Small start-up business activities in Malta tend to opt for a self-employed setup, mainly for tax benefits and low-risk business. Today we will be giving you here an overview of the setup and obligations for a self-employed business activity.
A Maltese company is taxed at a rate 35% on its operating profit, whereas a self-employed is taxed at individual rates, which vary from 0% to a maximum of 25%. When conducting a business as a self-employed there is no limited liability which can be offered through a Maltese company. Usually, the individual opts to keep working as a self-employed when the risk involved, when it comes to liability, is nil or very low. Once the business activity grows to a certain level, as a services provider we always suggest to setup a Maltese company. Self-employment business can be on both full-time and part-time basis.
Any type of self-employment setup will need to be registered with Jobplus. This way the individual will start receiving the appropriate income tax return form.
Although sometimes the title of self-employed can mislead, this type of business setup can still employ under its name. This has to be done under the employer’s PE number, which has to be applied for once the company will decide to start recruiting employees.
If the applicant self-employed is foreign, or has never worked in Malta, the individual will need to apply for a social security number, also known as national insurance number (NI) and/or a tax number, depending on the specific case.
As a self-employed, the individual will need to handle the social security contribution payments on his own, as opposed to an employee, whose income tax and social security contributions are normally deducted from his salary by the employer. Ideally social security contributions are settled every four months, in April, August and December, similarly to the PT1 deadlines which will be explained further on.
The social security contributions rate for a self-employed is 15% of the yearly income for the previous year. If this is the first year of operations, the minimum contribution rate as per current law would need to be applied. Similarly, there is a maximum to the 15% contributions.
The net profit of the self-employment business activity will be considered as the taxable income. Such net income would need to be taxed at the individual tax rates. The declaration of the yearly income and the relative tax will need to be reported and paid by the end of June of the following year through the income tax return form.
After the second full year of operations as a self-employed, the individual will start receiving a Provisional Tax form from the Inland Revenue Department known as PT1. Through this form, the self-employed will start paying a provisional income tax and social security contributions. This provisional tax is based on the income declared and tax rates in force two years prior the current year. Social security payments through the PT1 form will be definite and final, whereas any income tax paid more or less than the actual income tax due on the net profit of that year will need to be reimbursed or settled, respectively, through the income tax return due by the end of June, as mentioned earlier.
Self-employment trading activity has to be registered with the VAT Department as well. At application stage, depending on the estimated sales such business will make, a specific VAT registration type will be applied. If the activity will be registered as VAT Exempt, no VAT has to be added to the selling price and no VAT can be claimed back on any expense incurred relative to the business activity. Such VAT article registration is known as Article 11, and it’s to be reported to the VAT Department on a yearly basis.
If the business will be registered as Article 10 for VAT purposes, depending on the business activity, 18%, 7% or 5% VAT will need to be added to the sales price. VAT paid on business-related expenses can be claimed back through the VAT returns which are reported, in most cases, quarterly. The balance between the sales VAT and expenses VAT would need to be paid to the VAT Department together with the VAT return submission. Should there be a credit in VAT (more VAT on expenses than VAT on sales) this can be claimed back from the VAT Department in the same manner. There are specific cases where although there will be no VAT added to the sales price, this business activity will be registered under Article 10 and VAT can be claimed on the business’s expenses anyway.
The above has been compiled for information purposes. For further details and a consultation with a customised quotation for your new setup, please contact us on firstname.lastname@example.org or give us a call on +356 2704 0903.