Effective guide on Tax on Pension Income in Malta

Understanding the Tax on Pension Income in Malta

Pension income taxation is a crucial topic for retirees and expatriates who are choosing Malta as their retirement destination. The Maltese tax system balances obligations with benefits, ensuring fairness while providing exemptions and rebates tailored to pensioners.

Types of Pension Income in Malta

Pension income in Malta is classified into two main categories:

1. Contributory Pensions
   These are mandatory schemes linked to employment. Contributions are shared between employers and employees or, in the case of self-employed individuals, made independently. The amount contributed influences the eventual pension received.
2. Voluntary Contributory Pensions
   These are optional, allowing individuals to boost their retirement income through personal contributions. These pensions can be withdrawn as annuities, lump sums, or a combination and are subject to taxation based on the recipient’s status.

Taxation Framework for Pension Income

Malta applies progressive tax rates to pension income, considering the taxpayer’s status (single, married, or parent). However, several measures reduce the tax burden:

1. Tax Rebates
   Pensioners aged 61 and above are eligible for tax rebates under specific rules. These rebates, determined by the pensioner’s tax status, help lower the effective tax rate on their income. For instance, single taxpayers can claim a rebate of 15% on income exceeding €9,100, subject to annual caps.
2. Tax Exemptions
   Since 2022, a phased exemption on pension income is in place:
   • 20% in 2022, capped at €2,864.
   • 40% in 2023, capped at €5,987.
   • 60% in 2024, capped at €9,732. By 2026, all pension income is expected to be fully exempt from tax, subject to capping adjustments in future budgets.

Special Rules for Foreign Pension Income

Malta’s double taxation agreements (DTAs) play a critical role in the treatment of foreign pensions. For example:

• United Kingdom: British pensions are taxable only in Malta.
• Australia: Pensions are generally taxable in Malta, with exemptions for certain categories like war service pensions.
• Germany: Statutory pensions remain taxable in Germany, while other pensions are taxable in Malta.
• Favourable tax status for retirees who meet specific criteria is offered to non-residents who are considering retiring in Malta

Understanding these agreements ensures taxpayers can avoid double taxation while meeting their obligations.

Additional Income and Tax Compliance

Pensioners who continue working after retirement, either full-time or part-time, must declare their earnings alongside their pension income. Part-time employment benefits from a flat 10% tax rate, applicable to income below set thresholds (€10,000 for employment; €12,000 for self-employment).

Filing Obligations

While many pensioners are classified as non-filers, those with additional income or foreign pensions must submit annual tax returns. Compliance with deadlines and accurate declaration of all income sources ensures that pensioners avoid penalties and late fees.

Scenarios and examples

An individual receiving an annual pension income of €13,500 and taxed under the single tax rates

An individual receiving an annual pension income of €20,500 and taxed under the married tax rates

An individual receiving an annual pension income of €15,000 together with an employment income of €13,500 taxed under the single tax rates

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