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moreHOLDING MALTESE REAL ESTATE
DIRECT HOLDING OF REAL ESTATE
This section shows the most important tax implications of the direct holding of real estate. First, the implications on resident individuals and non-resident individuals will be discussed. Thereafter, the impact for resident companies and non-resident companies are described.
Rental Income
Resident individuals
Personal income tax
Income derived from real estate such as rental income may be subject to income tax at the personal income tax rates up to 35% on the rental income less permissible deductions, or a flat final withholding tax of 15% on gross rental income.
Deductibility of costs, interest and depreciation
If the individual opts to be taxed at the progressive rates of taxation, the permissible deductions are limited to any ground rents, licences payable, interest incurred in the acquisition of the property being rented and a maintenance allowance equivalent to 20% of the rental income net of ground rents and licences payable.
However, if the individual opts to have the rental income derived in a particular year taxed at the final withholding rate, no deductions against the gross rental income are permitted. The final withholding tax rate is 15%.
Non-resident individuals
Non-resident individuals are subject to tax at the progressive rates up to 35% applicable to non-residents on the rental net-income derived from Maltese real estate. The permissible deductions are limited to any ground rents, licences payable, interest incurred in the acquisition of the property being rented and a maintenance allowance equivalent to 20% of the rental income net of ground rents and licences payable.
Individuals may opt to be taxed at the flat rate of 15% on the gross rental income. In such a case no deductions are permitted.
Resident companies
Corporate income tax
A company receiving rental income is subject to a corporate income tax of 35% on the same rental income less permissible deductions outlined below. However, the company may opt to have its gross rental income taxed at a final withholding rate of 15%. In such case, no deduction is allowed.
Deductibility of costs, interest and depreciation
If the main activity of the company is the rental of immovable property, then in accordance with the general rule in relation to deductions all expenditure incurred in the production of the company’s rental income are allowed as a deduction against the taxable profits. However, if rental of immovable property is not the main activity only ground rents, licences payable, interests expended on the acquisition of the property being rented and a 20% maintenance allowance on the rental income net of the deductible expenses may be taken as a deduction against the taxable rental income.
As mentioned above, a company which opts to have its rental income taxed at the final withholding tax rate of 15% is not eligible to deduct any expenditure from the rental income.
Losses – carry back/forward
The unutilised trading losses of a Maltese property company can be carried forward indefinitely to be utilised against future profits of the same company. Unutilised trading losses may be offset against any type of profit derived by the company whereas capital losses may only be only offset against capital losses.
Non-resident companies
A non-resident company is taxed in Malta on rental income (less the allowable deductible expenditure outlined above) at the corporate tax rate of 35%. However, the non-resident company may opt to be taxed under the final withholding tax system, the tax rate would be 15% on the gross rental income. In such case no deductions are allowed.
INDIRECT HOLDING OF REAL ESTATE
This section outlines the most important tax implications of the indirect holding of real estate (shares). Primarily, the impact for resident individuals and non-resident individuals shall be explained. Thereafter, the implications for resident companies and non-resident companies are illustrated.
Resident individuals
Personal income tax
Profits derived by limited companies are subject to a flat corporate tax rate of 35%. Malta operates a full imputation system whereby upon the distribution of such profits, given that the highest personal tax rate is 35%, no further tax is due by the shareholder on the receipt of the dividend.
Dividend withholding tax
No dividend withholding taxes are levied in Malta regardless of whether the dividend is paid to individuals or companies who are resident or non-resident in Malta.
Deductibility of costs, interest payments and depreciation
Deductions are permitted at the limited company’s level as discussed above and no further deductions are allowed at the resident individual’s level.
Non-resident individuals
Non-resident individuals holding shares in Malta property companies are afforded the same tax treatment in Malta as resident individuals. There may however be additional tax implications in their jurisdiction of tax residence.
Resident companies
Corporate income tax
Dividend income received by a Malta company are not subject to further tax at the shareholders’ level.
Deductibility of costs, interest payments and depreciation
Deductions are permitted at the level of the property company as discussed above and no further deductions are allowed at the level of the resident corporate shareholder.
Non-resident companies
Corporate income tax
A non-resident company holding shares in a Malta company would not be subject to tax in Malta on dividends received from the property company.