Tax on Rental Income

The law describing how rental income is taxed in Malta has been revisited a number of times with the aim of discouraging tax evasion and promoting investment. As it currently stands, a person owning rented property has two options with regards to taxation of his or her rental income. Both have their merits and it would be wise to understand the finer details before deciding which decision to opt for.

The first option sees the owner of the rented property add the non-trading income to the total annual income, and be taxed at applicable tax rates. This however allows for certain deductions. Tax is paid on the remaining income following the deduction of:

– any interest accrued on loans used to purchase said property.
– any rent
– licence fees applicable; and
– 20% maintenance allowance on remaining income following deductions of above license fees and any ground rent.

A new withholding tax was introduced in 2014 as an alternative to the tax system described above. This new tax introduces a flat rate of 15% on the total gross rental income. There are however no further deductions or refunds associated if this alternative is chosen. The 15% payment must be submitted by not later than the 30th of April of the year following the relevant year, together with Form TA24. A few salient points associated with this tax:

– Both residential and commercial properties can benefit from this flat rate.
– If more than one property is owned, tax is applied to the total rental income from every property and tenement.
– This tax should not be declared on the tax return form if the owner is an individual
– The decision to opt for the 15% flat rate or whether this income is declared with tax return under progressive tax rates may be taken annually. Opting for one does not exclude the option to opt for the other one the following year.

A small note on VAT on rent

The landlord is not able to reclaim input VAT on any property-related costs, since property rental is considered as exempt without credit supply and tenant is not charged VAT. However, letting of property is subject to 7% when the person residing in it been a resident of Malta for less than 12 months and in this case, it can reclaim VAT. This would also require the property to be licensed with the Malta Tourism Authority.

There are other exceptions to this clause:

– Letting of specific parking areas; and
– Rent of property for the purpose of economic activity by a limited liability company to a person registered under article 10 of the VAT Act.

Here at TACS, we are in an excellent position to help you choose the tax system which best benefits your current income and operations. Talk to us for further details.

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