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 Quick Guide to Malta’s Taxation of DLT Assets

A Quick Guide to Malta’s Taxation of  Distributed Ledger Technology (DLT) Assets

This November saw Malta’s Commissioner for Revenue (CFR) issue guidelines on the taxation of Distributed Ledger Technology (DLT) assets in terms of VAT, income tax and stamp duty.

Although a strict definition of coins and tokens is given, the classification is of limited value for tax purposes since the tax treatment of any type of DLT asset will be determined by the purpose of use, as well as the context.

The guidelines state that generally applicable tax principles will apply to DLT Transactions with due attention being given to:

  • The nature of the transaction;
  • Status of parties; and
  • The specific circumstances of the case.

DLT assets can be split up as follows:

COINS

Much like any other means of payment, coins act as a medium of exchange and are not connected to the issuer.

VAT Treatment

Coins are to be treated as other currencies with relevant exemptions as per below:

  • Digital Wallets: Fees that are required by digital wallet providers when allowing users to hold and operate cryptocurrencies are exempt without credit (in the case that cryptocurrency qualifies as currency for VAT purposes). Otherwise, the service could be considered as taxable.
  • Mining: Considering that there would be no direct link between the compensation received and the service rendered, mining falls outside the scope of VAT. If the miner provides other services, VAT may be applied at the standard rate.
  • Exchange Platforms: VAT implications of exchange or trade on online platforms facilitating peer-to-peer trading or exchange of DLT assets in return for commission/transaction fees, etc., are deemed on a case by case basis.
    – If the service includes an electronic facility in order to facilitate such trade/exchange, the service should be taxable.
    – Any services which go beyond the above, provided by the platform in return for compensation and where the DLT assets being traded classify as ‘currency’ or ‘security’, may be exempt.
  • An ICO is outside the scope of VAT on the basis that at the point of the initial offering the service or good is not identified, nor is the compensation.

Tax Treatment

The profits realised from the trading of coins are treated like the profits derived from the exchange of fiat currency and proceeds from the sale of coins held as trading stock in a business are taxed as ordinary income. Gains or profits from the mining of cryptocurrency also represent trading income. However, capital gains derived on the disposal of coins held as capital assets fall outside the scope of capital gains taxation.

Where an initial coin offering involves the raising of capital, the proceeds of such issue are not treated as income of the issuer. Where an ICO of a utility tokens entails an obligation of the issuer to perform a service or to supply goods or benefits to the token holder, the gains or profits realised from the provision of the services or the supply of the goods will represent income for the issuer.

Duty Treatment

Coins fall outside the scope of the DDTA.

TOKENS

Financial tokens are similar to those of equities, debentures, units in collective investment schemes, or derivations including financial instruments, in that they may grant rights to dividends, rewards based on performance, voting rights, ownership or rights secured by an asset as in asset-backed tokens.

VAT Treatment

Raising finance by issuing a financial token does not constitute as a supply of goods or service in return for consideration and therefore, does not fall within the scope of VAT. On the other hand, services supplied on exchange platforms have the same implications of ‘Exchange Platforms’ described above.

Unless the underlying good or service in exchange for the initial offering is identifiable as an ICO is outside scope of VAT.

Tax Treatment

The return derived from the holding of a financial token such as interest, premiums, payments equivalent to dividends whether in cryptocurrency or in kind is treated as income for tax purposes.

Duty Treatment

Where DLT assets have the same characteristics of ‘marketable securities’, transfers shall be subject to duty as prescribed in the applicable provisions of the DDTA.

UTILITY TOKENS

Value and application of utility tokens is restricted to the acquisition of goods or services within the DLT platform, within a limited network of DLT platforms or in relation to which they are issued, but they have no connection with the equity of the issuer.

VAT Treatment

Where a token is exchanged for a good or service, such a token is to be treated as a voucher.

      • Single Purpose Voucher (SPV): if at the time of the issue of a voucher representing an underlying good or service, the place of supply as well as the VAT due are known, consideration in respect of such voucher would create a tax point and therefore trigger VAT in terms of the 4th Schedule of the VAT Act.
      •  Multi-Purpose Voucher (MPV): MPV is one where the place of supply and the VAT due are unknown at the time of issuance. In this case, VAT is due at the time of redemption.
      • Unless the underlying good or service in exchange for the initial offering is identifiable, an ICO is outside the scope of VAT.

Tax Treatment

Taxation of proceeds derived from the transfer of tokens whether financial or utility tokens depends on whether the tokens are held for the purposes of trade or whether they are held as capital assets.

Where the taxpayer trades in tokens, proceeds are taxed as trading income in terms of the ordinary income tax rules and applying the badges of trade test where necessarily.

Where the transfer is not a trading transaction, it is necessarily to determine whether the transfer of a financial asset could be deemed to be the transfer of a security and therefore would fall within the scope of the provisions on capital gains. Transfers of utility tokens fall outside the scope of tax on capital gains.

Duty Treatment

On the basis that utility tokens have no connection with the equity of the issuer and that these are not considered as similar to securities, utility tokens fall outside the scope of the DDTA.

Tokens may contain characteristics of both financial and utility tokens which are referred to ‘hybrids’ and these are to be treated depending on the context in which they are used.

OTHER CONSIDERATIONS

      • For VAT purposes, the place of supply of Electronically Supplied services to a non-taxable person, where the reverse charge mechanism does not apply, is where the customer is established.
      • The tax treatment of any type of DLT asset will not necessarily be determined by its categorisation, but will depend on the purpose for and context in which it is used.

The treatment of transactions in respect of VAT, tax and duty concerning any type of DLT asset will not necessarily be determined by its categorisation, but will ultimately depend on the purpose for and context in which the transaction is made according to the applicable Act.

The content of this blog post was derived from the CFR’s Guidelines for the VAT Treatment of transactions or arrangements involving DLT assets.

Setting up as a freelancer in Malta

Setting up as a freelancer in Malta

The life of a freelancer seems to be synonymous with freedom, flexibility and the empowerment that comes with being your own boss. That is of course all true, but as we already know (thanks to the Spiderman franchise), ‘with great power comes great responsibility’. Being your own boss is fantastic, but only if all your paperwork is in order before you start bringing in those euros. The last thing you want to deal with when you are getting your operation off the ground is some sort of hefty fine or awkward conversation with the Tax Man. Not to worry – today, we’ll take a look at some key points to keep in mind when you’re setting up as a freelancer in Malta.

First things first

Before you do anything, you need to register with Jobs Plus (formerly ETC) as self-employed – full or part time depending on the intensity of the work you plan to take on. Registering is straightforward – just head over to their forms page and print the one entitled ‘Self-employment engagement form’ according to your preferred language. When you’re done with that, send it to the address included in the form.

Pay your dues

When you’re employed by a company, your National Insurance (NI) and tax is sorted out for you. If you’re registered as full-time self-employed, you’ll need to take care of your own NI and tax. Tax is due each year, and you’ll need to fill out a tax return form with information including your profits or losses, along with any income you may have earned.

Did you know? If you work as part-time self-employed, you can benefit from a preferential tax rate of 15% on the first €12,000 of profit earned.

Don’t forget about VAT

VAT stands for Value Added Tax and applies to specific products and services, so when you’re setting up your business make sure you check whether or not you’re exempt from that. If you are selling something within the scope of VAT, then make sure you’re charging for VAT. Getting a VAT book is a must if you’re offering good and/or services to non-VAT registered individuals – whereas you only need to issue an invoice if your clients are registered individuals.

Top Tip: If you make less than €30,000 a year in sales through your freelance work, you qualify as VAT exempt and are registered as such.

Keep those receipts/invoices

That’s right, ladies and gentlemen – remember to keep all of your receipts and invoices. Why? Well, the money you spend on business lunches, driving around from client to client, and buying the equipment you need to work can all be expensed. If you’re eligible, you might be able to claim a tax credit through Malta’s Micro Invest scheme. Want to know more about that? Just get in touch with one of our advisors!

Good to know: Gozitans and businesses with female majority ownership benefit from higher thresholds in the Micro Invest scheme!

Be prepared

Just because you’re your own boss now doesn’t mean you should work without a business plan or check your progress as you go along. Create a plan complete with goals and targets for yourself – always, of course, making sure they’re realistic to help you stay motivated.

Signed, sealed, delivered

This bit might sound tedious, but it’s probably one of the most crucial parts of setting up a business. If you want to make sure you’ll get paid, it’s important to draft a little something called a ‘work contract’. For smaller jobs, it might feel a little superfluous, but when you’re working on a €500 contract and you’re still waiting to be paid three months after completion, you’ll be glad you protected yourself in writing.

Follow your finances

This one applies to your day-to-day life, but you should be even more organised when it comes to your freelance work. Keep track of your invoices and stay on top of how much money is coming in and going out, and you’ll be fine. A proper invoicing system like Xero will make this super straightforward, so set that up ASAP.

If you’re looking for guidance regarding all things freelance, just give us a call! Our team of experts have all the information you need to help you get your business off the ground. Get in touch today!