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How is rental income taxed?

Not everyone is aware than Malta changed its rental withholding tax options in 2015, which means that as a lessor, you now how even more flexible options of how to go about things related to your rental income.

When people hear ‘flexible’, they often think ‘complicated’, but it’s not as bad as you might think. In this post, we will look at how rental income in Malta is taxed.

Rental Income on Immovable Property

There are two options for rental income tax in Malta. Before 2015, lessors of immovable property were subject to taxation on rental income less deductions under the Income Tax Act.

The total amount of rent income is reported on the rental property owner’s tax return and subject to tax on standard progressive or corporate tax rates. In 2015, however, the system was changed, reducing tax on income from rented properties from a maximum of 35 percent to flat rate of 15 percent.

This rate is calculated on gross income, the total amount of incomings before deducting expenses. If you opt for the flat 15 percent rate, you do not have to declare this income in your tax return as it is filed separately through a different system.

Is the flat rate tax on income the best one for you?

You can opt for this rate as an individual, or as a company and it is applicable on incomings from letting of residential as well as commercial properties, including garages. The 15 percent flat rate is not applicable for related parties (anyone who co-owns 25 percent of the property). The 15 percent tax rate is optional, meaning that with the correct advice from an accountant, you can decide whether it is beneficial to you or not, on a yearly basis.

If it is beneficial to you, you will need to apply for it by filling in Form TA24 which can be found on the Inland Revenue website.

If you have obtained a loan to finance your property, you choose to declare your rental income as part of normal income.

Some expenses can be claimed, including ground rent, MTA license fees, loan interest, and a 20% maintenance allowance. It may be more beneficial to add this income to your total income, instead of applying for the flat 15 percent rate.