Introduced through Legal Notice 98 of 2022 and later amended by Legal Notices 220 of 2022, 48 of 2023 and 5 of 2024 the Pensions (Tax Exemption) Rules applied to pension income derived on or after 1 January 2022. These rules provide partial or full exemption from tax on pension income for individuals who were at least sixty-one (61) years old in the year in which the pension income was received. The amendments included the introduction of a definition of pension income and a cap on the amounts exempt. This exemption begins at 20% of pension income derived in 2022 and increases annually to the final 100% in subsequent years, subject to capped amounts determined by future budgets. The Pensions (Tax Exemption) Rules in Malta have undergone significant changes since their introduction, with the aim of enhancing the tax benefits associated with pension schemes.
The Pensions (Tax Exemption) Amendment Rules, 2024
Fast forward to 2024, the Pensions (Tax Exemption) Rules were updated through Legal Notice 5 of 2024. The amendments brought about significant changes to the tax benefits attached to pension income. The maximum tax rebates allowed to be set off against the tax on the chargeable income were updated as of January 1, 2024. The Tax Rebate (Pensioners) Rules were also amended, with updated amounts applicable to pension income derived on or after January 1, 2024.
The amount exempt from pension income derived in the year of assessment 2024 (basis year 2023) is 40%, with a capping of EUR 5,987. For pension income derived in the year of assessment 2025 (basis year 2024), the amount exempt is 60%, with the capping of the exempt amount increased to a maximum of EUR 9,732.
Tax Rebate on Pension Income
Under the Tax Rebate (Pensioners) Rules, a tax credit equal to the tax on pension is granted, subject to capping. This means that while pension income, up to the allowed maximum, is not subject to tax, the non-taxed amount is considered in determining tax rates on other income. The tax rebate is applicable to individuals aged at least 61 years who receive income from a pension chargeable to tax under Article 4(1)(d) of the Income Tax Act. All income except the exempt pension income is first charged to tax at the normal tax rates applicable for single, parent, or married rates. The rebate is calculated based on the taxable pension income and applies to single, parent, and married individuals. These rebates are subject to yearly capping, which has been increasing over time.
International Pensions
Pensions from other EU member states or from nations with whom Malta has a double taxation treaty are typically taxed according to certain guidelines for Maltese residents. It may be necessary for Maltese residents who receive pensions from abroad to refer to the relevant double tax treaty.
The Impact of the Amendments
These changes reflect the ongoing efforts to enhance the tax benefits attached to pension schemes and make them more appealing. The amendments have been aimed at incentivising the setting up of personal and occupational pension schemes, making them more attractive. As the tax landscape continues to evolve, it's advisable for individuals to stay updated with the latest changes and seek professional advice to understand the implications of these rules on their pension income.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.