Paying Rental Tax in Malta

Perhaps you’ve landed on this post because you’ve just acquired a property that you’re looking to rent out, and don’t know where to begin. Or perhaps you’re no stranger to the rental market, but you want to be absolutely sure that you’re getting the best deal on your rental tax each year.

Whatever the reason, we’ve got good news for you: it’s very likely that you can actually pay less on rental tax than expected. Why? The current withholding tax on rent gives you flexible options that can help you save on tax. Don’t worry it’s not as complicated as you might think it is – we’re here to talk you through it.

Short Lets

The leasing of a property on a short-term basis is deemed to be a trading activity. Under these circumstances, an individual or business is required to register for VAT purposes. The VAT treatment that is to be applied shall depend on whether the yearly income exceeds the stipulated threshold for small businesses. Where such threshold is exceeded, VAT is to be charged on the outward rental supply, whereas VAT incurred on business expenses can be recovered. On the other hand, where the threshold is not exceeded, no VAT is charged on rental income and VAT on incoming expenses is not recoverable.

A tax analysis is to be carried out in order to determine which of the following options to declaring and paying tax on your income is most beneficial:

Tax your personal profit at the applicable tax rate or at the standard corporate tax rate of 35% in case of a company. It is essential that a thorough exercise is carried out in order to determine your profit after deducting allowable business expenses;
Tax the gross rental income at the flat rate of 15% via a TA 24 form.

Long Lets

An individual or a company receiving rental income from property leased out on a long-term basis, whether for residential or commercial purposes, shall follow a simpler approach. This is because such income is considered to be passive in nature and to that end registering for VAT is not required.

The tax options to be considered here are:

Tax your personal profit at the applicable personal tax rate or at the standard corporate tax rate of 35% in the case of a company. It is to be noted that under this option, only the following expenses can be deducted:
1. Loan interest paid on financing used to acquire the property;
2. Value of any ground rents paid;
3. Licences paid to the MTA ;
4. 20% maintenance allowance;
Tax the gross rental income at the flat rate of 15% via a TA 24 form.

It is worthy to note that under the TA 24 tax regime, you can benefit from a varying tax rebate on any rental income earned from private residential leases entered into as from 1^st January 2020 onwards. The eligibility for such tax rebate is subject to such leases being registered with the Housing Authority as a long private residential lease.

How can we help?

Keeping the above in mind, our aim is to help you outweigh your options and benefiting from the most tax efficient system applicable to you. Following our tax analysis, we shall assist you with the necessary submissions, being either a TA 24 form availing of the 15% flat rate or the annual income tax return.

Be mindful that taking action will work out in your favour. In the event of non-compliance, penalties and interest would be levied onto your business. That’s no good, but we are here to help you ensure that your business is tax compliant. Get in touch with us now!

Everything you need to know about outsourcing your CFO

If reviewing your business’ financial outlook on your own is daunting – chances are you’re considering (or need to consider!) getting a Chief Financial Officer (CFO) to help you out.

So, to de-mystify all things related to the CFO role and when and how you need to engage one, we’ve answered some of the most frequently asked questions on the matter. First off, the basics…

What is a CFO?

A CFO is generally the most senior member of the company who directly oversees finances. They collect financial data, analyse it and provide strategic financial advice.

Plus, a CFO is also likely to be involved in the management of financial processes such as auditing and budget setting. In terms of hierarchy, they report directly to the Chief Executive Officer (CEO) of the company.

At which point in my company’s growth would I need a CFO?

The exact point at which you’d need input from a CFO varies on a case-by-case basis. However, our experience shows that companies require a CFO when they need:

Advice on regulatory changes
To carry out the audit process
To ensure the business is as tax efficient as possible
Help to decode financial data to make better strategic business decisions
Guidance on risk management and possible financial best and worst-case scenarios to take operational decisions
To carry out damage control when the business suffers an unexpected setback that presents a financial threat (global pandemic – anyone?)

This isn’t an exhaustive list, but it does show the breadth of topics a CFO can support a business with.

I need this advice – but I don’t afford a full-time CFO!

Then you’re in the same boat as hundreds of other Maltese businesses who have shied away from getting a full-time CFO because of:

High costs – After all, hiring an experienced, full-time CFO full-time for 40 hours a week is likely to put a hefty dent in a small-medium business’ cash flow.
Low workload – The reality is that small-medium enterprises are unlikely to have a big enough workload to justify having a full-time CFO on the payroll.

Yet, we’ve routinely seen how small-medium enterprises benefit greatly from timely CFO input. Financial insight and advice will steer management in the right direction during critical moments of challenge and growth. This means that for many Maltese SMEs, having a CFO on board is non-negotiable if they want to take their business growth seriously.

