Taxation of rental income depends on whether the income is of a passive or active nature. It is important that this distinction is made as different deductions Are allowable for tax purposes.
- Rental income derived from a trade or business is taxed under Article 4(1)(a) of the Income Tax Act at the income tax rates applicable to that individual or entity. Any expenses which are incurred wholly and exclusively in the production of the income are allowable as a tax deduction.
- Rental income deemed to be of a passive rental income is taxed under Article 4(1)(e) of the Income Tax Act, which income may benefit from limited deductible expenses as follows:
- Interest incurred on borrowings where interest is paid in acquiring the property
- Rent, ground rent or any similar recurring burden payable on the property
- License fees paid under the Malta Travel and Tourism Services Act
- An additional deduction equal to 20% of the income remaining after deducting item (b) and (c)
Article 31 (D) Income Tax Act – 15% Final Tax
- Under Article 31D, rental income from tenements (residential dwellings or garages and certain commercial tenements and clubsexcept for properties rented to related parties) can be taxed at a final rate of 15% of gross rent. This option applies annually to all rented properties anddoes not require declaration in the individual tax returns. The tax paid is final and does not offer set-off or refund. Article 31 (D) can be opted by both companies and individuals (both resident and non-resident) and on both active and passive rental income. If this option is availed of, a TA24 form must be submitted by 30th April of the following year with payment being due by that same date.
- In addition, long-term private residential leases, being leases of at least 2 years, which are registered with the Housing Authority are eligible for a tax rebate promoting tenancy stability. The rebate is applicable on registered leases as from the basis year 2020 where the tax on such lease is being paid at the rate of 15%.
The maximum amount of tax rebate is as follows:
| Duration of lease | No. of bedrooms | Tax rebate |
| At least 2 years but less than 3 years | 1 | €200 |
| 2 | €300 | |
| 3+ | €400 | |
| 3 years or more | 1 | €300 |
| 2 | €400 | |
| 3+ | €500 |
Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, financial or professional advice. While every effort has been made to ensure accuracy, the writer assumes no liability for any errors or omissions. Readers are encouraged to seek professional advice before making any business or financial decisions based on this content.
