Malta’s Revenue outlines key 2025 income tax act amendments, covering deductions, tax bands and reliefs.
Malta’s Commissioner for Revenue published a memo on 13 June 2025 outlining amendments to the Income Tax Act (ITA) introduced by the Budget Measures Implementation Act, 2025, which was enacted on 17 April 2025.
BUDGET MEASURES IMPLEMENTATION ACT 2025
The purpose of this memo is to give an overview of recent amendments to the Income Tax Act (ITA), implemented through the Budget Measures Implementation Act, 2025
Exemption granted under article 5A(4)(c) of the ITA
Further to the guideline issued in May 2024 on the MTCA website, it was clarified that when a dwelling house is jointly owned by a couple who have occupied it for at least three years, and a personal separation (whether legal or de facto) occurs, resulting in one spouse moving out while the other continues to occupy the premises, the property will not be considered to have been vacated for the purposes of Article 5A(4)(c). The premises will only be considered vacated when the other spouse also ceases to reside there. This clarification has now been incorporated into the law.
Business Permit Deduction – Article 14(1)(ma) of the ITA
The measure provides for a deduction in respect of capital expenditure incurred on or after 1 January 2025 on the acquisition of:
- a business permit;
- a concession; and
- a commercial lease, including the lease of a business concern.
The deduction shall be allowed only if the person has incurred such an expense in the course of a trade or business.
A deduction for a business permit can only be claimed by a person if it is issued by a public authority that registers such person as the holder of the permit. Similarly, a deduction for a concession can only be claimed if the privilege to carry out the business activity is granted by a public authority with exclusive rights over that activity.
A deduction for a commercial lease can only be claimed by a person who leases a business concern or an immovable property for the purpose of running a business, trade, profession, or vocation. This includes both the original lease, and any subleases made by the tenant.
No deduction is allowed for the acquisition of a permit, concession, or commercial lease if it has been acquired for an indefinite duration or for a duration exceeding fifteen (15) years. If the business permit, concession, or commercial lease can be extended or renewed, the period or periods for which they may be so extended or renewed shall be deemed to be part of the duration.
In addition, no deduction can be claimed for amounts paid toward the outright acquisition of a business, business goodwill, or rights under an emphyteutical concession.
A deduction can only be claimed if the acquisition, including the payment, is supported by a written document that outlines the terms and conditions of the acquisition.
Since the expenditure is of a capital nature, it cannot be deducted in its entirety in one year. The deduction is to be spread equally over the lesser of:
- 15 years; and
- the number of years for which the permit or lease has been acquired (this period should include the number of years for which the permit or lease can be extended).
If the person who has claimed any deductions available in terms of this measure, subsequently transfers the permit, concession or commercial lease under any title, the cost of acquisition in computing any taxable gain on such transfer must be reduced by the amount of deductions claimed:
Example:
Cost of acquisition: EUR10,000
Deductions Claimed: EUR 3,000
Selling Price: EUR 12,000
The cost of acquisition in computing the gain (EUR 10,000) must be reduced by the deductions already claimed (EUR 3,000). Therefore, the cost of acquisition is EUR 7,000.
The gain on the transfer of the asset is EUR 12,000 – EUR 7,000 = EUR 5,000
No deduction can be claimed in respect of the acquisition of a business permit, concession or commercial lease from related persons.
For this purpose, the following shall be considered to be related persons:
- spouses, descendants or ascendants in the direct line, the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, brothers or sisters or the descendants of brothers or sisters
- an individual and a legal person (e.g. a company) are considered to be related if that individual (alone or together with any other related party) holds directly or indirectly more than twenty-five percent (25%) of the shares or voting rights or interest in that legal person
- two legal persons are considered to be related if more than twenty-five percent (25%) of the shares or voting rights or interest in each of those legal persons are held directly or indirectly by the same persons.
Capital expenditure incurred for extending, renewing, or modifying the terms of a business permit, concession, or commercial lease is deductible in the same way as if it were a new acquisition, subject to the provisions of the relevant rules.
School Fees Deduction – Article 14B of the ITA
Starting from 1st January 2025, the maximum deduction allowed to parents for school fees paid for their children attending private schools will increase as follows:
EUR 3,500 for each child attending kindergarten (up from EUR 1,600)
EUR 4,600 for each child attending primary schools (up from EUR 1,900)
EUR 6,500 for each child attending secondary schools (up from EUR 2,600)
Elective Tax – Article 22B of the ITA
This provision enables the issuance of rules introducing, on an elective basis, a tax on the profits of Malta entities, as defined in the relevant regulations. It grants the Minister the authority to determine the scope, applicability, and amount of the tax, as well as the method of its calculation, payment, and collection, along with any related compliance obligations. The provision also allows for the establishment of any additional conditions or legal consequences resulting from the election to be subject to this tax.
Tax Rates Adjustment – Article 56(1) of the ITA
The widening of all personal tax bands will take effect from 1st January 2025. For more details, you can refer to https://cfr.gov.mt/en/rates/Pages/TaxRates/Tax-Rates-2025.aspx.
Moreover, parents who have custody of or pay maintenance in respect of a child who is not over 18 years of age (or not over 23 years of age if receiving full-time education), can benefit from the parent rates regardless of whether the child is gainfully employed or not and irrespective of any amount earned, as the EUR 3,400 income threshold is being removed.
Artists – Article 56(26A) of the ITA
As from year of assessment 2026, the reduced rate of 7.5% on income from artistic activities, as approved by Arts Council Malta, will become applicable to net income and not to gross income.
