Article 31D of the Income Tax Act provides for a 15% flat withholding tax rate on rental income. The 15% tax rate is valid both for commercial and residential properties. This is a significant reduction from the usual 35% tax rate in Maltese tax laws.
However, this rate is not applied automatically. One must fill in the applicable form (TA24) and pay the 15% tax on the gross rental income by 30 June of the subsequent year. If this is not done, one will have to include such rental income in his tax return and pay the normal, higher rates
Who is eligible for the 15% rate?
Both companies and individuals are eligible to use the 15% income tax rate and it applies to income obtained from rental of immovable properties; commercial and residential properties.
Which rentals cannot make use of the 15% tax rate?
The only category of rentals that are not able to take advantage of such reduced tax rate are rentals made to related parties.
Who is a related party?
For the purposes of such tax, A body of persons is related to an individual if it is owned or controlled, directly or indirectly, as to more than twenty-five percent by that individual; and two bodies of persons are related if they are owned or controlled, directly or indirectly, as to more than twenty-five percent by the same persons
Other factors to keep in mind
All property rented out by an individual/company/entity must either make use of the 15% rate or not. Therefore, one cannot choose to use such rate for a portion of his properties and the normal rates for the remaining portion.
The choice to use such rate is made annually. Therefore, a person who chooses to use such rate in one year may choose not to use it the following year and vice versa.
The applicable form must submitted yearly by 30 June.
The 15% tax is applied on the gross rental income. Therefore, no expenses are allowed for such tax calculation.
Is the rate applicable for undeclared income?
No. Any undeclared income is subject to the normal tax rates. Furthermore, late payment interest will be applied.
How to apply?
To apply for the 15% rate on rental income, one must fill in Form TA24. This must be submitted and the related tax must be paid by 30 June of the subsequent year.
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