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Paying Tax on Rental Income

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When you rent out a property, you need to pay tax on that income. Some people might be tempted to skip this step, particularly if your tenant is paying in cash, but that’s not a good idea.

When you rent out a property, you need to pay tax on that income. Some people might be tempted to skip this step, particularly if your tenant is paying in cash, but that’s not a good idea. It leaves you vulnerable if your tenant is not happy – they might decide to tip off the tax authorities. It also makes it harder for you to offer the tenant the right legal option on the utilities tariff. And if the tax department catch up with you, it will hit you very hard financially.

 

Tax Rates

Tax for rental properties (both commercial and residential) is 15% of gross rental income (with no deductions allowed, for example for repairs).

However, there are two options when it comes to paying tax, and you can decide differently each year.

1)      If you choose to pay the 15% tax on the gross rental income, individuals are not required to declare the income in their tax returns. This income is reported separately by submitting Form TA24 together with the payment.

2)      Instead of paying 15% of gross rental income, you can choose to declare the net rental income on your tax return. You will be charged normal tax rates. This might help if you have a company bank loan to finance the rental property. You might also want to claim back the 20% maintenance allowance, ground rent, MTA license fee or loan interest. If you have these expenses, it might work better for you to add rental income to your regular tax form.

Note that:

  • If you haven’t been declaring rental income in the past, you will not be able to select the 15% option, and must pay taxes at the normal rate.

  • The 15% flat rate cannot apply to properties rented out to ‘related parties’, namely, people who own 25% or more of the property.

  • The rate does not apply to holiday rentals with an MTA licence. In this case you will need to take the second option.

 

Penalties

If the tax authorities discover that you have not declared rental income, you will need to pay tax at 35% on the gross rental income, plus interest and additional tax payable under the Income Tax Acts. Ask your accountant about amnesties.

 

VAT

Landlord/ladies may not charge tenants VAT as rentals are considered exempt (except for certain exceptions related to, for example, holiday lets, parking areas, and LLCs letting to a person registered under article 10 of the VAT act who is using the property for business purposes).

 

Important Note

Tax can be complicated. These are guidelines only. Consult an accountant for a more comprehensive overview.


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