Anyone earning an income in Malta is obliged to pay their share in Income Tax, Social Security contributions and in some cases, Value Added Tax on those earnings.
If you’re in employment, the likelihood is that your contributions are taken care of by your employer.
If you aren’t, however, you are responsible for declaring and paying your dues by the prescribed deadline, which in the case of one’s personal income tax is the end of next month.
An increasing number of people are trying their luck in the gig economy, which promises more flexibility, all-round better working conditions and other advantages, depending on the nature of the work.
On the flip side, however, being your own boss also means you need to keep your affairs organised and to ensure that you remain on top of all legal requirements and pay your contributions in a timely manner.
A failure to do so could result in hefty fines and, in more serious cases, prosecution.
Who needs to pay income tax?
According to Maltese law, individuals who are both domiciled and ordinarily resident in Malta are taxed on their worldwide income, whichever the source. This includes any income earned by your spouse or dependent children.
If you’re not domiciled or ordinarily resident in Malta, tax is only due on income derived from Malta, or on any income earned abroad and remitted to Malta.
As for the tax due, Malta uses a progressive method of taxation which means that individuals with a higher income are obliged to pay more tax than those on the lower end of the salary spectrum.
Income is taxed at five progressive rates ranging from 0 to 35% for income above €60,000 every year. The system also differentiates between single and married individuals as well as parents.
How is income tax actually paid?
Tax returns must be submitted each year at the end of June, or the end of July if submitted online. This can be extended, if necessary, at the discretion of the Commissioner for Revenue.
In order to declare an income and pay tax in Malta you need to have a tax number. For Maltese citizens this is their identity card number, but foreign nationals need to apply with Office for the Commissioner of Revenue to be provided one.
There are three main ways in which income tax is paid. The first is through the Provisional Tax System which mainly applies to individuals deriving income from trade, business or a profession or vocation but who aren’t employed.
Employees and pensioners declare and pay income tax through the Final Settlement System (FSS) which is designed to simplify the process of paying tax by ensuring that the accurate amount is deducted from employees’ salary on a monthly basis.
Any other income, including that earned by self-employed individuals, must be self-reported and paid by the end of June deadline unless it has either been subjected to Final Withholding Tax at source or is reportable through a separate declaration.
A tax submission is still required if no profits are registered, and filers will need to account for all sources of income as well as any expenditure linked to their economic activity.
Make sure you never miss a deadline
Late filing penalties are incurred by any individual failing to account for their earnings by the deadline. This could range from anything between €10 and €500, depending on when ultimately submitted.
Any income tax that is not paid on time will carry a 0.6% monthly interest charge.
Keeping abreast of all statutory requirements and deadline can be a challenging and error-prone process. Above all, it is time-consuming and more often than not best left to professionals. That’s where GCB Malta comes in.
GCB offers a vast range of financial services including book-keeping and accounting as well as corporate and individual taxation ensuring that you never have to worry about missing a deadline.
Whether you’re established as a self-employed worker or still new to freelance work, you’d do well to set up an appointment with GCB Malta to better understand what they can do for you.