So, how can I get a CFO’s expertise without hiring them?

Simple, opt for the middle-ground option!

Instead of taking on large payroll costs for an (unnecessary) full-time CFO or forego having one entirely, outsource your CFO.

What are the benefits of outsourcing a CFO?

Outsourcing a CFO means you only engage a CFO on an ad-hoc basis. This way, you only get a CFO’s input and support when and how often you need it. This approach significantly lowers the cost of engaging a CFO when compared to a full-time hire.

What kind of results can I expect by outsourcing a CFO?

Having a CFO on board adds a tremendous amount of knowledge and expertise to your management team. Some of the areas a CFO can inform include:

Strategy/Leadership – A CFO uses financial data and Key Performance Indicators (KPIs) to measure a business’ health and progress. All observations are then brought to the management’s attention and the CFO provides support and actionable suggestions to inform any decision-making processes.
Finance/Operations – A CFO provides guidance on cash flow and other financial matters in the business.

What do I need to look out for when outsourcing a CFO?

Given the high rank and influence a CFO is likely to have on your business, you’d want to make sure that your outsourced CFO has:

All the necessary qualifications
Extensive experience in the financial field and ideally, in your business’ industry
A proven track record of successful projects

Should I outsource the CFO function to a freelancer, or approach an advisory group?

Hiring a freelancer comes with several risks. If you’re not familiar with the financial field, it’s difficult to determine if the person in question has the qualifications and experience needed for your business’ needs. Plus, due to the nature of their work, freelancers do not have co-workers they can consult with, or a Group that backs their reputation. So, to remove the risk of outsourcing the CFO function to the wrong professional, we recommend approaching a reputable advisory group like NM Group to help you outsource your CFO.

How much does it cost to outsource a CFO?

Unlike a fixed wage, the rate at which you outsource a CFO will vary on your specific needs. However, one thing is for certain: outsourcing a CFO is a cost-effective solution. Clients only pay for the value of the time the CFO spends on their projects, down to the hour or at a pre-agreed rate.

I’d like to outsource a CFO – what do I do next?

Simply contact us and we’ll get back in touch to have a chat about your business needs and context!

We’ll work with you to find the right fit from our group of in-house, experienced financial experts.

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The Life Hack That Can Actually Save You Thousands In Income Tax

If you’re reading this article then you probably already realise that the world of working has changed dramatically in the last 24 months. The Great Resignation and other similar trends all stem from the principle that individuals want greater freedom and flexibility. One of the most efficient ways to achieve this is through remote working.

When the Internet first came into existence, few could have accurately predicted the impact it would have on work. Today, just as business is carried out globally, so too is employment. A company can be based in Malta whilst employing or engaging with remote workers in India, Australia, the US, and all other parts of the globe.

The possibility and acceptance of remote working in today’s economies have made work more efficient than ever before. The goal is no longer to fill up eight hours of work, but rather to complete a task effectively within as little time as possible. This change in mentality, coupled with increased automation and changing priorities, is the reason why an estimated 80% of jobs in 2030 did not exist as recently as 2017.

If you’re a freelancer or remote worker you need to think like a business

The global pandemic has given rise to an exceptional number of new self-employed persons. These can be described using a number of popular terms, including freelancers and digital nomads. Their roles include software development, data analysis, consultancy, influencing, and a whole host of other primarily online-based activities.

If you are one such individual, then it is vital that you realise that you are running a fully-fledged business. You might not have employees or an office, however, you do have rights and obligations that apply to all businesses. One of these obligations is, of course, paying taxes.

What’s the most efficient way to pay less tax?

Depending on where you reside, you may or may not have heard of Malta’s attractive tax rate for qualifying business entities. By fulfilling a number of criteria, your business will be able to take advantage of a flat, 5% tax rate on its annual profits. You will also have the opportunity to apply for the Malta Digital Nomad Visa.

NM Group has designed special packages that cater to individual and small businesses that are looking for advantageous tax structures. As a licensed corporate service provider (CSP), we can handle all the necessary administration necessary to register a suitable corporate structure in Malta, allowing you to benefit from one of the world’s lowest corporate tax rates.

Get in touch with one of our representatives to learn more about how Malta is welcoming digital nomads and freelancers from all corners of the world.

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The 2022 Budget: How will it affect your business?

The newly announced measures for Malta’s 2022 budget introduce a number of new incentives, as well as grant extensions to existing schemes for businesses.

