Payroll is not simply an exercise that one carries out using a payroll software package which automatically calculates the employees’ taxation and social security contributions and produces the FS5 documents as well as the annual FS3s and FS7s.

Besides ensuring that the employees are registered with Jobsplus and the Inland Revenue Department (IRD), that they are taxed at the correct and most beneficial rates of taxation (single, married or parental rates as applicable) and deducting the National Insurance contributions (NI), as well as paying its employer’s share of NI and maternity fund contributions in time, the employer must also be well versant with the various regulations/legal notices in place that may affect the employees’ level of taxation and hence the whole payroll run.

A few of these regulations to be considered are the following:

Women returning to employment

It is important to be well aware of this rule that benefits women returning to work after their maternity leave or after a certain number of years.  A tax credit of up to a maximum of €2,000 is available for women who have been absent from work for five years and have a child under the age of 16 or for every child born from January 1, 2007, onwards. The tax credit may only be set off against the tax on employment income but may be availed of over a period of two consecutive years of assessment commencing from the year of assessment during which the return to employment occurs. Instead of utilising the tax credit of €2,000, a mother can opt for one year tax credit (up to a limit of €5,000) in respect of every child if the income is from employment. This also applies in the case of self-employment. Specific forms will need to be enclosed with the Personal Income Tax Return so that the tax credit can be availed of. Lastly, it is important that once a woman returns to work, a revised FS4 should also be submitted.

Highly-qualified persons

Companies licensed with the Malta Financial Services Authority (MFSA), the Malta Gaming Authority (MGA) or Transport Malta (TM) may employ senior individuals occupying certain key positions (specifically outlined in the regulations) who may avail of tax benefits pertaining to the Highly Qualified Persons Rules. