Rental Income Taxed at 15% - Article 31D of the Income Tax Act
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Rental Income Taxed at 15% - Article 31D of the Income Tax Act

​1. To qualify for the 15% tax rate on rental income, does the property have to be rented for residential or commercial purposes?

The 15% tax on rental income applies both to residential (as from 1st January 2014) and commercial property (as from 1st January 2016), but excludes rent from related parties. [A body of persons is related to an individual if it is owned or controlled, directly or indirectly, as to more than twenty-five percent by that individual; and two bodies of persons are related if they are owned or controlled, directly or indirectly, as to more than twenty-five percent by the same persons].

2. Is the 15% flat rate a final tax, and on which amount is it paid?

Yes. The 15% flat rate is final and no set-off or refund shall apply. The 15% is to be paid on the gross rental income.

3. Does this rate of tax apply also to non-residents?

Yes. This beneficial rate applies both to resident and non-resident persons.

4. Does this rate apply to companies? If yes, where is such income to be allocated?

This rate applies also to companies. Every company resident in Malta has to allocate the distributable profits resulting from such income and on which 15% tax has been paid, to the final tax account.

5. If I exercise this option, do I have to declare this rental income in my tax return?

No, if you pay the 15% tax on the gross rental income, you are not required to declare such income in your tax return given that you are an individual.

6. Is the 15% optional or mandatory?

The 15% is optional. One may choose to declare the net rental income in his tax return and be charged with the normal rates rather than with the 15% flat rate. However, once such option is exercised it applies to the total rental income received in the said year from all the tenements let out by such person (subject that the tenements qualify for this rate).

7. From which date does this rate apply?

This rate applies from 1st January 2014 for residential property, and from 1st January 2016 for commercial property.

8. If I failed to declare rental income derived from residential properties or garage, in the past years, can I benefit from the 15% rate of tax on this past undeclared rental income?

No. The option to benefit from such rate was permissible only up to 30 June 2015. Therefore, such undeclared income has to be declared, and is now subject to tax under the normal progressive rates.

9. With regards to companies, what is the procedure in case of undeclared rental income?

If a company was in receipt of rental income in past years which was not declared for tax purposes, an AF2 has to be submitted and tax is charged at 35%.

10. Are there any prescribed forms that I need to submit to pay the 15% tax on rental income and when do I need to submit these forms?

Form TA24 together with the payment has to be submitted by not later than the 30th April of the year following the relevant year.

11. Are there any penalties for non-declaration of the rental income?

Irrespective of whether the option to have the rental income taxed at the flat rate of 15% is exercised or not, any undeclared rental income shall be subject to tax at the rate of 35% on the gross rental income, in addition to interest and additional tax payable under the Income Tax Acts, following an investigation carried out by tax authorities.

12. Once a person exercises the option to have the rental income taxed at the rate of 15%, is this choice irrevocable, or could that person decide to declare the rental income in the tax return, and claim the 15% tax back?

The 15% tax is a final tax, and cannot be claimed back.

13. Should a person decide to take up the option of having the rental income taxed at 15%, is that person bound to the 15% final tax regime forever, or could that person opt out of this regime?

The choice whether to exercise the option or not is made annually. Therefore a person may have the rental income taxed at 15% one year, and the following year decides to declare the income in the tax return and have it taxed at the normal, applicable tax rates.