Up until 31st December 2013, rental income could be taxed as trading income (typically rental income derived by a person who habitually rents out immovable property) or non-trading rental income.
Whilst rental income derived from a trading activity attracts most allowable deductions available to trading activities, non-trading rental income would qualify for the following deductions:
- Interest payable on loans used to acquire the subject property;
- Rents, ground rents or similar burdens;
- Any applicable licence fees; and
- A maintenance allowance equivalent to 20% of the residual income after taking deductions for b and c above.
However, a number of changes, applicable from 1st January 2014, have created the possibility for the landlords to apply a final tax of 15% on the rental income from qualifying properties. The following are the salient features of the new system:
- A qualifying property is a property which consists of a dwelling house or part thereof which is occupied as a home or residence by the occupier, excluding those properties which are required to be licenced under the Malta Travel and Tourism Services Act and which is being rented out to person/s who occupy such tenement as a home or residence;
- The landlord has the option to tax rental income derived from the qualifying property at the above-mentioned rate on the gross rental income received, or tax the rental income as per the above;
- Such tax shall be final and no set-off or refund shall be granted to any person in respect of the tax so charged;
- The person exercising the option shall not be required to declare such income, in the income tax return;
- If the person is deriving rental income from more than one residential property, the option shall be applied to the total rental income received in the said year from all the residential tenements let out by such person;
- Payment of tax due under this option shall be made by not later than the 30 June of the year following the relevant year, in which the relevant rental income received during the period January to December of the relevant year. This payment shall be accompanied by an official form which is yet to be published.
Demand for a rental property as an investment continues to grow.
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