Here’s a breakdown of the most salient 2022 Budget incentives:

New Business Initiatives

Part-time workers’ tax rate will be reduced to 10% tax rate from 15%.
In terms of capital investment, a rental subsidy incentive will be extended to a larger number of businesses, while other incentives will be offered to attract enterprise investment through the Change to Grow and Smart & Sustainable Investment schemes.
Companies with unused capital allowances for 2020 or 2021 due to pandemic-induced losses will be eligible for a tax reduction benefit.
Malta Enterprise will be working with the Malta Residency Agency to offer the Start-Up Residence Permit to offer a visa package for Non-EU start-up entrepreneurs.

VAT interest

Interest on unpaid VAT is set at 7.2% rate, and on exception will only be waived in line with the law.

Stamp duty

Anyone passing on a family business to a relative will only pay 1.5% in stamp duty on the transfer, reduced from 5%.

Extension of business schemes

The SME Tailored Facility by the Malta Development Bank will be extended to include green and sustainable projects. SMEs will be provided aid when diversifying into more green practices.

Assistance for the arts industry

As of 2022, individuals working in the arts, culture and entertainment sectors shall benefit from a income tax rate of 7.5%, calculated on a 3-year average period.
A €1 million guarantee fund will be set up for artistic events so that producers and promoters can recover their costs when unexpected restrictions are introduced.

Tax rebate cheque

Following the success of the previous year’s handout, the Government will be once again gifting workers on the lowest incomes with a €140 cheque (previously €95), while those in the top category, earning up to €60,000 will get a refund of €60.

Cost of living allowance increase

A €1.75 weekly wage increase will be given as a cost of living adjustment. This also applies to pensioners in full and pro-rata to students.

Want to learn more about how a particular development will be affecting your business? Get in touch today to speak to one of our advisors!

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A Simple Guide to the Micro Invest Application

The deadline of late submissions for the Micro Invest application (for capital investments made in 2020) is 15th December 2021.

Do you run a start-up? Are you self-employed? You could benefit from fantastic tax credits with the Micro Invest scheme!

Micro Invest encourages small to medium enterprises (including start-ups and self-employed) to invest in their business, so as to innovate, expand and develop their operations. Undertakings benefiting from this measure will be supported through a tax credit calculated as a percentage of eligible expenditure and wages costs.

Malta Enterprise will approve a tax credit equivalent to 45% of eligible expenditure. An additional bonus of 20% (total 65% tax credit) applies to undertakings operating from Gozo.

The maximum eligible tax credits per single undertaking is capped at €50,000 over any period of three (3) consecutive fiscal years except for start-ups established in Gozo and female-owned undertakings (i.e. at least 51% shares held by females), where the capping is set at €70,000. Once issued, the MICRO INVEST TAX CREDIT certificate is valid for up to three years for SMEs, and five years for start-ups.

So as to be eligible for this scheme one must employ at least one person (full/part time) but not more than 50 people, and company turnover must not exceed €10 million.

One can apply for a tax credit on the below costs:

Wage Costs (Eligible undertakings may apply for a tax credit on an increase in wage costs that exceeds 3%)
Furnishing & Refurbishing (requires photographic evidence)
Investment Costs (includes machinery, technology (devices, hardware & software), apparatus and instruments)
Commercial Vehicle Costs
PV System Costs

The following are the required Documents to apply for Micro Invest:

Proper invoices of capital investment and receipts.

Please note that a proper invoice / VAT receipt should include the following:

– Date of issue.

– Invoice number.

– Name and address of supplier & VAT number of supplier.

– Name and address of customer (company) and customer’s VAT number.

– The quantity and the nature of the goods supplied.

Proof of payment which include either:

A tax invoice and the associated receipts, or
A tax invoice marked as paid by the supplier, or
A fiscal receipt, or
A fiscal invoice and/or a hire purchase agreement

If one is claiming a tax credit on the increase in wage costs, one has to provide a signed FS7 form of the previous three years
A copy of the vehicle log book if costs of a vehicle are being claimed. (The vehicle must be a commercial vehicle and cannot have been bought locally as a second-hand vehicle.)
The partnership agreement in the case of non-registered partnerships.
In the case of a start-up company (an undertaking which has been established for less than 4 years), a copy of the MFSA registration certificate and a copy of the ETC employment history of the director is required.
In the case of self-employed, a copy of the ETC registration certificate or the employment history of the applicant identifying them as self-employed, are required.
The tax credit costs can be claimed back on PV systems that are connected to a commercial meter located at the applicants licensed business premises. Applicants must present the Malta Resources Authority (MRA) permit to generate electricity and their last electricity bill (on which the system is connected).

The full list of requirements and rules can be found here.

