Social Security contribution payments, VAT and Tax are the three main aspects that anyone who is venturing into self-employment, be it on a part-time or full-time basis should deal with.
Due to the tax benefits that are present in Malta, many are those that decide to start off their start-up business as a self-employed setup.
Why? While a Maltese company is taxed at 35% on its profit, self-employment is taxed at an individual rate that varies from 0% to a maximum of 35%.
Where to start?
The first step in the self-employment setup is to register with Jobsplus. If the applicant self-employed is foreigner, s/he must also apply for a Tax Identification Number (TIN). This will enable the applicant to start receiving the required income tax return form.
If the self-employed individual decides to start recruiting employees, which can still be done even though the heading is of self-employed, one must register for a PE number.
National Insurance number (NI) / Social Security
If the applicant self-employed is foreigner or has never worked in Malta, s/he must apply for a social security number, also known as NI number.
As opposed to an employee, the individual has to handle social security contribution payments on his/her own.
Social security contribution payments should be settled every four months: April, August and December.
A 15% rate is calculated on the yearly income for the previous year. For the first year of operations, the minimum contribution rate as per law will be applied.
Self-employment trading activity has to be registered with the VAT Department. A business can be VAT Exempt (known as Article 11), meaning that no VAT will be added to the selling price. Likewise, no VAT will be claimed back on any incurred expense.
If a business will be registered as Article 10, a 5%, 7% or 18% VAT will need to be added to the selling price.
VAT paid on business-related expenses can be claimed back through the VAT returns.
The net profit of the self-employment business activity will be considered as the taxable income, taxed at the individual tax rates. Through the income tax return form, the declaration of the yearly income and relative tax will need to be reported by end of June of the following year.
After the second full year as self-employed, one will start receiving the PT1 form (Provisional Tax) from the Inland Revenue Department to pay a provisional income tax and social security contributions.
Social Security payments through PT1 form will be definite and final.
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 through the income tax return due by end of June.
This article has been written for information purposes only. If you require assistance in relation to your new self-employment setup, you are required to contact our partner company, Accounting Services Ltd, for professional advice. Visit their website for more information about this and in relation to targeting specific business sectors such as real estate, transport and subcontracting, or get in touch with Mr Conrad Meli, one of the Directors, on firstname.lastname@example.org for a customized quotation based on your needs.