Tax on property income in Malta
Taxation Researcher | September 15, 2020
Effective Tax Rate on Rental Income
|Click here to see a worked example|
Nonresidents are liable to tax on all their income sourced in Malta. Married couples are assessed and taxed jointly.
Nonresident 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 nonresident´s tax liability when they file their income tax returns. The taxable income is then taxed at the following progressive rates:
INCOME TAX FOR NONRESIDENTS
|TAXABLE INCOME, (€)||
|Up to €700||nil|
|€700 - €3,100||20% on the band over €700|
|€3,100 - €7,800||30% on the band over €3,100|
|Over €7,800||35% on all income over €7,800|
|Source: Global Property Guide|
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,
- 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.
If the nonresident elected to be part of the Individual Investor Program, gross rental income will be taxed at a flat rate of 15%.
A nonresident 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.
If the seller has inherited the property before 25 January 1992, capital gains tax is levied at a flat rate of 7%.
If the seller is not involved in property trading, capital gains tax may be levied at a final withholding tax rate of 5% on properties that were sold within five years of acquisition.
If the seller has acquired the property prior to 01 January 2004, capital gains tax is levied at a final withholding tax rate of 10%.
There are no property taxes levied in the Islands of Malta.
Income and capital gains earned by companies are generally taxed at a flat rate of 35%. Income-generating expenses are deductible when calculating taxable income.