When you retire, your pension income becomes your main source of profit, and in Malta, pensions are taxed under two categories, which we’re going to explore in this article. Whether your pension comes from Malta or another country, understanding the tax rules can help you manage your finances better and avoid any surprises.
Here’s what you need to know.
Pension Income in Malta: What You Need to Know
Pensions provide income after retirement based on past contributions. In Malta, pensions fall into two main categories:
1. Contributory Pensions (Mandatory)
These are tied to employment income and require contributions from both employers and employees. The amount depends on earnings, with higher incomes leading to higher contributions. Self-employed individuals must also contribute, with payments due in April, August, and December each year. Full details on rates and categories can be found [here].
2. Voluntary Pensions (Optional)
These are additional, non-mandatory contributions made by individuals, regardless of employment status. Payments can be made monthly or annually, with amounts decided by the taxpayer. Upon retirement, voluntary pensions provide income, which may be taxed depending on the recipient’s status and whether received as a lump sum, annuity, or both.
Taxpayers can receive pension income from both contributory and voluntary schemes, sourced locally or abroad. Understanding taxation rules ensures better financial planning for retirement.
Types of Pensions in Malta
1. Retirement Pensions
These are received upon reaching the mandatory retirement age, which varies based on the year of birth. To check eligibility and contribution history, individuals can contact the Department of Social sikring.
2. Overseas Pensions
Pensions received from past employment or residence abroad are considered taxable in Malta. Double taxation agreements may apply, affecting how these pensions are taxed.
Declaring Pension Income for Tax Purposes
Pensioners must declare their local pension income, along with any other income, when filing a tax return. For queries on benefits and allowances, they should refer to the Department of Social sikring, as outlined in the Lov om social sikring.
If a pensioner continues working full-time after retirement, both employment earnings and pension income must be declared, with total income taxed at the applicable personal rates (single, married, or parent).
For part-time work after retirement:
- Income up to €10,000 (employed) or €12,000 (self-employed) is taxed at a reduced 10% rate under the Part-Time Rules (effective 1st January 2022).
- Online tax return submissions for part-time income can be made [here].
Married pensioners with separate employment histories can opt to be taxed individually at single rates. However, this applies only to pensions earned from past employment.
Tax Rebate on Pension Income After Age 61
Since 2017, pensioners in Malta aged 61 and over benefit from a tax rebate on their pension income, as outlined in the Tax Rebate (Pensioners) Rules. This rebate results in a reduced tax rate, with the exact benefit depending on the individual’s tax status—single, married, or parent rates.
How the Tax Rebate Works
- Pension income is first taxed at the standard rates based on the taxpayer’s status.
- A rebate is then applied, reducing the final tax due.
- Married pensioners may receive an additional rebate, covering both pension and other income earned within the same tax year.
The rebate is subject to an annual cap, which has gradually increased over the years. While no refunds or carry-forwards are allowed, both employed and self-employed pensioners can benefit.
Additionally, EU and other foreign pensioners residing in Malta may also qualify, provided they are taxed under Malta’s standard tax rates.
Understanding these tax benefits can help pensioners maximise their income and reduce their tax burden.
Overseas Pensions & Double Taxation Agreements
Malta residents who have lived or worked abroad may be eligible to receive a foreign pension. If so, it’s crucial to comply with tax obligations in both Malta and the country of origin, while ensuring all relevant documentation is kept up to date.
In Malta, all pension recipients must review any applicable double taxation agreement (DTA) to avoid being taxed twice on their pension income. Those receiving foreign pensions are required to submit a tax return, along with a statement for each separate foreign pension, unless the pension is exempt from tax in Malta.
Malta has over 90 DTAs with countries such as the United States, Australia, and the United Kingdom. These agreements address the taxation of pension income, providing clarity and certainty for those already residing in Malta and for future retirees considering Malta as their destination. While the tax treatment of pension income varies by country, several common treaties frequently raise questions regarding pension taxability, as highlighted by the MTCA.
Australia-Malta Double Taxation Treaty
Under Australia-Malta Double Taxation Treaty (L.N. 41 of 1985), pensions, including government pensions from Australia, are taxable only in Malta for residents. This means Malta, as the individual’s country of residence, determines the taxability of the pension.
Typically, Australian pensions are granted due to past residence rather than employment. Therefore, these pensions cannot be taxed separately using the single rates for married pensioners. To qualify for separate single rates, the pension must stem from past employment in Australia.
A Malta resident receiving an Australian pension will be taxed in Malta according to the progressive tax rates. The Treaty also provides exemptions for pensions related to war service, disabilities, or death, which are not taxed.
Australian pensioners do not usually receive monthly or yearly statements, so it is essential for them to keep records using bank deposit statements. These pensions must be declared on the Malta tax return, with bank statements attached to show the total yearly amount. As tax is not withheld at source in Australia, there is no need for double taxation relief.
Canada-Malta Double Taxation Treaty
Under Canada-Malta Double Taxation Treaty (L.N. 12 of 1998), pensions and annuities from Canada received by a Malta resident may be taxed both in Canada and Malta.
While the pension is generally taxable in Malta, it may also be subject to withholding tax in Canada. The tax withheld in Canada is capped at the lesser of:
- 15% of the gross amount of the pension, or
- The amount of tax the recipient would pay if they were a resident of Canada and the pension was their only income.
This cap applies to periodic pension payments. If the pension is not periodic, no restriction on taxing rights applies.
