Successful international expansion depends on making the right moves from day one. This is vital for foreign companies establishing a presence and operating payroll on the Mediterranean island of Malta – a European Union (EU) member since 2004 and part of the Eurozone since 2008.
Bradford Jacobs’ Professional Employer Organization (PEO) and Employer of Record (EOR) platforms provide complete answers to every question you will face before your move into the Maltese economy. Our teams step in from the start, sourcing local talent then guiding you through the local payroll laws and regulations. We offer dedicated Malta Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Maltese payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Malta.
What Malta Payroll Options are available for Companies?
- Remote payroll: This option allows businesses to operate under a single payroll system, by adding employees on Malta to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
- Internal payroll: You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence on Malta. However, this does require hiring dedicated HR staff who understand Maltese employment and compliance laws.
- Malta payroll processing company: If you are considering outsourcing, then working with a Maltese payroll company will help in processing your payroll – but not when it comes to compliance.
- Malta payroll outsourcing: However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in Malta. We take the administrative stress off your shoulders so you can focus on what you do best.
Malta Payroll Services
International companies expanding into Malta open up a wealth of opportunities for expansion throughout the European Union and further afield, with the island’s relatively close proximity to North African and eastern Mediterranean markets.
However, challenges come alongside the potential benefits and payroll management is among them. Whether your company is considering moving employees abroad or hiring new staff in-country, employment laws, payroll and income tax regulations are areas where you cannot afford mistakes.
Bradford Jacobs’ Employer of Record (EOR) payroll solutions will navigate around these potential problems effectively and efficiently by putting into action our comprehensive knowledge of tax and payroll regulations.
Running Maltese payroll requires an in-depth knowledge of employment, payroll, and taxation laws – and keeping up to date with changes. As part of our service, we file returns and associated payments for wages tax and social security contributions directly from our payroll system to the relevant authorities.
Outsourcing your payroll in Malta will streamline your operations by dealing with the following:
- Registering with the Maltese Commissioner for Revenue Office
- Registering with the Maltese Directorate of Social Security
- Registering the company with the Financial Services Authority
- Obtaining a Tax Identification Number (TIN) online for completing mandatory annual tax returns. Professional support is advisable for submitting tax returns.
- Obtain a PE number, online from the Commissioner for Revenue’s website. The PE number is mandatory for companies to withhold and pay the taxes and national insurance for their employees. These payments are established under Final Settlement System (FSS) tax reporting procedures.
- Registering with the Employment and Training Centre (formerly ETC, now known as Jobsplus). A form must be completed for every employee, with further forms completed on termination.
- Creating employment contracts
- Calculating monthly salary and creating pay slips
- Researching available tax-free allowances
- Submitting wage tax returns and national insurance forms
- Corresponding with involved parties
- Producing annual accounts, administration, and year-end statements
- Creating payment schedules for wage tax, national insurances, and net wages
The above checklist highlights why the vast percentage of foreign companies expanding into Malta’s strictly regulated business environment hand their payroll to EOR providers such as Bradford Jacobs. By outsourcing payroll your company complies with tax and employment regulations without risking sanctions or financial penalties for late or incomplete filing. You focus on your goals and expansion, free of any concerns over payroll.
Questions? We have the answers. Contact Bradford Jacobs now.
What is required to set up Payroll in Malta?
A foreign company launching a subsidiary in Malta and running their own payroll must initially decide which form of company to open. The most popular choice is a limited liability company, which protects the owners from liability but comes with additional paperwork, such as yearly audits and two named shareholders on the registration documents. The registration process includes:
- The company’s Memorandum and Articles of Association must be lodged with the Registry of Companies. These documents detail the role and obligations of directors and are best composed with expert advice.
- Showing minimum share capital of around €1,200 (US$1,375) to cover initial costs, although only 20% needs to be deposited and will be held separately by the bank until registration is complete.
- Registering the company with the Financial Services Authority, producing the Memorandum and Articles of Association with a bank receipt proving deposit of share capital.
- Obtaining a business license from the Maltese Commerce Department, which must be renewed annually.
- Obtaining a Tax Identification Number (TIN) online for completing mandatory annual tax returns. Professional support from Bradford Jacobs is advisable for submitting tax returns.
