We’ve partnered up with NM Group to tackle the elephant in the room when it comes to Equity Investing:
‘ How do I Tax My Stock Investments in Malta?’.
To tackle this, we let NM Group take you through the process whilst answering questions in their entirety.
Besides the podcast, we thought it would be a good idea to break it down, making it easier for you to digest (check the TL;DR section).
Q1. I am a Maltese national, living and working in Malta. I receive a monthly salary from my local employer. How and where am I taxed on my employment income?
When determining the tax implications on one’s income, first we have to determine the country in which that person is deemed to be resident for tax purposes.
On the understanding that you are a Maltese national and you habitually reside and physically work in Malta, it is safe to conclude that you are deemed to be a person resident and domiciled in Malta, therefore you are taxed in Malta on a worldwide basis.
This means that in principle, all your income, whether of a trade or of a capital nature, whether earned in Malta or abroad, and whether remitted to Malta or otherwise, would be taxed in Malta. When it comes to your full-time employment you would be taxed in Malta at the applicable progressive tax rates.
As a means of facilitating tax compliance, employment income is taxed through the Final Settlement System (FSS), where tax is deducted and remitted to the tax authorities directly by the employer on behalf of his employees. Therefore, the salary received in your bank account at the end of the month is net of (after) tax, and net of any social security contributions, where applicable.
If you only earn income through your employment, you’d generally be considered as a non-filer, and therefore you would not be required to fill in and submit a tax return on a yearly basis. Instead, at the end of the year, you would receive a statement from the Inland Revenue Department showing how much tax you paid through your employment. If you ‘under’ or ‘over’ paid tax, you would need to pay the difference or receive a refund accordingly.
If you live and work in Malta, then all the income you generate, be it through your occupation or your investments, shall be taxable in Malta, regardless if the income was earned in Malta or Abroad.
– Employment income is taxed on progressive rates, found over here.
Q2. Let’s assume that besides my employment income, sometimes I buy shares using a local trading platform to hold them as a long-term investment. I hold them for a number of years before selling them. Is that taxable?
When it comes to the sale of shares using a local trading platform, of a listed Company on a local or foreign stock exchange, we have to first determine whether the activity and transactions carried out are deemed to be of a trading or capital nature. As this would attract different tax implications.
In this case, since the shares are acquired with the intention to be held as a long-term investment and for a number of years, it is very likely that a subsequent sale would be considered to be capital in nature.
In other instances, it may not be very clear whether an activity is of a trading or of a capital nature, and therefore we would need to conduct a detailed analysis to come to a conclusion.
The capital gains made on a sale of shares listed on a stock exchange are in principle taxable. Having said this, the local Income Tax Act exempts the transfer of shares listed on the Malta Stock Exchange (MSE) — therefore there is a blank tax exemption there.
Q2 — Investment Hub Comments
Upon sale of shares, one would need to determine whether or not the sale was of a trading nature of a capital gains nature.
As a general rule of thumb, if the shares have been held for a period of longer than 1 year then it would more likely qualify as being a ‘capital gain’ in nature.
But, if you held these shares for less than 1 year, than it will more likely be treated as ‘trading’ in nature.
- If shares being bought and sold are acquired through the MSE, then a person would not be in a position to pay tax on the sale of these shares.
- If a person acquires shares on a company registered on a foreign exchange, example the Nasdaq then they would be in a position to pay tax.
Isolated sale of shares listed on the MSE (Malta Stock Exchange) are exempt for tax purposes, while isolated sale of shares listed on a foreign stock exchange (e.g. Nasdaq) are taxable.
Q3. How do I calculate the amount of tax that I must pay on the sale of my shares if they are considered as capital income? And how is it paid?
Unless the exemption referred to before applies, you need to calculate tax on the capital gains by deducting the cost of acquisition from the transfer value. Therefore, tax is computed on the gains made. By way of an example, assuming that the transfer value of a share is 15 Euros and it had been originally acquired for the value of 5 Euros, a capital gain is made on the difference, being the 10 Euros, and tax is calculated on that 10 Euros. The cost of acquisition is the original cost to the transferor.
On the other hand, the transfer value of a share listed on a stock exchange would be the last quoted price on the date of the transfer, irrespective of the consideration received. One has to take into consideration that:
- a. Capital gains tax is calculated on each and every transfer of shares. Transactions must therefore be assessed on an individual basis.
- b. Where shares are acquired in different tranches, a first-in-first-out approach should be taken in calculating the value of the capital gains.
- c. No other costs or expenses are taken into consideration as a tax deduction, other than the acquisition value.
In terms of compliance, capital gains are generally declared in your personal tax return. These are added to your other income and taxed at the applicable progressive tax rates.
Interesting to note, that if you donate your shares to your immediate family, consisting of your spouse, dependents or ascendants in the direct line and their relative spouses, or to philanthropic institutions as approved by the Commissioner for Revenue, these would not be subject to tax.
