INDIVIDUAL TAXATION

Maltese residents pay income tax on their worldwide income. Resident foreigners are taxed on their income sourced in Malta. Married couples may choose to be assessed and taxed jointly or separately.

INCOME TAX

Income is taxed at progressive rates. Different tax bands apply to married couples filing jointly and single taxpayers (including married couples electing to be taxed separately).

The following can be deducted from a taxpayer’s annual gross income:

• Alimony payments, maximum of the taxable income
• School fees up to €1,400 for a child in secondary school and up to €1,000 for a child in primary school and kindergarten
• Payments up to €9,320 for school services extended to a special child’s needs
• Maximum of €100 per child for payments for sporting activities approved by the Malta Sports Council in respect of a child under 16 years old
• Payments to private homes in behalf of an elderly family relative up to €2,000

RENTAL INCOME
Rental income is taxed at progressive rates. Taxable income is gross rent less the following:

• Any rent or ground rent payable by the owners relevant to the property,
• License fees related to the Malta Travel and Tourism Act,
• Interest expense on housing loans, and an
• Allowance of 20% on the gross income remaining after deducting the rent and the license fees. The standard 20% allowance covers maintenance costs, repairs, and other related expenses.

CAPITAL GAINS
Capital gains realized from immovable property that has been owned and occupied by the owner for a period of at last three years preceding the sale, provided that the property has been disposed of within 12 months of vacating the property, are not liable to capital gains tax.

Capital Gains Tax

In Malta, Capital Gains Tax is actually a transaction cost and not a tax on capital gains. Capital Gains Tax is generally levied at a flat rate of 12% on the transfer value or the selling price. Only brokerage fees can be deducted from the selling price. During the sale, a provisional tax equal to 12% of the selling price must be paid to the notary public who will then pass it on to the Inland Revenue as payment of the tax liability.

Capital gains earned when the property was held for less than five years can be taxed in two ways. It can be taxed at a flat rate of 12% on the selling price or at progressive rates under the old system.

Under the old system, a provisional tax levied at 7% of the deed must be initially paid through the notary public, who will then pass this on to the Inland Revenue as initial payment. This amount is credited to the total tax payable.

The capital gains realized from the sale of the property must be declared on the income tax return and will then be taxed at progressive income tax rates. To calculate the capital gain under the old system, the following can be deducted:

• the price at which the property was acquired;
• the inflation element;
• any ground-rent paid on the property and for which a deduction has not been already claimed in any other way;
• a maintenance allowance at the rate of 0.4% for every year that the owner held the property;
• improvements carried out;
• any duty paid on acquisition;
• notary's fees;
• brokerage fees;
• other expenses directly related to the transfer but not exceeding 5% of the selling price
  

PROPERTY TAX

There are no property taxes levied in the Islands of Malta.

RESIDENCY
In line with the Republic of Malta’s accession to the European Union in 01 May 2004, the government has relaxed its immigration policies to further attract foreign investors.

The Residents Scheme Regulations of 2004 grants permanent residency to foreign nationals who have an annual income of at least €23,246 arising outside of Malta or hold capital assets worth at least €349,000. The given amounts are not required to be remitted to the country. However, documents must be presented to support this. The value of a property purchased in the country is credited to the capital requirement.

Upon approval of the application for the resident scheme, the holder must:

• Purchase a local residence for a minimum of €69,000 for apartments or €116,000 for other types of residential property. Alternatively, a property may be leased for at least €4,185 per year
• Have an annual income of at least €23,246 arising outside of Malta or hold capital assets worth at least €349,000
• Remit an annual income of €13,950 and an additional €2,300 for each dependent

No minimum residence or stay is required when one receives permanent residence. However, he is expected to visit Malta within the first year to register as a Maltese taxpayer with the Inland Revenue and have his passport stamped. He must also fulfill the residence purchase requirement within the given year.

Take note: acquiring permanent residency in Malta does not grant permission to work in the Islands. One may only hold directorship in an International Trading or Holding Company or use the country as a base for freelance services directed overseas, but he is prohibited from offering his services in the local market. It is necessary to obtain a separate work permit for this.