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As announced during the Malta Budget 2014, the Government of Malta has reformed the tax system when it comes to letting of property tax for residential purposes: rather than the 35% tax rate (in case of companies) or the progressive tax rates (in case of individuals), lessors will now be allowed to pay a flat tax rate of only 15%.

The aims of this measure are twofold:

  1. Firstly to incentivise landlords and rent-out unoccupied residential properties;
  2. Then this benefit would lead more landlords to a more honest approach when it comes to declaring their income – hence further regularising the market.

The 15% flat rate tax on the gross rental income is optional and applicable only when the landlord is renting to a person or persons who intend to occupy the tenement as a residence.

Is this 15% tax rate better than the old rate of 35%?

Not in all cases… in fact, the previous tax system can still be more beneficial than the new one. And that is why the Government has kept the 15% tax rate optional.

Particularly, there are 2 scenarios where the previous tax system can still be more advantageous:

  1. In the case when rental income is the only source of income to a particular individual – this is because through the progressive tax system (which is only applicable to Maltese residents), the tax to be paid could be lower when compared to the 15% flat rate option.
  2. When the expenses to cover the property being financed out (like bank interest on loans) are so big, that the profit from the lease is minimal. Hence, in this case the 15% tax would result in a higher tax paid.

Your next step

With the government also enforcing its monitoring for tax evasion, and increasing the penalties, this is the best time for you to regularise your position, either through the new 15% tax rate, or the old system.

Are you a landlord who wishes to go further into this? At KSi Malta we have the right tax advisors that will see what is best for your individual situation, and what necessary actions you need to take. Contact us here – we will be glad to be of assistance.

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