Income Tax Act

Deloitte Malta Tax Alert

Amendments to the taxation of income derived from the rental of immovable property

This tax alert is intended to highlight the amendments to the taxation of income derived from the rental of immovable property, being a tenement leased as a residence or garage, to an individual or individuals, as provided for under Article 31(D) of the Income Tax Act.

The term 'tenement' refers to either a dwelling house or part thereof which is, or is to be occupied as a home or residence by the occupier, or a garage. Commercial tenements or tenements whose letting require a Malta Tourism Authority Licence are excluded from the definition. An MTA licence is typically required where the tenant is considered a tourist in terms of the Malta Travel and Tourism Services Act, that is, a person who visits a place other than that where he usually resides, for a period of less than twelve months and who stays at least one night in the visited place.

Where the owner of an eligible tenement makes an election in terms of the provisions of this Article, tax is payable at 15% of the gross rental income received. Such tax shall be final and not refundable to the taxpayer. Moreover, the relevant income shall be deemed to constitute separate chargeable income, and where the taxpayer is an individual he/she shall not be required to declare such income in any return made pursuant to the Income Tax Acts. In the case of a company, the distributable profits resulting from income to which this article applies shall be allocated to the Final Tax Account and no further tax is payable upon a distribution of such income.

Where the option to apply Article 31(D) is exercised, it shall be deemed to apply to all the tenements let out by the person and hence to all the rental income derived therefrom. However, notwithstanding that an election is made in terms of this Article, where the Commissioner for Revenue, following an enquiry, determines that any relevant rental income has not been declared, such income shall be taxed at the rate of 35% and, in addition, subject to interest and additional tax payable under the Income Tax Acts. The tax levied at 35% shall also be final and not subject to set-offs or refunds.

Property owners who qualify under the provisions of the 15% tax regime as explained above, have the possibility to select this option or to be taxed in accordance with the normal provisions of the Income Tax Act at their applicable rate on the net chargeable rental income. In the case of long-term rentals, the provisions of the ‘Deduction of Expenses in Respect of Immovable Property’ Rules (Subsidiary Legislation 123.26 to the Income Tax Act) would apply. These rules provide for the deduction of any interest incurred in the production of the rental income; any rent and licence fees paid in connection with the property being rented and a further 20% deduction to be computed on the net rents receivable.

The relevant form to be completed by property owners opting for the 15% tax regime (Form TA 24) is to be filed by the 30 June of the year following the year in which the rental income is derived. In the case of individuals only, where such individuals have failed to declare rental income in previous years, Form TA 24A may be completed in order to rectify their position. Both these forms can be downloaded from the IRD website. The latter form together with a tax payment at the rate of 15% of the relevant rental income is to be submitted by not later than 30 June 2015.  If the form discloses an omission to declare rental income for more than one year, the 15% tax is payable on the average annual rental income multiplied by two. The relevant period refers to the period of eight years preceding basis year 2013. Should it result, following an enquiry, that an individual who exercises this option has overstated the amount of rental income declared in the relevant form for the purpose of obtaining a tax advantage, then the total amount of rental income declared in the said form shall all be subject to tax at the rate of 15%.

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