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In the light of the various announcements made recently by the Government regarding the rental of properties, it may have become difficult to keep abreast with what are the actual requirements which must be adhered to in this sector.  The aim of this blog is to clarify some of the ambiguities pertaining to the rental of property:

Licensing

Generally, licenses in relation to the rental of non-commercial properties are governed by the Malta Tourism Authority (MTA).  The two scenarios which most typically necessitate an MTA license are the following:

  • Rental for less than three months of holiday furnished premises.  In addition, to the applicable statutory fee, this license requires that MTA is provided with copies of a site plan, drawing of premises certified by an architect and copies of MEPA permit;
  • Rental of property for more than three months to tenants defined as ‘tourists’.  Should the tenants be locals or foreigners having employment contracts to work in Malta, such license would not be necessary.

 Income Tax

Unless property rental falls to be classified as a trading activity, landlords can now loiter between two applicable options.  One involves a 15% final withholding tax levied on the gross rent received without the possibility of taking any deductions.  Should this option be availed of, this has to be kept separate from the taxpayer’s computation of other income and must be paid by 30th June of the following year (expected to be changed to 30th April as from next year).  The other option levies the normal tax rates (progressive rates in case of individuals and 35% in case of companies) on the profit element derived from rental.  This notwithstanding, for the purpose of calculating this profit element, the law specifically sets out the only types of expenditure which are allowed to be deducted against the rental income.

 VAT

The VAT treatment relating to non-commercial property rental is dependent on whether the letting is required to be licensed by the MTA or not.   To this effect, the two instances of licenses issued by MTA outlined above would require the application of a 7% VAT rate on the provision of accommodation.  In instances not requiring licenses, no VAT should be charged on the rent without possibility of claiming input VAT incurred on related expenses. 

For further information please contact: Benjamin Griscti from our tax section at bgriscti@ksimalta.com or Josef Cachia from our legal section at jcachia@ksimalta.com.  You may also contact them on +356 21226176.

 

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