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Taxation of rental income derived from the letting of residential tenement

Budget 2014 brought in changes to the taxation system applicable to income

from the letting of immovable property in Malta for residential purposes.

Prior to this change, tenants were subject to tax on the rental income less the

deductions provided for by Maltese tax legislation at their marginal tax rates in

the case of individuals, and at the rate of 35% in the case of corporate lessors.

It is now possible for a person (an individual or a company), who receives rental

income from a ‘tenement’ leased to an individual or individuals, to opt to be

charged on such rental income at the rate of 15% on every euro of the gross

rental income received.

The tenement should consist of a dwelling house, occupied as a home or

residence by the occupier. Such tenements exclude property which for the

purpose of such letting require a license by virtue of the Malta Travel and

Tourism Services Acts. A dwelling house includes an apartment, flat, villa,

maisonette, townhouse, farmhouse, terraced house. A garage attached to

or underlying such dwelling house, situated in the same block of residential

apartments or a garage of not more than 30 square meters situated within 500

meters of such residence let out together with the dwelling house (on the same

contract of letting) will also form part of the dwelling house as defined above.

Such tax shall be final and no set-off or refund shall be granted to such person in

respect of the tax so charged. The rental income shall be deemed to constitute

separate chargeable income for the purposes of the Income Tax Act ("ITA")

and shall not form part of the chargeable income of the person exercising such

option. Furthermore, there is no need to such person to further declare such

income in his personal tax return. This method of taxation shall be available as

from year of assessment 2015.

Any person who receives rental income from the letting of more than one

tenement may opt to be charged at this rate of tax on all the rental income

received for such year from all the tenements let out by such person. If the

person opts for the 15% flat-rate tax, such tax rate must be used for all the

tenements, otherwise the previous system would apply to all.

Non or undeclared rental income may be scrutinized by the Commissioner. If

the Commissioner conducts an enquiry and determines that any rental income

which should have been declared was not so declared or is undeclared, such

income shall be charged to tax at the rate of 35% on every euro of the gross

rental income received. Furthermore, such tax shall be in addition to any interest

and additional tax payable under the ITA. Such tax shall be final and no set-off or

refund shall be granted to any person in respect of the tax so charged.

In case of a company, which receives rental income from letting out of residential

tenements, the net amount (gross rental income less 15% tax) will be allocated to

the final tax account.

Any person may still opt to use the previous tax system especially if it results to

be more beneficial. For example, the previous system may be more beneficial for

individuals whose rental income is their only source of income and the tax to be

paid may result in a lower tax charge compared to the 15% flat-rate tax.