- Register for Value Added Tax (VAT), administered by the Ministry of Finance. Companies with a turnover above €35,000 (US$40,118) must register for VAT, but registration is optional for turnover between €7,001 (US$8,024) and €35,000. It is best to seek advice on the options regarding VAT.
- Limited liability companies must obtain a PE number, online from the Commissioner for Revenue’s website, to be able to withhold and remit taxes and national insurance.
- Register with the Employment and Training Centre (formerly ETC, now known as Jobsplus). A form must be completed for every employee engaged, and further forms must be completed and filed on termination.
- Data protection: Companies must take steps to guard data, as theft or loss can result in huge fines. Malta is in the European Union and companies must comply with General Data Protection Regulations (GDPR).
What Entitlement and Termination Terms apply to Malta Payroll?
Foreign companies hiring employees must comply with various laws, regulations and directives that guarantee benefits, compensation, and other entitlements for staff. These come under the scope of the Employment and Industrial Relations Law (the Labor Code), together with European Union directives and other federal laws. These include the Employment Commissions Law, the Employment and Training Services Law, plus Wage Regulation Orders and the Public Service Management Code.
Guaranteed entitlements, benefits and terms include:
- National Minimum Wage: In 2021 the minimum was increased to €784.08 (US$906) per month or €9,416 (US$10,876) per year, based on 12 monthly payments for full-time workers aged 18 and over. The minimum monthly rate for 17-year-olds is €754.72 (US$871.80) and €742.42 (US$857.59) for under-17s.
Wage Regulation Orders (WROs) applying to different sectors take precedence over national minimum rates. The 2017 National Agreement on the Minimum Wage decreed that after one year with the same employer, employees on the minimum wage receive a weekly increase of €3 (US$3.47) for the second year.
The weekly increase becomes €6 (US$6.93) after more than three years with the same employer. The minimum wages of part-time employees are calculated pro rata with the hourly rate of full-time employees.
- Sick Leave: Entitlement varies according to the relevant WRO for the sector and where none is in force employee sick leave entitlement equals two weeks per year, calculated in hours. A medical certificate is required, in the absence of which the employee may need to apply for leave.
Employees receive benefit from the fourth day since the first three days are payable by the employer. Sickness benefit is payable up to 156 days and may be extended up to 468 days over two years depending on the Medical Board’s decision. Amounts depend on social security contributions paid during the claimant’s employment.
- Working Hours and Breaks: Normal working hours for full- and part-timers are based on 40 hours a week. Hours can exceed 40 but must not exceed a 48-hour average over 17 weeks.
In certain sectors, such as manufacturing and tourism, the average period is one year. An employer cannot ask an employee to average over 48 hours per week, without their written consent. Employees have a minimum 15 minutes’ rest after six hours. A minimum uninterrupted rest of 11 hours applies between workdays, with uninterrupted 24 hours’ rest every seven days, or 48 consecutive hours in 14 days.
- Overtime: Where the sector is not covered by a WRO an employee is paid 150% of their normal hourly rate for hours worked over 40 a week averaged over four weeks, or a shift cycle determined by the employer.
Contracts not specifying rates of overtime contravene the Information to Employees Regulations. If a contract specifies the amount of pay up to a definite amount of overtime, the hours can exceed eight in a particular week but not more than 48 over the four weeks.
Non-consenting employees cannot be asked to work above that average. The Protection of Maternity (Employment) Regulations stipulate that regardless of any other laws, collective agreements or contracts, a person cannot be asked to perform overtime:
- During pregnancy
- For 12 months either from the birth or adoption of a child
Since Malta’s 2020 Budget, 15% tax applies to income from qualifying overtime for full-time employees (not managerial) where the basic weekly wage does not exceed €375 (US$433).
The tax is due on a maximum of 100 hours and is usually withheld and remitted to the authorities by the employer, although the individual can elect to declare the overtime income on their own return. The 2022 Budget proses reducing the tax on overtime from 15% to 10%.
- Paid Vacations: In 2021, employees on a 40-hour working week received 216 hours paid leave, comprising 192 hours basic entitlement plus 24 hours for three public holidays falling on weekends.
In 2022, the total entitlement is 224 hours comprising an extra 32 hours in lieu of four public holidays falling on weekends, while in 2023 the total entitlement is 208 hours as only two public holidays are on weekends. By mutual agreement between employer and employee, leave can be taken in hours.
Under Organization of Working Time Regulations, if average working hours (excluding overtime) average less than or exceed 40 hours over 17 weeks vacations are adjusted accordingly. Only 50% of unused vacation can be carried forward to the following year. Employees who have worked less than 12 months have leave adjusted pro rata.
Annual vacation continues to accrue when an employee is on maternity leave and can be carried forward to the following year if it is not possible to take the vacation during the same year when the maternity leave commenced.
- Maternity Benefit: Pregnant women receive full pay from their employer for the first 14 weeks of the 18-week maternity leave. Under the Social Security Act, the government pays €181.08 (US$207.56) for the remaining weeks.
‘Self-occupied’ women (a different category to self-employed) receive €181.08 per week from the government. Self-occupied refers to earning more than €910 (US$1,043) per year from business activities and paying social insurance contributions.
Self-employed refers to passive income from such as rents and investments. Women not in employment receive a flat rate of €99.59 (US$114.16) per week. Application for maternity benefit is made through the Department of Social Security and must include a medical certificate.
- Maternity / Paternity / Parental Leave: Maternity leave totals 18 weeks, with eight weeks before the birth and six weeks post-natal. Six weeks is the compulsory period taken after birth, four weeks before birth with the remaining weeks taken as the employee wishes.
The employee should give a minimum four weeks’ notice she intends taking leave; after taking leave she has the right to return to her former or a related position if her former post is no longer open.
There is no statutory provision for paternity leave, beyond fathers being entitled to one day’s paid leave following the birth. Parents can take up to four months’ unpaid parental leave until their child is eight years old.
- Termination and Severance: Termination, dismissal and severance regulations are governed by the Employment and Industrial Relations Law (the Labor Code) but may vary according to individual contracts.
Any compensation due is waived if there is a justifiable cause, such as disciplinary action or long-term medical incapacity.
With redundancies, employees on fixed-term contracts have the same ‘last in / first out’ rights as employees on indefinite contracts. With indefinite contracts, notice can be given by either party and is calculated on employees’ length of service.
Malta also uses the ‘Guarantee Fund’ to cover unpaid wages to employees whose contract is terminated due to insolvency.
Other entitlements and termination rights include:
- On termination where employment exceeds a month, the employee is entitled to request a certificate stating the nature and duration of employment, the reason for termination and salary.
- Employees should receive all entitlements and remuneration including wages, overtime payments, statutory bonuses, notice pay and settlement of outstanding holidays. If the employer refuses, the Department of Industrial and Employment Relations can act.
- Notice Periods: Notice is calculated on unbroken service and ranges from one week for up to six months’ service to 12 weeks for more than 10 years’ service:
- Up to one month - no notice
- One month to 6 months - 1 week
- 6 months to 2 years - 2 weeks
- 2 years to 4 years - 4 weeks
- 4 years to 7 years - 8 weeks
- 7 years to 8 years - 9 weeks
- 8 years to 9 years - 10 weeks
- 9 years to 10 years - 11 weeks
- Over 10 years - 12 weeks
Longer periods may be agreed to between both parties in the case of technical, administrative, executive, or managerial posts.
The established notice period cannot be extended once given. Other termination provisions include the dismissed employee’s right to a certificate stating the length of service, nature of the work and rate of pay, the employee’s right to be re-engaged if the ‘redundant’ position is filled by a new recruit.
Fixed-term contracts can be ended during probation periods without a reason, but one week’s notice applies to either party if employment exceeded one month.
- Public Holidays: Public holidays in Malta are on the following dates:
- New Year’s Day: January 1
- Feast of St. Paul’s Shipwreck: February 10
- Saint Joseph’s Day: March 19
- Freedom Day: March 31
- Good Friday: March / April
- International Workers’ Day: May 1
- Sette Giugno: June 7
- Feast of Saints Peter and Paul: June 29
- Assumption of Mary: August 15
- Victory Day: September 8
- Independence Day: September 21
- Feast of the Immaculate Conception: December 8
- Republic Day: December 13
- Christmas Day: December 25
- Health and Social Insurance: The Ministry for the Family and Social Solidarity and the Ministry for Health and the Department of Social Security supervise the social security system. The main benefits cover the health system, retirement, disability, sickness, death, maternity, family, unemployment, long-term care, and workers’ compensation.
Social security deductions are divided into Class 1 and Class 2 contributions and the criteria for calculating rates are complicated. They vary for people over and under the age of 18, and for those born before December 1961 and after January 1962.
For example, workers aged over 18 those born before December 31, 1961, and whose basic weekly wage is between €181.09 (US$207.57) and €372.35 (US$426.81), both employers and employees contribute 10% of their weekly wage.
The contributions from both stay at 10% for workers born on or after January 1, 1962, applying to a weekly wage between €181.09 and €485.74 (US$556.78). In this category there is a flat rate of €48.57 (US$55.61) for salaries over €25,258 (US$28,921). Different rates apply for under-18s and students who work.
Employers deduct contributions from the employee’s wage or salary and remit monthly on their behalf to the Commissioner for Revenue. Part-time employees who work less than 40 hours per week and earn less than the National Minimum (weekly) Wage, can opt to have their share of social security contributions paid at the rate of 10% of their basic weekly wage.
Class 2 contributions refer to self-employed or self-occupied workers whose contributions comprise 15% of the previous year’s net profit and are paid every four months. The maximum contribution for those born on or after January 1, 1962, is €72.68 (US$83.22).
13th Month Salary
There is no statutory provision for a 13th month salary, although set rate mandatory quarterly bonuses are imposed by the government for employers to pay staff.
What Taxation Rules exist for Malta Payroll?
Individuals must submit tax returns annually by June 30 of the following year. For married couples, one spouse registers and files a joint tax return.
Malta’s financial year runs from January 1 to December 31, but companies can request a different year-end date from the Maltese Commissioner for Revenue. Companies must file tax returns by March 31 after the assessment year or nine months after the financial year end, whichever is later.
1998’s Final Settlement System (FSS) was created to regulate tax collection and aims to ensure the correct tax is deducted from gross pay to reduce large refunds and tax bills arising from end-of-year tax assessments.
Employers deduct tax and social security contributions from employees’ salaries each month and remit to the Commissioner for Revenue. End-of-year reconciliations must be completed by February 15 the following year, either online or manually depending on the number of employees.
Employers must submit:
- Employees tax and social security deductions
- Corporate tax return
Before operating payroll, the following procedures must be completed:
- Registering with the Maltese Commissioner for Revenue Office
- Registering with the Maltese Directorate of Social Security
- Registering the company with the Financial Services Authority
- Obtaining a Tax Identification Number (TIN) online for completing mandatory annual tax returns
- A PE number
- Registering with the Employment and Training Centre (ETC, now known as Jobsplus). A form must be completed for every employee engaged, with further forms completed and filed on termination of employment
Income Tax: Tax liability in Malta hinges on workers being domiciled (long-term involving a permanent home) or resident (short-term stay, maybe domiciled in another country). Individuals living in Malta are taxed on worldwide income. Those that are residents but not domiciled are taxed on income in Malta and on income arising outside Malta that is received in Malta.
Social Insurance Tax: For workers aged over 18, those born before December 31, 1961, and whose basic weekly wage is between €181.09 (US$207.57) and €372.35 (US$426.81) both employers and employees contribute 10% of their weekly wage. The contributions from both stay at 10% for workers born after January 1, 1962, applying to a weekly wage between €181.09 and €485.74 (US$556.78).
Different rates apply for under-18s and students who work. Contributions are deducted from the employee’s wage or salary and paid monthly on their behalf by employers to the Commissioner for Revenue. Employers contribute an equal amount for each employee on their payroll.
Rules on other taxes:
Corporate Income Tax (CIT): Corporate tax is 35% and includes worldwide income and certain capital gains. Malta’s tax refund system is attractive for international businesses taking advantage of the island’s proximity to Europe, North Africa and the Middle East and can leave entrepreneurial companies paying around only 5% corporation tax.
Value Added Tax (VAT): VAT is administered by the Maltese Ministry of Finance. Companies with a turnover above €35,000 must register for VAT, but registration is optional for turnover between €7,001 and €35,000. VAT is set at 18% on goods and services, though tourist accommodation, medical equipment, electricity, and other categories are charged at lower rates.
Other rules: Malta has no capital gains tax. Income tax is imposed on any gain made from shares, securities, intellectual property, partnerships, or trusts. Malta imposes no taxes on inheritances, estates, or gifts, though stamp duty may apply in some cases.
Stress-Free Global Expansion
Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into Malta and every new territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns. Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in Malta.
Contact us today for more information!