Over the years we have successfully assisted many of our clients to obtain such tax credits. Have you benefited from this scheme? Contact us on [email protected] for more information.

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The Secret to Paying Less Rental Tax in Malta

What’s the situation?

The rate of tax on income from rented properties has been reduced from a maximum of 35% to a flat rate of 15%. This rate is calculated on gross income, meaning the income you receive before deducting any expenses. If you’re an individual that opts for the 15% rate, you’re not required to declare this income in your tax return, as it’s filed separately.

Both individual taxpayers and companies are eligible to use the 15% flat rate, and it is applicable on income arising from the rent of both residential and commercial properties, including garages. However, the 15% flat rate does not apply to properties that are rented out to related parties. Who qualifies as a related party? A related party is basically anyone who owns 25% or more of the property.

What’s the big secret?

A little known fact is that the 15% tax rate is completely optional, meaning that you can identify whether or not it’s beneficial to you from year to year, and apply for it as needed. You can always choose to declare the net rental income in your tax return and be charged with the normal rate instead. This would be especially beneficial to you in the case that you or your company has obtained a bank loan so as to finance your property. In this case, some expenses can be claimed back, such as ground rent, MTA license fees, loan interest, plus a further 20% maintenance allowance. With this, your final rental income will be heavily reduced, meaning that it may be more advantageous to add this income to your total income, versus applying a completely separate 15% withholding tax on top.

How can you apply?

If you or your company wish to use the 15% rate, all you need to do is fill in Form TA24, found on the Inland Revenue website. The form will ask you to include details about yourself or your company as the taxpayer, as well as details about the property being rented out. You should also include the gross income received from each of your properties.

Once you fill out the form, you need to submit it to the Commissioner for Revenue by not later than 30th April of the year following the year of income. This means that if you’re filing your 2020 income, you need to do so by 30th April 2021.

How can we help?

You should weigh your options to figure out whether it pays you to apply the 15% tax rate after all. That’s where we step in. We can also help you prepare and submit the compliance document required and fill out the form to apply for the 15% tax regime. What’s more, we’re always available to help you or your company prepare your annual tax return.

Keep in mind that taking action will work out in your favour. After all, should you or your company neglect to declare income from rent, you’ll be obliged to pay the full 35% tax rate along with any penalties and interests – followed by an investigation carried out by tax authorities. That’s no good, but we can help you get your ducks in a row to make sure that never happens to you. Get in touch with us now!

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A Simple Guide To Filling Your TA-22 Form

Filing your taxes can be one of the most intimidating aspects of running your own business, whether you’re full-time or part-time self-employed.

For the 2020 tax year, the deadline of submission of the TA-22 form is 30th April 2021.

Not sure about where to start? No need to panic – we’re breaking down each section of the form to help you fill it out.

Part 1: The Basics

The form starts out easy enough! Here you can fill in your basic details.

When filling out this section, keep in mind that:

Your address should be the same as the one on your I.D.
Type of business refers to the service you offer, e.g. retail, legal services, business consultancy
The PE (Permission to Employ) number applies to individuals who employ others within their business. If you work alone, you can leave this field blank.
Part-time and full-time self-employed individuals cannot operate a business without being VAT registered. VAT registration is easy, get in touch with our advisors for more information.

Part 2: Profit and Loss

This is the section that often causes the most distress for individuals filling out the TA 22 form.

As a part-time self-employed individual you are due to pay 15% tax on the net profit brought in within that tax year.

This means that you have to take the total turnover of the relevant tax year (in this case it’s 2019), and deduct your 2019 expenses to find your net profit. There are three steps to finding out your net profit:

Step 1: Calculating your gross profit

This step can have two processes, depending on the type of business you run; it is a 1-step process for service businesses or a 2-step process for businesses dealing with stock (e.g. retail, manufacturing, construction).

So, if your business involves buying stock, this is where you take your total turnover and deduct costs related to stock purchasing; this will leave you with your gross profit.

This section can be confusing for service-based businesses that do not incur any expenses related to stock. If you run a service-based business and do not incur expenses related to stock, then all you need to do is put down your annual turnover in box 1, cross out boxes 2-6, and put down your annual turnover as your gross profits in box 7.

Pro tip: When entering your turnover, ensure that the amount is the same as the turnover reported to the VAT department in your VAT return.

Step 2: Calculating your expenses

The expenses are self-explanatory, but do keep in mind that expenses related to trading activity may include:

Stationery and office supplies
Depreciation of your car
Work travel
Advertising and promotion
and much more!

This part may seem straightforward, however there are probably a number of incurred expenses that you may not be aware of. Our advisors are available to help you identify tax-deductible expenses and ensure that you are paying the least tax possible while remaining completely compliant.

