Income Tax, National Insurance contributions in Malta

If you start as a sole proprietor you will be reporting your business activity on a form that is attached to your personal annual tax return form, called TIFD Ex.01. Not only will the sole proprietor pay income tax on business income, but the sole proprietor will also pay social security contributions on this income. The social security tax can be quite a surprise for the new small business person who does not expect to pay roughly 10%-15% of net income for social security contributions on top of the income tax. Operating as partnership or Limited Liability does not relieve a partner of the obligation of paying tax and National Insurance contributions.

If you have employees, your accountant can help you apply for necessary documentation.

• Register as an employer with the Department;
• Submit the FS4 forms for each employee on commencement of their employment;
• Deduct from your employee's emoluments any tax and Social Security Contributions (SSC) due;
• Remit these deductions to the Commissioner by the end of the month following that on which payment of emoluments was made.
The payment is to be made by means of the FS5 form;
• Submit an annual Statement of Earnings (FS3) of all your employees together with the Annual Reconciliation Statement (FS7) by the 15th February of the following year;

If a person ceases to be an employer he is required to de-register the PE Number by:
• Inform the Department upon ceasing to be an employer (De-registration Form)
• Presenting FS3 and FS7 forms for the current year up to the date of cessation of being an employer;
• Submit any outstanding FS3 and FS7 documents for previous years;
• A nil FS7 has to be sent where no data is to be reported for any specific year
• Pay any outstanding balances with regards to tax and social security contributions, both employer and employee/s;
• Fill the de-registration form

Further Information
1. When FS4 is not filled the employer is bound by FSS Rules to deduct tax at the rate of 35% from the employee's wage and remit the amount to the department.

2. A couple who gets married should decide upon who is going to be considered as the responsible spouse. The responsible spouse should have all the emoluments earned during the year of marriage in one single FS3 while the other spouse should inform his/her employer to issue two FS3 forms covering the pre- and post-marriage periods respectively.

3. Director's emoluments should always be reported under the FSS in respective of the fact that his social security is paid on a self employed basis.

4. If a company doesn't pay wages or salaries to directors and only receive Fringe Benefits it is required just the same to register as an employer and to send the necessary FSS forms to the department. The fringe benefit is considered as part of the emoluments that a director or an employee receives from the company.

5. As from basis year 2009, in the case where a couple has separated, both spouses are required to register separately as a taxpayer with the Inland Revenue Department. This may be affected by submitting the separation deed.

6. Each spouse will be responsible for filing his/her own Tax Return covering income earned from 1st January to 31st December. Each individual will be taxed as a single person and will be responsible to pay the relative tax on the income earned. Married rates will apply if the individual qualifies as a Single Parent.

7. Income derived from part-time employment, may qualify for the deduction of 15% withholding tax provided it satisfies the following conditions:
a) Employment is registered with ETC;
b) Work performed is less than 30 hours per week;
c) Employee is not a Director
d) Employee does not hold an office in a board appointed by the Government;
e) If the employee is employed full time and also performs part-time employment, the respective employers must not form part of the same organization or group of companies or;
f) The individual performing the part-time employment is married and the spouse is a full-time employee.
In order to qualify, an individual must adhere to all conditions a, b, c, d and e or f. If not the case, emoluments earned from part time employment will be added or considered as the Main Income and taxed accordingly. Whenever the part time provisions apply, the maximum amount of income brought to charge should not exceed €7000. The part-time employment income over and above will be brought to charge as Main Income and must be declared in the tax return. This means that a maximum tax of €1050 is incurred on the part time employment.

It is the employee's responsibility to decide as to whether the 15% part time withholding tax is deducted or not.