This articles outlines the key aspects of the tax treatment of directors’ fees in Malta, including residency and source rules, taxation of non-resident directors, and reporting obligations.
Directors’ fees in Malta refer to fees or similar payments made to a person in his or her capacity as a member of the board of directors of a company (i.e., as holder of a directorship) and not to remuneration for other services (e.g., employment, advisory consultancy). nder Maltese tax law and guidance of the Malta Tax and Customs Administration (MTCA), such directors’ fees are considered income arising in the state where the company is resident (i.e., where effective management and control is exercised) and therefore taxable in Malta if the company is resident in Malta. For example, the guidance clarifies that for a non-resident director receiving fees from a Maltese-resident company, the fees are taxable in Malta since they arise where the company is resident.
Resident directors
If an individual is resident and domiciled in Malta, he or she is taxed on a worldwide basis under standard income tax rules. If they are resident or domiciled in Malta but not both, certain source and remittance rules may apply. The directors’ fees received will be included as emoluments from office and taxed under the individual tax regime (progressive rates).
Non-resident directors
For individuals who are neither resident nor domiciled in Malta but who receive directors’ fees from a Maltese-resident company, the fees are taxable as Malta-source income because of the place of the company’s effective management. The tax treatment may also be affected by any relevant double tax treaty between Malta and the country of residence of the director.
Withholding and tax payment via the Final Settlement System (FSS)
The paying company in Malta must deduct tax at source through the when paying directors’ fees, regardless of whether the director is resident or non-resident. The FSS requires the payer to file relevant monthly payment advice forms (FS5) and end-of-year reconciliation forms (FS3, FS7) under employer/office-holder obligations. The tax withheld is credited to the director and reflected in their tax position.
Reporting obligations for company and director
The company must ensure correct withholding of tax on the directors’ fees and remittance via the FSS. It must also submit monthly and annual FSS forms (e.g., FS5 monthly, FS3/FS7 annual) for those fees. If fees are paid to non-resident directors, the company must still withhold tax and report via the FSS, and notify the individual accordingly.
A resident director whose only income consist of fees already taxed via FSS may not need to file a full annual tax return if classified as a non-filer by the MTCA. If the director has additional sources of income (or is non-resident), they will likely have to submit a Maltese tax return and declare the directors’ fees plus any other taxable income. For non-resident directors receiving Maltese-source fees, submission of a Maltese tax return is mandatory (even if only for the directors’ fees).
Conclusion
In Malta, directors’ fees are taxable in the jurisdiction where the company is resident (i.e., Malta if managed and controlled in Malta). Both resident and non-resident directors must consider how those fees are treated under the individual tax rules, and Maltese companies have robust reporting and withholding obligations via the FSS. Proper compliance requires accurate classification of the fees, timely withholding and remittance, and for the director, appropriate tax return filing depending on residency and other income sources.
Disclaimer
The above does not constitute tax or legal advice and is up to date on the date it was published. Please ensure that you take appropriate advice from tax or legal professionals before making any decisions based on the above.
If you need any help or assistance with the above-mentioned, please do not hesitate to contact us on [email protected]
