The Budget Measures Implementation Act, 2014 provides for a flat rate of 15% on the rental of residential property.
The new Tax Option
The 15% flat rate on the gross rental income as aforementioned is optional and is applicable only to the rental of residential tenements by any person when such person is renting to an individual or individuals who occupy such tenement as a home or residence. When the lessors are individuals, such income does not need to be further declared in the personal income tax return. Holders of more than one residential tenement must tax all the tenements at the same option meaning that if the 15% flat rate option is chosen, it must be used for all tenements; otherwise the previous system would apply to all.
Given that the 15% flat rate on residential tenements is optional, the previous system can still be applied in those cases where there are expenses to be deducted against the rental receipts, as provided for by law. This is usually the case where the allowable expenses, such as bank interest on loans acquired to finance the property being rented out, are to such extent that the profit from the lease is minimal and thus the 15% flat rate would result in a higher tax to be paid. The previous system can also prove to be more beneficial in case of individuals whose rental income is their only source of income, since in that case, by the application of the progressive tax system applicable to Maltese resident individuals; the tax to be paid may result in a lower tax charge compared to the 15% flat rate option.
Residential tenements, which are defined as being non-commercial tenements consisting of a dwelling house or part thereof which is to be or is occupied as a home or residence. A dwelling house for this purpose consists of an apartment, flat, villa, maisonette, townhouse, farmhouse, terraced house, and a garage. The garage must be attached to or underlying such dwelling house or situated in the same block of which the residence forms part, or a garage of not more than 30 square meters situated within 500 sqm of such residence, where such garage has been let out together with such dwelling house on the same contract of letting.
Method of Payment
The 15% tax shall be paid by not later than the 30th June of the year following the calendar year, in respect of the gross rental income received during the period January to December. This payment shall be accompanied by the relevant form which the Commissioner may prescribe indicating the gross rental income received for the relevant calendar year.