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 1st 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!

The Secret to Paying Less 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.

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!

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:

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!