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.