The Budget 2014 brought in reforms to the taxation system which is applicable to income from the letting of property in Malta for residential purposes.
Prior to this reform, tenants were subject to tax on the rental income less the deductions provided for by Maltese tax legislation at their progressive rates of tax in the case of individuals, and at the rate of 35 per cent in the case of corporate lessors. Rather than the 35% tax rate, in case the of companies or the progressive tax rates, in case of individuals, the Budget Measures Implementation Act, 2014, provides for a reduced flat rate of 15 per cent on the rental of residential property.
It is known that the old letting of property tax legislation did not cover all rentals occurring on the island. In fact, the reform in the tax legislation was carried out so as to primarily, incentivise landlords to a more honest approach when it comes to declaring their income, thereby regularising the market and secondly, so as to rent-out unoccupied residential properties.
The Government has kept the 15% tax rate optional seeing as in certain cases, the previous tax legislation can still be more beneficial than the new one. For example in the case when rental income is the only source of income to an individual (because through the progressive tax system the tax to be paid could be lower when compared to the 15% flat rate option.)
In the Malta Budget 2015 the Maltese Government has reconfirmed its commitment to combat tax evasion and has begun monitoring and penalising as a result. This has put more pressure on landlords to regularize their position.
If you are a lessor who would like to know more, speak to us at UHY tax advisors.
UHY Malta
We provide specialist tax advisory services to corporate or individuals seeking advice about the letting of property tax legislation in Malta. Contact us for more information as well as for a quote.
UHY Pace, Galea Musù & Co provide financial accounting services and business consulting services in Malta.
UHY Pace, Galea Musù & Co. is a member of UHY, an international association of independent accounting and consulting firms, whose organising body is Urbach Hacker Young International Limited, a UK company.