Setting up as a freelancer

As a self-employed individual, you are your own boss. This independence allows you to make decisions without seeking approval from higher-ups and can be empowering for many people and can lead to increased job satisfaction and a sense of fulfillment. You can pursue work that aligns more closely with your passions and interests and have the potential to grow your business and increase your income over time. This is because you are not limited by a fixed salary and can directly benefit from the success and expansion of your ventures. If you work hard and smart, you can directly see the impact on your income.

Of course, all this comes with its own risks and sometimes a sense of insecurity mostly due to economic uncertainties. Self-employment brings challenges, such as irregular income, the responsibility of managing your own taxes, and the need for discipline and self-motivation. In fact, before choosing self-employment, it’s advisable to carefully assess your skills, financial situation, and the market for your services or products.

If you have decided to pursue the world of self-employment in Malta, you have several obligations that you must fulfil:

Social Security Contributions

A National Insurance 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 must be settled every four months – April, August and December.

VAT (Value Added Tax)

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

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. 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.

Consulting with an accountant to ensure you have the correct setup is very important to avoid any mistakes in your financials. More information about self-employment in Malta can be found here: https://fairwindsmanagement.net/services/accountancy-services/self-employment/ or you may reach out directly with one of our Directors, Mr Conrad Meli, FCCA, MIA, CPA on cmeli@accountingservices.com.mt.

Fairwinds Management Limited is a MFSA licensed firm offering Business Solutions in Malta. As part of our services, we offer Accounting, Administration, Corporate and Legal solutions.  Fairwinds Management also manages the brand Accounting Services. More information about us and our key services please visit our website. You may reach Fairwinds Management on +356 2704 0903 or info@fairwindsmanagement.net.

Article written by Ms Charlene Sciberras, B.A. (Hons), guest writer, a marketing and business administration specialist with a special focus on corporate, accounting, and legal matters.