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Income Tax

In Malta, the full imputation system of dividend taxation is applied. The company will pay tax on its profits at 35%. This system implies that all tax paid by the company in respect of the profits being distributed are passed on to the shareholder entirely. As such, when the company distributes such profits it will also be passing on the benefit of the tax paid as a credit to the shareholder.

If terminal payment is provided for in the contract of service of the employee, that amount is taxable. But, if terminal payment is not included in the contract of service, the amount received during this period is not taxable.

Expenses can only be claimed in deductions if they are incurred wholly and exclusively in the production of the income. Furthermore, such an expense must not be a capital expense.

For a more detailed explanation of which expenses can be deducted for tax purposes one should refer Articles 14 & 26 of the Income Tax Act.

The amount declarable by the employee is the gross pay – therefore all wages need to be grossed up.

Section 4 of the ITA classifies income in six categories;

1) Gains or profits from any trade, business, profession or vocation,
2) Employment Income: Gains or profits from employment or office,
3) Dividends, premiums, interest and discounts,
4) Pension, charge, annuity or annual payment,
5) Royalties, rents or other income arising from property,
6) Any gains or profits not mentioned above; a catch-all provision that implies that all income is taxable.

The normal corporate tax rate in Malta is 35%.

Yes, reductions to the amount of provisional tax due for the current year can be amended by filling a PT reduction form which can be obtained from the Department of Inland Revenue. The Provisional Tax will be adjusted and based on your declaration. 

Note: if the Tax Statement for the year in question results in Provisional Tax not paid in full, the amount underpaid is subjected to a 1% interest per month or part thereof.

Employed taxpayers who also have income from part-time work as a self-employed can pay a tax of 15% on the Net Profit from the part-time job after completing the TA22 form. €12,000 per year is the maximum amount of profit that will be taxed at 15%. Additional profit needs to be declared in yearly Income Tax Return and will be taxed at the regular percentage. The income shown in form TA22 is not to be included by the taxpayer in his annual Income Tax Return unless he wishes to claim back the tax so paid.

The taxation of income from hosting students is as follows:

  • add up all payments received from the language school/s;
  • deduct €3,500 (€2,330 for basis 2005-2008);
  • multiply the result by 35% (i.e. allowing 65% expenses);
  • the result is the net profit derived from this source.

Example: During 2014, I received €4,000 from school A and €2,500 from school B, totalling €6,500. When I deduct €3,500 and multiply the result by 35% I get a net profit of €1,050. Accordingly €1,050 is brought to tax charge.

Yes, the profit generated from student hosting must be declared in your tax return (Box 2). You are to attach the statement provided by the language school/s to the TA22 form, showing the total payments made for the year.

When hosting is carried out on a part-time basis, the profit is to be declared on form TA22.

a. On profits of companies and self-employed persons:

  • 1st installment – 20% of benchmark – due on 30th April
  • 2nd installment – 30% of benchmark – due on 31st August
  • 3rd installment – 50% of benchmark – due on 21 December

b. Provisional tax on part-time self employment – 15% of profits

c. Provisional stamp duty on transfers of immovable property (payable on the preliminary deed) – 1% of transfer value

Filing of income tax return by individuals – 30th June

Filing of income tax returns by companies:

  • Companies having a 30th June year end or earlier – 1st April
  • Companies having a 31st July year end – 30th April
  • Companies having a 31st August year end – 31st May
  • Companies having a 30th September year end – 30th June
  • Companies having a 31st October year end – 31st July
  • Companies having a 30th November year end – 31st August
  • Companies having a 31st December year end – 30th September

Filing of income tax returns by Partnerships which have not elected to be treated as companies – 30th June 

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