In recent years, Malta has experienced a significant increase in international business and foreign direct investment. Its legislative framework, its infrastructure, Government’s investment in state of the art technology, a highly qualified professional workforce and an English speaking population have all been a major driving force in attracting foreign investment in Malta.
Malta has an extensive tax treaty network with most European countries and other countries, ensuring that the same income will not be subject to tax twice. Most of the tax treaties are based on the OECD Model Convention which together with other unilateral provisions in Malta’s income tax legislation eliminates double taxation on employment and other income.
Taxation of employment income
(i) Resident employees
Employment income arising in Malta is subject to Maltese income tax at progressive rates of tax, whereby the highest rate of tax is 35%, when the income exceeds Eur60,000 per annum. The tax rates depend on the status of the individual i.e. whether the employee is married, single or a parent.
Married persons may opt to have a joint computation where their income is aggregated together and taxed at the married rates. Alternatively, they may opt to have their income taxed separately at the single tax rates, which would result in a lower tax due. Parents with young children may opt to be taxed separately at the parent rates, which are more beneficial when compared to the single rates of tax.
The general rule is that no deductions are allowed against employment income and it is the gross income which is brought to charge to tax. Malta has however over the past years provided for a number of personal deductions which are allowed to be deducted against the gross employment income. These include private school fees, alimony payments, childcare fees, homes for elderly fees and sports fees amongst others.
(ii) Overseas employment
Maltese tax resident individuals who take up employment overseas are subject to a flat tax rate of 15% on their employment income. Employees may qualify for this beneficial rate of tax on their employment income if they have a contract of employment which requires the performance of their work or duties mainly outside Malta. The reduced rate of tax also applies in respect of any period spent in Malta in connection with such work or duties, or on leave during the carrying out of such work or duties. The overseas emoluments are to be deemed to be the first part of the individual’s total income in computing the tax liability.
(iii) Qualifying employment
Employees working in an eligible office may benefit from a reduced rate of tax of 15%. Employees working in the financial services industry, gaming and aviation sectors may opt to be taxed at a flat rate of tax of 15%, subject to certain conditions being satisfied. The same beneficial tax rate applies to employees employed in a qualifying employment and who work in the development of innovative and creative digital products. These measures have been introduced to facilitate the employment of non-resident individuals in roles which are currently not addressed by the local labour market. Other tax incentives are also applicable to expatriates working in the financial services and insurance sectors.
(iv) Compliance issues
Tax on employment income is deducted and remitted by the employer on a monthly basis under the Final Settlement System (FSS). This system ensures that the correct amount of income tax is deducted from the employment income and there will be no further amounts due by the employees or refunds due to the employee at the end of the year. The amount deducted paid by the employer is remitted to the Maltese tax authorities within 30 days.
Fringe benefits and other benefits in kind are part of the employment income and therefore subject to income tax. The following is a summary of the main fringe benefits.
(i) Personal use of a car
The availability of a car provided by the employer to the employee for personal use is a taxable fringe benefit. The value of the benefit is determined and based on the car value, the car use value, the maintenance value, the fuel value and the private use value.
The value of accommodation provided by the employer to the employee for personal use is determined on the basis of the value of the property being made available to the employee. The fringe benefit value of the accommodation provided is 5% of the market value or the original cost of the immovable property whichever is the higher.
(iii) Other benefits
Other taxable fringe benefits include the transfer of assets at subsidised prices, loans at low or NIL interest rates, reimbursement of bills of a personal nature and the provision of discounted goods and services.