30.03.2021

Is it time to start off your business in Malta but you are still considering whether you should incorporate a company or start off as self-employed?

From our experience, we suggest that you opt for a self-employed setup mainly due to tax reasons, as whereas self-employed individuals are taxed at individual rates varying from 0% to a maximum of 25%, Maltese companies are taxed at 35%. In addition to this benefit, being self-employed has lower business risks. 

Irrespective of whether one will start up as a self-employed on a part-time or full-time basis, one will have to register as such with Jobsplus and needs to focus on three main aspects: National Insurance number (NI), VAT and tax. These will be discussed briefly below.

National Insurance number

An NI number, also known as a social security number, is required when registering for the first employment in Malta. Linked to this number are social security contribution payments that have to be settled every four months – April, August and December. For the first year of operations as a self-employed, the minimum contribution rate will be applied as per law. From then onwards, the contribution rate will be 15% of the yearly income for the previous year.

VAT

Self-employment trading activity must be registered with the VAT department. A business can be registered as Article 10 or 11. The latter is applied for when a business will be VAT exempt, 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 is registered as Article 10, a 5%, 7% or 18% VAT will need to be added to the selling price. The percentage depends on the type of business and products that the business sells. VAT paid on business-related expenses can be claimed back through the VAT returns.

Tax

As mentioned earlier, self-employment is linked to an individual tax rate varying from 0% to a maximum of 35%. The net profit of the self-employment business activity will be considered as the taxable income.

Through the income tax return form, the declaration of the yearly income and relative tax must be reported by end of June of the following year.

After the second full year as a self-employed individual, you 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.

Are you a foreigner?

What has been discussed above is applicable to Maltese individuals. EU/EEA citizens can also register easily for self-employment in Malta, while non-EU/EEA citizens will have to go through a more complicated process. In this case, such individuals, apart from the above-mentioned processes, they will also have to apply for work permits to be eligible to work in Malta. Foreigners are also required to apply for a Tax Identification Number (TIN). Once this processed is complete, individuals will start receiving the required income tax return form.

In any of the above cases, our team with years of experience in this field, can assist clients to work as self-employed in Malta providing that the client provides all necessary documentation.

More information about self-employment in Malta can be found here. For further guidance and infOrmation about other services such as business planning, accounting and administration, you can also get in touch directly with one of our Directors, Mr Conrad Meli, FCCA, MIA, CPA on cmeli@fairwindsmanagement.net