Annuities received by Malta residents are also taxable in Canada, but the withholding tax is similarly limited to 15%. No restrictions apply to lump-sum payments arising from the surrender, sale, or cancellation of an annuity.
Special provisions exist for war veterans’ pensions eller war disability benefits. These are exempt from taxation in Malta, provided no tax was charged on them in Canada.
Malta residents receiving Canadian pensions must declare them in their Malta tax return. To claim double taxation relief, taxpayers should include a copy of the pension slip, which shows the pension amount and the tax deducted in Canada.
British Pensions – United Kingdom-Malta Double Taxation Treaty
Den United Kingdom-Malta Double Taxation Treaty (L.N. 105 of 1999) outlines the tax treatment of pensions and similar payments arising from the UK for individuals residing in Malta.
Article 18 of the treaty specifies that pensions and other similar remuneration related to past employment, as well as any annuity paid, to a resident of Malta are taxable only in Malta. Therefore, individuals residing in Malta who receive pensions or annuities from the United Kingdom are subject to taxation solely in Malta.
Special provisions exist for pensions arising from past government services rendered in the UK. Such pensions are typically taxable only in the UK. However, an important exception is made: if the individual is a resident and national of Malta and did not become a resident of Malta solely to render the service, the pension will be taxable only in Malta.
For all other UK pensions received by a resident of Malta, the income is taxable solely in Malta, and the UK Tax Authorities are not required to withhold any tax on these pension payments. As a result, UK pensions are exempt from tax in the UK.
Therefore, a British pension received by a resident of Malta must be declared in Malta for tax purposes. If, however, tax is withheld in the UK, the individual cannot claim Double Taxation Relief (DTR) in Malta as the pension should be exempt from UK taxation. In such cases, the individual is encouraged to contact UK tax authorities and request that the pension payments be exempted from any UK withholding tax. This can be done by completing an exemption form and submitting it to the relevant UK authorities. A refund claim can also be made if taxes have been incorrectly withheld in the UK.
As of year of assessment 2012, data on British pensions for Malta residents is no longer available through the FSS system. Previously, pensioners were able to submit non-filer statements. Now, if a pensioner receives a mismatch notification, they can submit a British pension FS3 with an adjustment form (AF) to report their pension without filing a tax return. If the FS3 form isn’t available, a self-assessment return with supporting documents (e.g., bank statements) must be filed. Pensioners should await their tax statements and need not send their British pension statements to the tax office beforehand.
United States of America-Malta Double Taxation Convention
L.N. 560 of 2010 outlines the tax treatment of pensions from the USA in Articles 17, 18, and 19 of the Treaty. Maltese residents receiving USA-based pensions, social security, or annuities are taxable only in Malta. Any exemptions that apply in the USA to the beneficial owner resident in Malta will also apply in Malta.
Pensions paid by a fund created by the USA government or its political subdivisions are taxable only in the USA, except when the individual is a resident and national of the other state. Social security payments remain taxable only in the USA, while annuities are taxable only in Malta.
All other pensions received by a resident of Malta are taxable solely in Malta.
Regarding U.S. citizens and residents establishing personal retirement schemes in Malta under the Retirement Pensions Act of 2011, these funds do not qualify for pension benefits under the Treaty. Therefore, U.S. citizens or residents cannot claim treaty benefits for these retirement schemes and must adhere to the tax rules for personal retirement arrangements established in Malta.
Pensions from the United Nations
The United Nations Pensions Programme Rules, 2015 (UNPP) provide “special tax status” to individuals receiving pensions from the United Nations, subject to meeting specific conditions.
Pensions from Other Countries
While tax treatment of foreign pensions is generally similar across treaties, specific provisions may vary. Pensions from some EU countries, for example, are taxable only in the country of origin and not in Malta, even if the recipient is a resident of Malta. Generally, pensions from another country or its subdivisions are taxed in that country unless the recipient is a Maltese national and resident, in which case it is taxable only in Malta. For countries without a Double Taxation Relief (DTR) Treaty with Malta, pensions are taxable in Malta. Additionally, EU and other pensioners residing in Malta may qualify for special tax rebates under specific conditions. Always refer to the relevant treaty for detailed tax compliance.
Submitting Your Tax Return
Non-Filers: Pensioners receiving only Malta State pension may not need to submit a return, as the tax authorities have this information. Those with other income must file a return. Foreign pension recipients must always file a return.
Exempt Pensions: War pensions and some Social Security benefits are exempt from tax and do not need to be declared.
Submission of Returns: Pensioners must declare all income, including pensions and social security benefits, in their tax return. Married couples can choose joint or separate computations.
Tax Compliance: Pensioners must submit tax returns by the deadline and review their tax status annually. Failure to file may result in fines.
Payments: Taxes can be paid online or at Malta Post branches. Late payments will not be accepted.
Bank Details and Refunds: Ensure correct bank details are provided for tax refunds. Details can be updated online or at servizz.gov offices.
Checking Tax Balance: Confirm no pending tax balances via My Account before submitting returns.
Late Payment and Penalties: Late submissions or payments incur penalties. Ensure correct bank details to avoid delays in refunds.
Afsluttende tanker
Pensions provide financial security in retirement, but taxes can add another layer of complexity. Stay informed, check if you qualify for any tax rebates, and don’t hesitate to reach out to the tax authorities if you have questions. A little preparation now can make a big difference in the future.
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