Does your employment contract require you to work mainly outside Malta? Are you a Maltese employer whose employees have a contract that requires them to work mainly outside Malta? Did you or any of your employees avail of the optional 15% tax rate on employment income from such employment contracts in prior years?
Take note of the changes to Article 56(17) to the Income Tax Act, introduced with the 2022 Budget Measures Act, effective from calendar year 2022!
Individuals who are considered as ordinarily tax resident in Malta, may be subject to Maltese income tax on employment income arising outside Malta. Furthermore, the employer may have obligations to withhold tax on income from such employment contracts in terms of the Final Settlement System Rules.
What were the changes?
Additional restrictions to the applicability of the optional 15% tax rate in terms of Article 56 (17) of the Income Tax Act were introduced and include that:
your employment contract is for a period of at least 12 months; or lasts at least 12 months; and
you are not present in Malta for a period or periods that, in total, amount to more than 30 days, excluding any periods that you were in Malta on vacation; due to sickness; or any period preceding the commencement or the termination of the contract.
What are the effects of these changes?
The changes narrowed the applicability of the optional 15% tax rate on income from such employment contracts. Unless the Maltese resident taxpayer also fulfills the new conditions, the optional 15% tax rate may not be applicable.
The opportunity to avail of the 15% tax rate in terms of Article 56 (17) of the Income Tax Act, on employment income which requires one to work mainly outside Malta, was always subject to interpretational risk. Although the restrictions introduced address some of these interpretational risks, there are still certain question marks surrounding the application of this reduced tax rate.
Due attention should be taken to ensure limiting unpleasant circumstances of unexpected tax bills, together with the possibility of under deducting tax through the Final Settlement System.
How can we help?
Get in touch with us should you wish to discuss in more detail the application of the 15% tax rate in connection with employment contracts requiring the employee to work mainly outside Malta and the recent changes. Our employment tax specialists are in a position to assist you.
Our assistance may include:
identifying whether in your circumstances you should be taxed in Malta on such employment income
discussing how the changes within the Act may impact your income tax calculation
identifying if you are entitled to avail of the 15% tax rate on such income
considering whether the 15% tax rate is beneficial for you
assistance in claiming double tax relief for income tax paid outside Malta (if any)
assistance in connection with payroll matters
advice in connection with income tax and social security considerations and payroll obligations that may arise outside Malta via our contacts outside Malta
assistance in obtaining the necessary documentation to continue paying social security in Malta.
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