malta's Pensioner Tax Rates
Malta has a flourishing economy, making it a great place to retire due to its sunny weather, beaches, friendly local population and fantastic tax incentives. There are numerous tax friendly programs for those who would like to relocate to Malta and enjoy their retirement on the island. The same progressive tax rates are applied for pensioners in Malta. However, no social security contributions are based.
As announced in the 2017 Budget, pensioners aged at least 61 years are entitled to a tax rebate on their pension income. Tax rebates ensure that pension income exceeding the tax-free bracket has an increased amount that is not charged to income tax. It is only applicable to taxpayers who have received income from any pensions, such as treasury pension, social security pensions, local and foreign pensions and those at least age 61 when the pension is received.
The retiree's all income must first be taxed at the normal rates that apply to the pensioner: single rates, married rates, or parent rates.
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.