For completeness purposes, it is worth mentioning that specific rules apply in the case of shares in a collective investment scheme. Subject to the satisfaction of certain conditions, the individual may opt to be taxed at the final withholding tax rate of 15%.
Once Shares are sold one needs to determine the capital gains they made (profits). This is done using the following:
(Current Stock Value Minus Purchase Price of Stocks) = Capital Gain.
- The Capital Gain will then be added to other income earned (example employment) and taxed at progressive rates; or
- One can opt for a 15% tax straight on the Capital gain (profits) they made.
Q4. So, let’s imagine I am working in Malta on a full-time basis, but I actually buy and sell shares regularly for the purpose of making a profit, once every week for example.
How will I be taxed and where should I declare my profits?
If you are habitually buying and selling shares, then the activity is likely to consist of a trading activity and therefore you would be taxed in a different manner.
There are certain advantages to this, example any costs incurred in the production of the income such as the trading platform fee, are tax deductible.
Typically, in such scenario, you would need to register as a part-time self-employed person. If you are eligible for the part-time tax regime, you may benefit from a flat rate of 15% tax on the first 12,000 Euro profits.
The profits are declared in a prescribed form on an annual basis. Alternatively, where the part-time rules do not apply or these are not opted for, an individual should add his profits to his other income in his annual tax return and all income is taxed at the applicable progressive tax rates.
Gains resulting from the habitual buying and selling of shares are taxed on the net profit. The flat rate of 15% may be applicable under the part-time self-employed rules.
Otherwise, the net profit would be added to the other income in the tax return and is taxed at the applicable progressive tax rates, found over here.
Q5. What if I am Maltese and living abroad? Does this change anything?
In the case of a Maltese domiciled person living and working abroad, we need to look further into the facts of the case.
Typically, we would need to resolve dual residence conflicts in order to identify where the person is resident for tax purposes and refer to the tax treaty between Malta and that country, if it is in place. The tax treaty would provide us with a clear set of rules on where the employment income and capital gains would be taxed.
This is where it becomes a bit complex. Further advise would need to be sought by the individual who may have a different residency status.
But if you live and work in Malta for more than 6 months of the year, this article may have you covered! ?
Q6. Let’s assume that last week I bought a share in Ryanair for €100. This week it went up in price to €300 but I did not sell yet. Should I be taxed?
In such case, you should not be taxed since the increase in value of the shares represents an unrealised profit or gain and you have not yet sold your shares. It is important to remember that you are only subject to tax once the sale is made — this is called realised profit or gain and therefore no tax is payable on unrealised gains or profits.
If you don’t sell your shares, you’re not Taxable.
You’ll only need to pay tax once you sell!
Q7. If I use A local platform, I sell my shares and make profits, but I do not pull out anything from my account. I leave all the cash in the account and re-invest my gains. Am I chargeable to tax yet?
Or am I only charged to tax when I transfer the money out from my brokerage account back to my bank account?
Tax arises on your profits or gains from the sale of shares, rather than on your transfers or receipts into a personal bank account. Therefore, irrespective of whether the cash is held in the a brokerage account (like trading 212) and re-invested, or transferred to your personal bank account, tax is payable on taxable transactions
You are subject to tax on your profits or gains from the sale of shares, irrespective of whether the profits or gains are transferred to a personal bank account or re-invested.
Q8. What If I make a €500 gain on the sale of Ryanair and €500 loss on Lufthansa — Do these cancel each other out?
This is only the case when the transactions in question form part of your trading activity.
Otherwise, if the transactions are considered of a capital nature, one has to calculate the capital gains on each distinct transfer and a loss on one transfer may not be set-off against the gain of another transfer.
For tax purposes, gains and losses on the sale of shares cancel each other only when the transactions form part of your trading activity, Capital Gains will have a different approach.
Make sure you understand if your investments are of a trading nature or a capital nature. As previously stated, this in most cases boils down to the duration you hold shares for (check Q2 above).
Q9. Does it make a difference if I use a local or a foreign platform such as Interactive Brokers, Etoro and Revolut?
The investment platform used, whether local or foreign, such as Revolut, does not impact the tax implications of the transaction.
The investment platform used for the sale of shares does not impact the tax implications of your transaction.
Q10. How may our listeners contact you to discuss their tax implications and compliance requirements?
You may log on to www.nmgroup.mt to schedule a free consultation call with our NM Advisors or send us as message through our Contact Us form.
If you’re interested in joining us on our journey, join our Facebook group: The Investment Hub — Malta
Any views or opinions presented in this article are personal and shouldn’t be taken/used as professional advice as we are not qualified financial advisors.
Any statistics mentioned have all been linked to their respective documents together with their ownership.
Lastly, we would like to note that this article has no tie to our professional jobs and was conducted in our free time.