The Budget Measures Implementation Act 2014 provides for a reduced rate of tax of 15% on gross rental income derived from residential immovable property. The reduced rate of tax is a final tax and individual lessors need not report this income in their personal income tax return.
The reduced rate of tax is an option and lessors can decide not to take this option if the previous system of taxation of rental income is more beneficial as it results in a lower tax liability than the 15% tax on gross rental income. In such a scenario, the lessor will have to report the rental income in the income tax return in the year in which the income is derived and be subject to tax at the standard progressive rates of tax if the lessor is an individual and 35% in case the lessor is a body corporate. In such cases the deductions allowed by law will be allowed as a deduction against the rental income. Such expenses include interest paid in financing the acquisition of the property and ground rents.
If the option is taken up, no deductions are allowed and the 15% tax must be made by not later than 30th June of the following year.
In case of a lessor, who derives rental income from more than one residential property and who opts to be taxed at 15% on the gross rental income must have all his rental income derived from such tenements taxed at 15%.
Residential property is defined as non-commercial property, consisting of a dwelling house or part thereof that is to be occupied as a home or residence, excluding tenements which when rented are required to be licensed in terms of the Malta Travel and Tourism Act. A dwelling house consists of an apartment, flat, villa, maisonette, townhouse, farmhouse, terraced house and a garage. The garage must be attached to or underlying such a dwelling house or situated in the same block of which the residence forms part, or a garage of not more than 30sqm, situated within 500sqm of such residence, where such garage has been let out together with such dwelling house on the same contract of letting.
