A Guide to Taxation on Rental Income in Malta
Up until 31st December 2013, rental income in Malta could be classified as either trading income or non-trading rental income. Typically, rental income from individuals regularly renting out property was treated as trading income. This classification allowed landlords to benefit from the standard deductions available for trading activities, while non-trading rental income allowed for specific, targeted deductions.
Deductions for Non-Trading Rental Income
For non-trading rental income, property owners in Malta can benefit from the following deductions:
- Loan Interest: Any interest paid on loans used to acquire the rental property.
- Rental and Similar Charges: This includes ground rents or similar expenses.
- Licence Fees: Applicable fees related to the rental operation.
- Maintenance Allowance: A 20% maintenance allowance, calculated on the residual income after deducting ground rent and licence fees.
Tax Rate on Rental Income
Since recent amendments, rental income from immovable property can be taxed at a flat rate of 15%, thanks to the introduction of a withholding tax on rental income. This measure aims to reduce tax evasion while promoting investment in the local property market.
Rental Income from Residential Properties
In 2014, the Maltese Government introduced forms for withholding tax on residential rentals, which now complements existing tax legislation. This system supports deductions for interest on loans, rent, licence fees, and a 20% maintenance allowance, all of which are taxed at the standard income tax rate.
Alternatively, landlords can choose to apply a flat 15% tax rate on gross rental income (no deductions allowed) if they meet the following conditions:
- Qualifying Property: Applies to residential dwellings used as a primary residence, excluding properties licensed under the Malta Travel and Tourism Services Act for tourism purposes.
- Flat Tax Option: Landlords can opt to apply the 15% tax rate on total rental income from all residential properties rented out in a given year.
- Final Tax Status: This 15% tax is considered final, with no set-off or refund, and is not required to be declared in income tax returns.
- Deadline for Payment: The final tax payment for rental income is due by 30 June of the year following the income year (i.e., for income received between January and December, the tax is due by June of the following year).
VAT on Rental Income in Malta
Generally, rental income from immovable property is VAT-exempt, meaning no VAT is added to tenant charges, and landlords cannot reclaim VAT on related expenses. However, there are exceptions:
- MTA Licensed Properties: Properties licensed by the Malta Tourism Authority (MTA) and rented to individuals who have lived in Malta for less than 12 months are subject to a 7% VAT rate for the first 12 months of residence.
- Designated Parking Spaces: The letting of specific parking areas is also subject to VAT.
- Commercial Rentals to VAT-Registered Tenants: Properties rented by a limited liability company to individuals or entities registered under Article 10 of the VAT Act, and used for economic activity, are also subject to VAT.
For further guidance on optimizing tax advantages for rental income or to navigate the legal requirements associated with renting property in Malta, connecting with trusted real estate experts like Belair Property can ensure a smooth experience.
