INDIVIDUAL TAXATION

Non-residents are liable to tax on all their income sourced in Malta. Married couples may choose to be assessed and taxed jointly or separately.

INCOME TAX

Non-resident individuals are subject to a withholding tax of 25% and this is generally the final tax except on income from properties (such as rent) when the withholding tax is credited to the non-resident’s tax liability when they file their income tax returns. The taxable income is then taxed at the following progressive rates:

RENTAL INCOME
Rental income is taxed at progressive rates. Taxable income is gross rent less the following:

• Any rent or ground rent payable by the owners relevant to the property,
• License fees related to the Malta Travel and Tourism Act,
• Interest expense on housing loans, and an
• Allowance of 20% on the gross income remaining after deducting the rent and the license fees. The standard 20% allowance covers maintenance costs, repairs, and other related expenses.

CAPITAL GAINS
A non-resident may only sell his property in Malta to a Maltese citizen. However, if he is not able to find a buyer who is either a Maltese or EU citizen, only then can he make the transfer to another foreign national.

Capital Gains Tax

In Malta, Capital Gains Tax is actually a transaction cost and not a tax on capital gains. Capital Gains Tax is generally levied at a flat rate of 12% on the transfer value or the selling price. Only brokerage fees can be deducted from the selling price. During the sale, a provisional tax equal to 12% of the selling price must be paid to the notary public who will then pass it on to the Inland Revenue as payment of the tax liability.

Capital gains earned when the property was held for less than five years can be taxed in two ways. It can be taxed at a flat rate of 12% on the selling price or at progressive rates under the old system.

Under the old system, a provisional tax levied at 7% of the deed must be initially paid through the notary public, who will then pass this on to the Inland Revenue as initial payment. This amount is credited to the total tax payable.

The capital gains realized from the sale of the property must be declared on the income tax return and will then be taxed at progressive income tax rates. To calculate the capital gain under the old system, the following can be deducted:

• the price at which the property was acquired;
• the inflation element;
• any ground-rent paid on the property and for which a deduction has not been already claimed in any other way;
• a maintenance allowance at the rate of 0.4% for every year that the owner held the property;
• improvements carried out;
• any duty paid on acquisition;
• notary's fees;
• brokerage fees;
• other expenses directly related to the transfer but not exceeding 5% of the selling price

However, a non-resident seller may be subject to tax on the gain in his country of residence. Normally he would have the right to claim double taxation relief in his country of residence. However, it is possible that the relief would only be granted if the tax paid in Malta were a tax on the gain.

To avail this, he needs to produce a notarized statement from the tax authorities in his country of residence confirming his residency and certifying that he is subject to tax in that country.

Consequently, residents of tax-haven countries and countries whose basis of taxation is the source of income and not the residency status of the taxpayer cannot avail of this option.

PROPERTY TAX

There are no property taxes levied in the Islands of Malta