Taxation features announced during Budget, now enacted

Benjamin Griscti  -  5/May/2014

The Budget Measures Implementations Act, 2014 was recently passed through parliament and mainly includes the following income tax implications:

1. Dividends from Maltese companies

Individuals deriving dividend income from Maltese companies will only be entitled for a refund in respect of the tax withheld by the distributing Company for that part of dividends falling within the 25% personal tax bracket. This will have a retrospective effect as from 1 January 2013.

2. Sums receivable by way of commutation of pensions

The uncapped exemption which used to apply in respect of sums receivable by way of commutation of a pension (Maltese or not) will now be limited to 30% of such sum. The remaining 70% will be taxed under normal tax law. No such limitation has been introduced on similar lump sum payments such as early retirement or death gratuities.

3. Receipt of Child Maintenance

The receipt of child maintenance contributions from an estranged spouse will still remain exempt even if ordered by a court or public deed of another EU or EEA member state.

4. Extension in the deduction for alimony payments

The payment of alimonies (financial assistance) to an estranged spouse will still remain deductible against the income of a person even if ordered by a court or public deed of another EU or EEA member state.

5. Increase in the deduction for childcare facilities

The maximum expense which can be deducted against chargeable income in respect of qualifying childcare facilities will be increased from €1,300 to €2,000.

6. New tax exemption to woman over 40 years of age

Women who are over 40 years of age and who take up employment after a 5 year (or more) absence and who are deriving income therefrom of not more than €9,150, will enjoy a tax exemption on such income for a 5 year period commencing from date of employment, should they opt for a joint computation with their husband.

7. Transfers of Intellectual Property rights

Capital gains tax has now been extended to include all gains from the transfer of all types of intellectual property rights.

8. Rental Income

Rental income derived by a company or an individual from the tenement of residential property (including garages) may be subject to a final withholding tax of 15%. If this option is to be exercised, such rental income is to be kept separate from the other chargeable income without the need to disclose it in any tax return. It is expected that additional control will be applied by the Government and non or under-declarations will be subject to a flat tax rate of 35% on the gross rental income.

9. Application of Investment Income Provisions extended for further recipients

The Investment Income Provisions which in general allow a 15% flat tax rate on income such as Malta bank interest, Government bond interests etc, have generally been only applicable to resident persons. These will now become also applicable for individuals who:

  • are EU/EEA nationals and whereby the Commissioner is satisfied that at least 90% of their worldwide income is derived from Malta;
  • in the case of married individuals, those who are EU/EEA nationals and whereby the Commissioner is satisfied that at least 90% of the couple’s worldwide income is derived from Malta.

Where any of the two situations specified above are in place, the provisions of the Income Tax Act and ancillary laws, such as with regards to rates, exemptions, deductions, credits, refunds and the said investment income provisions; shall apply in the same manner as applicable to persons resident in Malta. This will also apply for dividends paid out of the Untaxed Account – and in this respect we do recommend you to make contact with us prior to distributing any dividend out of the said tax account.

10. Income from Football (Soccer)

Income derived in terms of an employment contract in Malta for playing football (full-time or part-time), by a person who is duly registered as a professional football player here in Malta with a duly registered football club, may be subject to a tax rate of 7.5%.

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