The Minister of Finance delivered the 2025 Budget Speech on 28 October 2024, announcing that the Maltese economy has grown by 5.9% in real terms in the first 6 months of 2024.
Budget highlights include a widening of the personal income tax rate bands and the announcement of certain fiscal and immigration initiatives aimed at businesses, SMEs and start-ups in particular. Additional incentives aimed at improving Malta's attractiveness as a place for doing business are also in the pipeline.
International Taxation
Local rules transposing the EU Minimum Tax Directive, which implement Pillar Two rules introducing a global minimum tax rate of 15% for large multinationals, came into force in 2024. Malta opted to defer the implementation of the OECD's Pillar Two rules, effectively postponing its application for local in scope entities for 6 consecutive years. As a result, Malta does not charge a top-up tax and, at this time, these rules primarily serve to ensure the proper functioning of the Directive across the EU.
Following an announcement by the Minister of Finance some weeks back as to the fact that the amendments to the local corporate tax regime may include the introduction of a new tax refund for in scope entities, it was announced in the Budget that government is proposing to maintain the competitiveness of the country's tax system by considering the introduction of grants or tax credits compliant with Pillar Two rules (Qualified Refundable Tax Credits). Government indicated it is in intense ongoing discussions with the EU Commission to ensure any such measure is compatible with the Pillar Two framework and EU law generally.
Incentives for Business
A number of measures have been introduced to incentivise start-ups and support SMEs. These include:
- Relaunch of the Seed Investment Scheme which aims to incentivise investment in local start-ups.
- Malta Government Venture Capital Limited, to be established in 2024 with a budget in the region of €10 million in funds for investment in shares of new companies.
- A European Digital Innovation Hub (DiHubMT) which shall provide mentorship, pre-accelerator and incubator services.
- A zone has been earmarked for laboratories and light industry in the San Gwann industrial zone and a business incubator centre is in the pipeline to help start-ups expand their operations.
- The reduced 1.5% rate of transfer duty applying to inter vivos business transfers to family members to be extended further;
- The applicable rate of excise duty on beer having low alcohol content, produced by small and independent breweries in Malta, is to be reduced, whilst excise duty on beer will be computed based on ABV (alcohol by volume) percentage.
Highly Qualified Persons Rules
The Highly Qualified Persons Scheme, set up to attract highly qualified persons to occupy "eligible offices" with companies licensed and/or recognized by competent authorities regulating specific sectors locally such as gaming, financial services, amongst others, shall now be extended further.
Boosting growth of the Financial Services sector
The commitment to increase Malta's attractiveness in various financial services sectors has been reiterated, with a particular focus made on impending legislation to support the development of certain niches, including family offices, aircraft leasing, fintech, and artificial intelligence. In addition, it was announced that legislation relative to limited partnerships should be introduced in 2025 to help promote and develop these niches further locally.
Gaming & Esports
The gaming sector remains a significant contributor to the Maltese economy, making up 7% of GDP and employing around 16,000 persons in 2023. The focus is now to shift towards expanding to new sectors like video games, esports and immersive technologies, supporting innovative projects through the Video Gaming Gateway, and the development of new video and esports games through Basecamp. Gaming Malta is also providing training to support the industry
Immigration
Linking to the above, the Government aims to introduce a new visa at the start of 2025, targeted at e-sports athletes, thus facilitating the movement of these athletes, and potentially the relocation of their residence, to Malta.
This follows on initiatives in previous years around programmes aimed at residence permits/visas for third country nationals active in specific fields, such as the Nomad Residence Permit and the Start-up Residence Programme.
Employers
Cost of Living Adjustment and Other Employment Conditions
The cost-of-living adjustment (COLA) for 2025 will be €5.24 per week for workers in full-time employment while those in part-time employment and students will receive a pro-rata of this increase. The nominal minimum wage has been increased to €221.78 per week.
A second stage of amendments to the Wage Regulation Orders will be passed to address certain anomalies across different sectors with regards to sick leave, leave allowances, and overtime payments amongst others.
Occupational Pensions
In addition to the incentive of a tax credit of €750, already available to all individuals through a contribution in their private pension, employees are to be incentivised to invest in occupational pension plans, with employers being obliged to make any such plan available to all employees. Employers will also be allowed to contribute towards their employees' occupational pension plan without, however, being obliged to do so. The current tax credit, available for private pension plans, will also apply to these occupational pension plans.
Personal Tax Measures
Personal Income Tax Brackets
Government announced a further widening of personal tax brackets for the single, married and parent rates applicable to resident individuals, without however adjusting the progressive rates of tax, the highest rate of which remains fixed at 35%.
The adjusted tax brackets to apply as from Basis Year 2025 are as follows:
Single Rates:
- €0 – €12,000: 0%
- €12,001 – €16,000: 15%
- €16,001 – €60,000: 25%
- €60,001 and over: 35%
Married Rates:
- €0 – €15,000: 0%
- €15,001 – €23,000: 15%
- €23,001 – €60,000: 25%
- €60,001 and over: 35%
Parent Rates:
- €0 – €13,000: 0%
- €13,001 – €17,500: 15%
- €17,501 – €60,000: 25%
- €60,001 and over: 35%
Purchase and Restoration of Properties
Several measures, intended to incentivise the restoration of older vacant homes situated in Urban Conservation Areas, have been extended. These include an exemption from capital gains tax and transfer duty on the first €750,000 of the consideration paid in a transfer of such property, and a VAT refund of up to €54,000 on the first €300,000 worth of expenses incurred in the restoration and renovation of such properties.
Taxation of Pension Income
Currently, 60% of the pension received is disregarded for income tax purposes. This will increase by 20% in 2025, meaning that income tax will not become payable on 80% of the pension to be received by the taxpayer in 2025, where the pensioner remains in employment.
Tax Deductions Relative to Children's Education
In addition to an agreement reached with private schools to cap school fees, the amount allowed as a deduction for tax purposes from parents' income in relation to their children's school fees has been increased to €3,500 for children in kindergarten, €4,600 for children in primary school and €6,500 for children in secondary school.
Extension of Various Existing Fiscal Measures
Various other fiscal measures applicable to individuals have been extended, including:
- The Get Qualified tax credit scheme;
- The grant offered to individuals who purchase electric vehicles, which shall now range from €2,000 to €8,000, has been lowered from a maximum of €11,000 offered previously;
- The scrappage scheme cash grant, incentivising the scrappage of old vehicles;
- Scheme incentivising the purchase of pedelecs and ekickscooters for personal use; and
- The scheme providing for a VAT refund on the purchase of bicycles, electric bicycles, power-assisted bikes, and the conversion of vehicles to run on LPG.
Renewed Focus on Tax Compliance & Enforcement
The Malta Tax and Customs Administration collected €300 million in unpaid tax arrears during the first 6 months of 2024 and has concluded around 1,200 payment plans with persons with overdue tax balances, although it is not clear whether these were all concluded in 2024. The timely submission of tax returns has increased from 73% in 2023 to 93% in 2024.
In line with the Revenue's announced objective to improve tax collection and enforcement, the Revenue is making a major investment in AI driven systems intended to allow it to collect data relative to direct and indirect taxes alike and to step up enforcement in the coming years.
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.