You’ve probably heard about people saving receipts for tax purposes, and this process is exactly why! It’s at this point that you have to gather all your receipts and sort them according to the above categories to help you calculate your expenses.

Part 3: Signing Off

Once you’ve confirmed that your calculations are correct and accurate, this last section requires your signature and an indication of how you will be submitting your tax payment.

Payment can be done by:

Cash
Cheque
Online

Do you require further assistance with your TA 22 form? Get in touch today and our advisors will ensure you get your payment in time by 30th April 2021!

Start-ups: here’s why your accountant is your new best friend

When you’re an entrepreneur burning the midnight oil to turn your dream into a business reality, you’ve got a lot on your mind. You’re busy sorting the legal side of things, filling out that TA-22 form and getting all your paperwork in order, finding the talent you need to get things up and running, getting your marketing plan together to get the word out – the list goes on. Hiring an accountant can wait until you reach the SME stage, right?

Well, not quite. In my 15 years working in Malta’s accounting sector, I can’t begin to tell you how many promising start-ups I’ve seen take quite a costly tumble because they’ve tried to handle all their own accounting without the know-how. While most recover, there is a very real risk of not only stunting your company’s growth but stopping it completely. Outsourcing your accounting early on can save you money and stress in the short term, while helping you carve out fresh opportunities that’ll carry you forward long term. Let’s take a closer look at why your accountant is actually far more than that.

Find funding opportunities

Your accountant will have their fingers firmly on the pulse of any local and EU funding opportunities that you can take advantage of, and that kind of cash injection early on can be what propels your start-up into success. They won’t just know about all the latest funding initiatives out there – they’ll have the industry knowledge you need to expertly navigate all the bureaucracy and sail through to approval. Minimal stress for you, maximum results for your business.

Take the Business Consultancy Services Grant Scheme, for instance. While it’s not difficult to understand what it’s all about, you need someone in the know to guide you through the specifics. Are you eligible? Do you have everything you need to apply for it? When’s the next submission deadline? And so on and so forth. Having a trusted accountant by your side to guide you through the jargon jungle can be a lifesaver.

Solid business strategy

I think I can speak for all the certified professionals at NM Group when I say that when it comes to the business world, we’ve seen and done it all, and that’s an experience we can share that goes beyond facts and figures. It’s a real boon to have someone on hand to offer insights on your overall strategy, especially when you’re still laying the foundations for your business. You can’t plan for the future without knowing your finances inside and out, and you can’t do that properly without an accountant by your side to tell you what’s worked and what hasn’t in the past.

When your weekly calendar is bursting with meetings, to-dos, high-priority asks and ten Zoom calls on top of that, it can be hard to find time to sit down and think about your long-term vision and what steps you need to take to get there. The last thing anyone wants to do at the end of a long day is go through an ocean of facts and figures – but then, that’s what your accountant is there for! They’ll take all that daunting data and give you a top-level view of it all that you can use to inform your business decisions going forward. You can even go to your accountant for advice on what you need to do financially to get where you need to be, and how long it’ll take to get there.

Make sure you’re compliant

Rule number one of a successful start-up: make sure you’re compliant from day one. This is perhaps the most crucial part of the process that a qualified accountant can help you with because it can have long-lasting repercussions on your finances – and your reputation. You need to know what kind of company you should register as, do the mountains of due diligence required, sort out your VAT registration, carry out audits, and all this while you’re sorting out payroll and monthly expenses.

The bottom line is this: failing to comply with compliance can lead to a crippling fine – and in some cases, jail time. Don’t skimp on it!

So here’s my advice to the get-up-and-go entrepreneurs out there: buddy up with an accountant and work together hand in glove to plan for the future of your start-up. Simply put, your business is your baby, and it’s worth considering your money-minded friend as the Mary Poppins of the nanny world. Outsourcing your accounting needs is cost-effective and can give you the inside track on what’s happening in the world of funding and finance.

To find out more about how a qualified accountant can help your start-up really take off, get in touch on [email protected] – let’s chat!

The 2021 Budget: How will it affect your business?

The newly announced measures for Malta’s 2021 budget introduce a number of new incentives, as well as grant extensions to existing schemes for businesses.

Here’s a breakdown of the most salient 2021 Budget incentives:

Covid-19 Business Support Measures

⁃ The wage supplement has been extended until March 2021 (same form maintained until the end of the year), will then be revised in 2021.

⁃ Another round of €100 vouchers will be available from Jan 2021, in denominations of €10 and €15. Share to be used in retail shops has been increased to €40.