Legal Letting Requirements
Are you a landlord or considering renting out your apartment or house in Malta? Thanks to the current booming economy and increasing demand for quality apartment rentals, there has never been a better time to invest in buy-to-let properties.
If you do invest in a rental property, it is important that you also take into consideration the legal requirements, in terms of licences, VAT and tax implications. The following information should help regarding legal requirements, however, please always refer to the respective authorities, or contact a member of our property letting team for more details.
INCOME TAX IMPLICATIONS ON LONG TERM PROPERTY RENTALS
When renting out a property as a long-term residence, landlords have two options of what tax procedure to follow:
- Pay a flat rate of 15% as final tax on the gross rental income;
- pay at the progressive rates of tax, less the deductions provided for by Maltese tax legislation, which includes any ground rent paid on the rental property, license fees and interest on money borrowed in relation to such immovable property and a further deduction equal to 20% of the net rental income.
The 15% option only applies given that the property is rented out to an individual or individuals who occupy the property as a home or residence (and not as a holiday stay or for commercial purposes). Holders of more than one residential tenement must tax all the tenements at the same option.
INCOME TAX IMPLICATIONS ON HOLIDAY LETS (SHORT-STAY RENTALS)
Holiday rentals refer to the rental of a property for short periods, usually for furnished premises for any period less than 6 months. In such instances, tax is payable on the net rental income. This is determined after deducting any expense incurred in the production of income derived from such activity, given that upon demand, the taxpayer would be in a position to present to the Inland Revenue Authorities supporting documentation. Deductible expenses include amongst others, license fees, ground rent payable on the property, as well as renovation and maintenance costs.
Tax is payable according to the tax progressive rates applicable to the individual. One may also qualify for a preferential rate of 15%, applicable on rental income up to
€12,000, with any additional rental income being charged according to the tax progressive rates.
Leasing property in Malta does not generally require the landlord to charge VAT. Two exceptions exist:
- letting for the purposes of holiday or short stay accommodation, in which case the chargeable rate is 7% and
- letting of immovable property by a limited liability company to another tax-registered person to carry out an economic activity. VAT chargeable on such transaction will be 18%.
No licenses are required when renting your property to a local tenant. In the case of property letting to foreign nationals, a special license is required, which is easily obtainable from the Malta Tourism Authority. The process to obtain this license is a simple one, which would also require that a representative from MTA visits the property to vet its standards. Subject to fulfilling the quality requisites, the license will be issued at a nominal fee. The landlords are normally also required to be VAT registered, bar some exceptions.
A number of exceptions when renting out to foreign nationals still exist. According to the MTA’s new policy guidelines, this is not necessary when the prospective tenant:
- has applied for the citizenship scheme, otherwise known as the Malta Individual Investor Programme (MIIP)
- would have signed an employment contract for at least one year. Therefore, the tenant will be working on the Maltese Islands with proof of contract for a year or more.
- is a student who has joined a university course which is longer than one year.
- has been in Malta for a minimum period of 12 months.
- holds a Maltese ID Card or Passport
The above-mentioned information should help, however, please always refer to the respective authorities for clarification on legal requirements, or contact a member of our property letting team for more details.