Guidance Note issued by the IRD on the Taxation of Rental Income

The Inland Revenue Department has recently published some clarifications relating to the application of Article 31D of the ITA, providing for a reduced rate of tax on rental income.  The final tax rate of 15% can also be applied on receipts of ground rents derived from the granting of an emphyteutical concession in respect of […]

Written By ACT Team

On August 10, 2017
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The Inland Revenue Department has recently published some clarifications relating to the application of Article 31D of the ITA, providing for a reduced rate of tax on rental income. 

  1. The final tax rate of 15% can also be applied on receipts of ground rents derived from the granting of an emphyteutical concession in respect of both a residential tenement and also a commercial tenement. 
  2. The final tax rate of 15% can be applied both on receipts of rental income that are chargeable to tax under Article 4(1)(a) and that chargeable under Article 4(1)(e) of the Income Tax Act.  This implies that persons engaged in the business of renting out immovable property can also benefit from the reduced rate of 15%. 
  3. A “tenement” within the meaning of Article 31D ITA is considered to include all types of immovable property (e.g. undeveloped land, roof tops, etc.) 
  4. Income derived from the charging or recharging of common costs in respect of a residential or commercial tenements, are not to be considered rental income derived from the letting of immovable property and therefore cannot benefit from the 15% reduced rate of income tax.
  5. Where a person opts to be taxed under Article 31D ITA and would have otherwise claimed a deduction for wear and tear if such an option was not taken, it shall be deemed that such person has claimed the said deduction for wear and tear even in the year in which the 15% final tax rate is availed of.  This means that, when such a person is required to calculate a balancing charge or balancing allowance on the disposal of the asset, such person must add to the total depreciation, the deduction for wear and tear which he could have claimed if did not opt to be taxed in terms of Article 31D ITA (i.e. at the reduced rate of income tax). 

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected].