Persons and companies must pay various taxes in Malta, depending on the income they obtain. While companies are subject to the corporate tax, employees will be levied with the personal income tax to which social security contributions apply.
Social security contributions in Malta are levied under two different classes which imply specific rates. This occurs because self-employed individuals must also pay such a tax.
Below, our specialists explain how the local authorities apply the social security tax in Malta. You can rely on payroll support from our accountants in Malta, as such a service also implies computing and paying social security contributions.
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The Maltese Social Security Law
When it comes to social security contributions in Malta, it should be noted that they are levied under the law with the same name which defines insurable employment as the main reason for which such contributions must be paid. In order to pay such contributions, a person must have one of the following contracts:
- of service;
- of apprenticeship;
- of employment.
The following categories of social security contributions apply in Malta:
- that of employed and self-occupied people;
- that of self-employed persons.
The main difference between self-occupied and self-employed people in terms of the Social Security Law refers to the fact that self-occupied persons obtain income from a skill or trade they perform themselves, while self-employed persons earn money from investments, rentals, or other passive income, such as interests.
This is one of the main reasons there are several social security rates in Malta.
Our accounting firm in Malta can offer various services, including those related to the contributions that need to be paid as social security.
Audits are carried out to make sure that financial statements were created in conformity with the applicable accounting rules. The following are the top three financial statements: the income statement, the balance sheet and the cash flow statement. Contact our auditors in Malta and obtain reliable services for your company.
Who must pay the social security tax in Malta?
It should be noted that in Malta people can start working at the age of 16 under special conditions, which is why they can contribute to the social security system at this age. The retirement age is 65, and persons up to this age will pay the social security levy while they are employed or make income subject to this tax.
The contributions must be paid on a weekly basis which implies 53 or 53 payments that will be recorded in the payee’s record.
A person’s record will be made of 3 credits classes:
- Class 1 which is paid by persons who are employed by Maltese companies;
- Class 2 which is paid by self-occupied individuals;
- Class 3 which is paid by self-employed individuals who are subject to a few more requirements.
There are 3 social security contribution types:
- the Underage (UN) type for persons who pay the tax before they turn 18 years old;
- the Standard (ST) type for persons who pay the tax after turning 18 years old;
- the 5C type for Maltese citizens who worked abroad and who applied with the Social Security Department to have their contributions paid in Malta.
Our specialists can offer updated information on the social security rates in Malta. They can also advise companies on their obligations related to the social security system.
Our auditors in Malta are also at the service of companies who need audit services.
Companies must appoint independent auditors in Malta to serve from one annual general meeting to the next. Each set of financial statements presented at the company’s annual general meeting must be audited, and auditors must report their findings to shareholders. The International Standards on Auditing must also be followed while writing an auditor’s report, according to the Companies Act.
How are social security contributions paid in Malta?
The social security tax in Malta is withheld by the employer in the case of employees. However, it is also worth noting that employers must also contribute to the social security system.
Due to the fact that the personal income tax is levied at progressive rates and depends on the marital status of the taxpayer, as well as if the person paying the levies has children or not, the payment of social security contributions in Malta must be carefully considered.
Here are the main personal income tax rates applicable in Malta:
- a 0% rate applies to income ranging from 0 to a maximum of 12,700 euros per year;
- a 15% rate applies for incomes of 9,100 to 21,100 euros;
- a 25% rate applies for incomes from 14,501 to 28,700 and up 60,000 euros;
- a 35% rate applies to incomes surpassing 60,000 euros.
We remind you that we can provide you with complete accounting services in Malta. Payroll and human resources departments frequently need to work together in order to remain effective. This is why, many companies usually have both of them. Another solution is to use an external accounting firm which offers HR and payroll services in Malta, thus no longer requiring the creation of two additional sections in your company.
Social security contributions for employees in Malta
Community Security Class 1 Contributions are those made by people who are employed and are deducted directly from their wages or salaries. In a regular situation, the employer pays an equivalent rate, either directly or indirectly by a deduction from the employee’s pay.
Based on earnings derived from the basic weekly wage, the social security contribution is calculated at a certain rate. The allowances, bonuses, and/or overtime earned during a certain week are not included in the base weekly wage.
The employer makes recurring monthly payments to the Commissioner of Inland Revenue for the Class 1 Social Security Contributions that belong to both the employer and the employee.
The option to make contributions for multiple jobs (up to a total of 40 working hours) will be available to those who have multiple part-time jobs. By doing so, they can pay a greater contribution rate and receive a higher pension rate.
Our accountants in Malta are at the service of companies with tailored employment and tax-related services.
Some companies think about handling payroll internally. This strategy might be effective for smaller enterprises, who frequently choose to outsource the payroll in Malta so they can boost attention on business operations for improved performance. Furthermore, as a company grows, payroll can get more complicated because scaling up is sometimes stressful and complicated.
