VAT on Rental Property in Malta – Rules, Rates & Licensing
“Tourist”
The Malta Travel and Tourism Services (MTTS) Act defines a “tourist” as a person staying outside their usual environment for up to one year. This includes travel for leisure, business, or personal purposes, excluding employment or business establishment. If a tenant falls under the “tourist” definition, the property must be licensed by the Malta Tourism Authority (MTA).
Types of licences
The MTA issues two types of licences for residential units, namely the “House on Long Lease Licence” and the “Holiday Furnished Premises Licence”. The latter licence is mainly targeted at short-lets. The property owner who opts for the “Holiday Furnished Premises Licence” may seek to upgrade the property to the “Comfort” category by satisfying a number of requirements (which generally entails an investment of between €300 to €2,000) and meeting certain health and safety prerequisites such as an onsite fire extinguisher, fire blanket, smoke detector, and emergency lights.
Upon the property being licensed, VAT is to be charged at the rate of 7% on said “tourist” accommodation.
“Tourist” versus EU resident
A strict interpretation of the current regulations indicates that persons who have resided in Malta for over a year are no longer defined as a “tourist”. The property owner would then have no further cause to impose the 7% VAT subsequent to the first year. Dr Simon Busuttil, then an MEP, raised concerns about VAT on rental income from EU nationals residing in Malta for under one year. In an article published in the Times of Malta on 17 August 2011, he discussed the link between VAT imposition and MTTS licensing requirements. He noted that applying different VAT rules to Maltese and EU citizens could create legal and fairness issues. EU citizens living in Malta as their primary residence must pay VAT during their first year. This requirement does not apply to Maltese nationals in the same situation.
Dr Busuttil concluded that EU citizens should receive the same treatment as Maltese nationals for VAT purposes. He argued that EU citizens residing in Malta should not be treated as tourists during their first year. Accordingly, they should not be required to stay in licensed accommodation or pay VAT.
Tenant undertaking economic activity
Where the lessor is a limited liability company renting to an Article 10 registered person, VAT is charged at 18%. If the tenant carries out an economic activity, the VAT paid on rentals may be recoverable.
Lessor is an individual
If a property owner’s rental income is less than €14,000 per annum, then that property owner may register to be VAT exempt (under Article 11 of the VAT Act). However, if the rental income exceeds €14,000 per annum, then the property owner will need to register under Article 10 of the VAT Act.
If the individual is liable to charge VAT, the respective VAT rates are:
- Malta resident tenants 0%;
- Tenants deemed “tourists” 7%; or
- Article 10 registered persons undertaking an economic activity 18%
Lessor is a company
If the Lessor is a limited liability company, the respective VAT rates are:
- Malta resident tenants 0%;
- Tenants deemed “tourists” 7%; or
- Article 10 registered persons undertaking an economic activity 18%.
Disclaimer: The above is presented solely for information purposes, and is not deemed as tax advice. Casa Rooms is not to be held responsible for the information presented above. It is recommended that you consult your advisor to assess which is the appropriate tax structure.
