Malta operates a progressive tax system for individuals, including employees, with income tax and social security contributions being the primary components of employment-related taxation. Employers play a crucial role in this system by withholding income tax and social security contributions directly from employee salaries and remitting these amounts to the tax authorities. Understanding these obligations is essential for compliant operation within Malta.
The tax year in Malta aligns with the calendar year, running from January 1st to December 31st. Both employers and employees have specific responsibilities regarding the calculation, payment, and reporting of taxes and contributions to the Inland Revenue Department and the Social Security Department.
Employer Social Security and Payroll Tax Obligations
Employers in Malta are required to pay Social Security Contributions (SSC) for their employees. These contributions are mandatory and are calculated based on the employee's basic weekly wage. The most common class for employed persons is Class 1.
For 2025, the standard Class 1 SSC rates are expected to be:
- Employer Contribution: 10% of the basic weekly wage.
- Employee Contribution: 10% of the basic weekly wage (withheld by the employer).
There are minimum and maximum thresholds for the weekly basic wage used for SSC calculation. For 2025, these thresholds are anticipated to be:
- Minimum Weekly Wage: €220.38 (based on the national minimum wage)
- Maximum Weekly Wage: €506.70
This means the maximum weekly SSC contribution for both the employer and the employee is 10% of €506.70, which is €50.67 each. Contributions are capped at this maximum, regardless of higher earnings.
Employers must calculate both their contribution and the employee's contribution, deduct the employee's portion from their salary, and pay the total amount (employer + employee contributions) to the Social Security Department monthly.
Apart from SSC, there are generally no separate "payroll taxes" in Malta; the main employer obligations relate to SSC and the withholding of income tax under the PAYE system.
Income Tax Withholding Requirements
Employers are responsible for withholding income tax from their employees' salaries under the Pay As You Earn (PAYE) system. The amount of tax to be withheld depends on the employee's taxable income and their tax status (single, married, or parent). Employees provide their tax status to the employer, usually via a declaration form.
Malta's income tax system is progressive, meaning higher income is taxed at higher rates. The tax rates and income brackets for 2025, based on the different tax statuses, are expected to be as follows:
Single Rates (Applicable to single, separated, or divorced individuals)
| Chargeable Income (€) | Tax Rate (%) | Deductible Amount (€) |
|---|---|---|
| 0 - 9,100 | 0 | 0 |
| 9,101 - 14,500 | 15 | 1,365 |
| 14,501 - 19,500 | 25 | 2,815 |
| 19,501 - 60,000 | 25 | 2,715 |
| Over 60,000 | 35 | 8,715 |
Married Rates (Applicable to married individuals)
| Chargeable Income (€) | Tax Rate (%) | Deductible Amount (€) |
|---|---|---|
| 0 - 12,700 | 0 | 0 |
| 12,701 - 21,200 | 15 | 1,905 |
| 21,201 - 28,700 | 25 | 4,025 |
| 28,701 - 60,000 | 25 | 3,925 |
| Over 60,000 | 35 | 9,925 |
Parent Rates (Applicable to individuals with dependent children)
| Chargeable Income (€) | Tax Rate (%) | Deductible Amount (€) |
|---|---|---|
| 0 - 10,500 | 0 | 0 |
| 10,501 - 19,500 | 15 | 1,575 |
| 19,501 - 21,200 | 25 | 3,525 |
| 21,201 - 60,000 | 25 | 3,325 |
| Over 60,000 | 35 | 9,325 |
Employers use these tables to calculate the monthly tax deduction based on the employee's monthly salary and chosen tax status. The calculation involves annualizing the monthly salary, applying the relevant tax bracket and deductible amount, and then dividing the resulting annual tax by 12 to get the monthly PAYE amount.
Employee Tax Deductions and Allowances
Employees in Malta may be eligible for various tax deductions and allowances that can reduce their taxable income, thereby lowering their income tax liability. While the PAYE system handles standard personal allowances implicitly through the tax brackets (as shown by the deductible amounts), employees may claim further deductions when filing their annual tax return.
Common deductions and allowances include:
- Personal Allowances: These are factored into the tax rates and brackets based on the employee's tax status (single, married, parent).
- Parent Allowance: The parent rates offer a more favorable tax calculation for individuals with dependent children.
- Deductions for Specific Expenses: Employees may be able to claim deductions for certain expenses, such as:
- School fees for dependent children.
- Childcare expenses.
- Health insurance premiums (under certain conditions).
- Certain pension contributions.
- Donations to approved charities.
Employees typically claim these additional deductions when they file their personal income tax return after the end of the tax year. The employer's role is primarily to apply the correct tax status and withhold tax based on the gross salary, without factoring in these specific deductions unless instructed otherwise by the tax authorities or the employee provides specific documentation that allows for adjustment via PAYE.
Tax Compliance and Reporting Deadlines
Employers have strict compliance and reporting obligations in Malta. Adherence to deadlines is crucial to avoid penalties.
- Monthly Reporting (FS5): Employers must submit an FS5 form monthly, detailing the total gross wages paid, SSC contributions (employer and employee), and PAYE tax withheld for all employees during the preceding month. The payment of the total SSC and PAYE amounts is due by the last day of the month following the payroll month. For example, for January payroll, the FS5 and payment are due by the end of February.
- Annual Reporting (FS7 and FS3):
- By February 15th following the end of the tax year (e.g., February 15th, 2026, for the 2025 tax year), employers must submit the FS7 form. The FS7 is an annual reconciliation statement summarizing the total wages paid, SSC, and PAYE for all employees throughout the year.
- Simultaneously, by February 15th, employers must provide each employee with an FS3 form. The FS3 is a certificate detailing the employee's total gross income, SSC contributions, and PAYE tax withheld for the year. Employees use this form to file their personal income tax return.
All submissions and payments are typically made electronically through the online portals provided by the Maltese tax authorities.
Special Tax Considerations for Foreign Workers and Companies
Employing foreign workers or operating as a foreign company in Malta introduces additional tax considerations.
- Residency: An individual's tax obligations in Malta depend on their tax residency status. Residents are generally taxed on their worldwide income, while non-residents are taxed only on income sourced in Malta. Employers must determine the correct tax treatment for foreign employees based on their residency status, which can be complex and depends on factors like physical presence and intention.
- Double Taxation Agreements (DTAs): Malta has an extensive network of DTAs with numerous countries. These agreements prevent individuals from being taxed twice on the same income in both Malta and their home country. DTAs can affect where employment income is taxed and may require specific procedures for employers withholding tax.
- Special Tax Schemes: Malta offers several special tax schemes designed to attract foreign talent and investment. These include:
- Highly Qualified Persons Rules: Offers a reduced flat tax rate of 15% on employment income for individuals working in specific eligible sectors (e.g., financial services, gaming, aviation) under certain conditions and earning above a high minimum threshold.
- Malta Retirement Programme: Provides a special tax status for retirees, but is less relevant for active employment income.
- Global Residence Programme: Offers a special tax status for individuals who are not gainfully occupied in Malta, also less relevant for employment income.
Employers hiring individuals under these schemes must ensure correct application of the specific tax rules and withholding rates.
- Foreign Companies: A foreign company employing individuals in Malta may trigger the creation of a permanent establishment (PE) in Malta, which could subject the company to corporate tax obligations in Malta. Utilizing an Employer of Record (EOR) service can help foreign companies employ legally in Malta without necessarily establishing a local entity or creating a PE, as the EOR acts as the legal employer, handling all local payroll, tax, and compliance matters.