Social contributions for self-employed people
For social security contribution purposes, self-employed people are:
- exempt from Social Security Act’s Part II as they are not employed;
- involved in any trade or economic activity that generates an income of more than 910 EUR each year;
- employed people who work fewer than eight 8 per week but make more than 17.50 EUR per week, or 910 EUR annually.
Self-employed individuals are required to pay social security contributions under Class 2 Social Security Contributions. Depending on the claimed income and the contributor’s year of birth, Class 2 Contributions are broken down into categories SA, SB, and SC.
April, August, and December are the months in which self-employed individuals must pay their social security contributions in Malta.
Social security contributions for Maltese citizens working abroad
Article 13 of the Social Security Act states that individuals who have a contract of employment outside of Malta but continue to live here may request to pay Class 1 contributions. No social security contribution shall be payable by or on behalf of the employer for this purpose.
If a person participates in a traineeship program with a European Institution and receives a grant instead of pay, the provisions of Article 13 also apply to them.
Feel free to address to our Maltese accountants for advice in such a particular situation.
Social security contributions for part-time workers in Malta
As is well known, the labor market is quite dynamic nowadays as there are various forms of employment. In the past few years, part-time employment contracts have become quite common in many European countries, including Malta.
In terms of social security, part-time employees must also contribute to obtaining benefits upon retirement or for other situations. However, they will be subject to specific conditions. Instead of paying social security contributions under the Class 1 Category B rate of 10% of the national minimum wage, part-time workers who make less than the weekly minimum wage can choose to have their share paid at the rate of 10% of their real basic weekly earnings. This is also called the Class 1 pro-rata rate. However, the employer’s share is not subject to the pro rata contribution rate because it is still required to pay the entire amount of the Class 1 contributions.
The 10% pro-rata payment of social security contributions will not be recorded as one contribution per week but will be lower when compared to the standard applicable rate.
Similar to part-time employees, sole traders and self-employed people will also pay lower social security contributions in Malta falling under the Class 2 Rate SA, but imposed at a rate of 15%, named Class 2 Pro-rata rate.
Social security contributions fall under payroll in Malta, so if you need such services, do not doubt in securing them with our local accounting office.
Social security payments for people with missing work history
Break periods from a person’s work history implies a missing work history, therefore they will have not paid their contributions for the respective period of time. As a consequence, their pension benefits can be lower.
The Maltese government has come up with a scheme through which retrospective payments can be made for certain categories of people. Here are the main aspects to consider in this case:
- applicants must be registered as Maltese residents under the Social Security Law, Chapter 318;
- only applicants between the ages of 59 and 64 are accepted for this scheme;
- applicants must be employed full-time at the moment of the payment and registered with the Jobsplus Employment Agency;
- people who were employment before the Employment Agency was created (1990) can pay the equivalent of social security contributions for up to 5 years of their missing work history;
- people aged 59 with invalidity pensions can also make contributions for a maximum period of 5 years, starting January 2022.
According to the terms of this program, qualified applicants are permitted to make up to 260 social security contributions (the equivalent of 5 years of insurance).
If you need more information on the new retrospective social security contributions scheme in Malta, please address our accountants.
For companies, we provide full payroll services in Malta, so do not hesitate to get in touch with us.
Calculation of social security contributions in Malta
The amount of the contribution is determined by the gross wage or salary for employees or profits for self-employed people. The sums are withheld as part of a pay-as-you-earn system before receiving the wage or salary in the case of employees. For self-employed individuals, payments are made in April, August, and December at the Inland Revenue Department in Floriana, and are based on the prior year’s profits.
Paying social security contributions in Malta is essential since failing to do so might negatively impact one’s rights to pension depending on the average contribution rate during the course of the years.
Apart from that, the pension rate depends on the average result of contributions, the best years must have a full year of social security contributions paid (52) as well as additional contributing advantages like an invalidity pension.
Certain requirements must be met in order to retire at age 61, such as having accumulated 35 years of social security contributions in order to take advantage of the full increase measure.
Our accounting firm in Malta is at the service of self-employed people and companies seeking to ease their compliance for social security contribution purposes.
Rates for Maltese social security contributions
An important aspect to consider about social security payments in Malta is that the rates vary from year to year. This happens because the minimum wage also changes which leads to minor changes in the amount to be paid, not the rate.
As an employer, you have the obligation to be up to date with these changes, which is why if you need support, you can rely on our accounting firm in Malta for support with the payroll and the latest modifications in the social security system. We can also offer assistance in other matters, such as audits and tax return filings.
Rely on our Maltese accountants for social security payments
The social security tax in Malta is one of the most important levies when it comes to natural persons as it implies the establishment of the pension a former employee will obtain upon retirement. Due to the fact that payments must be made weekly, using the services of our accounting firm can reduce the pressure of employers and self-employed and self-occupied when it comes to its levy.
If you need more information on social security contributions in Malta, do not hesitate to contact our local accountants for support. We are at your service with various accounting services.