Malta Property Rental Tax

Below are the most pertinent questions usually asked regarding the taxation of rental properties in Malta:

• In order to qualify for the 15% tax rate on rental income, must the property be rented for residential or commercial purposes?

The 15% tax on rental income is applicable to both residential (since 1st January 2014) and commercial properties (since 1st January 2016), excluding rent from related parties. [A body of persons is considered related to an individual if it is owned or controlled, directly or indirectly, by that individual, to more than twenty-five percent, and two bodies of persons are related if they are owned or controlled, directly or indirectly, by the same persons, to more than twenty-five percent].

• Is the 15% flat rate a final tax, and on which amount is it paid?

Yes, the 15% flat rate is final and no set-off or refund is applicable. This 15% must be paid on the gross rental income.

• Does this 15% tax rate apply to non-residents?

Yes, this beneficial rate applies to both resident and non-resident persons.

• Does this 15% tax rate apply to companies? If so, where is this income to be allocated to?

This rate also applies to companies. Every company resident in Malta must allocate the distributable profits resulting from such income, on which 15% tax has been paid, to the final tax account.

• If I prefer to choose this option, do I also declare this rental income in my tax return?

No, if you pay the 15% tax on the gross rental income, you are not required to declare such income in your tax return given that you are an individual.

• Is the 15% optional or mandatory?

The 15% is optional. One may choose to declare the net rental income in their tax return and be charged with the normal rates rather than with the 15% flat rate. However, once such an option is exercised, it applies to the total rental income received in the said year from all the tenements let out by such a person (subject to the tenements qualifying for this rate).

• From which date does this rate apply?

This rate applies from 1st January 2016 for commercial property and from 1st January 2014 for residential property.

• If I failed to declare rental income derived from residential properties or garage in the past years, can I benefit from the 15% rate of tax on this past undeclared rental income?

No. The option to benefit from such a rate was permissible only up to 30 June 2015. Thus the undeclared income must be declared and will now be subject to tax as per the normal progressive rates.

• When it comes to companies, what is the process in the case of undeclared rental income?

If a company was in receipt of rental income in past years, which was not declared for tax purposes, an AF2 has to be submitted, and tax is charged at 35%.

• Are there any prescribed forms that I need to submit to pay the 15% tax on rental income, and when do I need to submit these forms?

Payment, together with Form TA24, has to be submitted by no later than the 30th April of the year following the relevant tax year.

• Are there any penalties for non-declaration of the rental income?

Irrespective of whether the option to have the rental income taxed at the flat rate of 15% is exercised or not, any undeclared rental income shall be subject to tax at the rate of 35% on the gross rental income, in addition to interest and additional tax payable under the Income Tax Acts, following an investigation carried out by tax authorities.

• Once a person exercises the option to have the rental income taxed at the rate of 15%, is this choice irrevocable, or could that person decide to declare the rental income in the tax return and claim the 15% tax back?

The 15% tax is a final tax and cannot be claimed back.

• Should a person decide to take up the option of having the rental income taxed at 15%, is that person bound to the 15% final tax regime forever, or could that person opt out of this regime?

You can make the choice annually whether to exercise the option or not. Therefore, a person may have the rental income taxed at 15% one year and the following year decide to declare the income in the tax return and have it taxed at the normal, applicable tax rates.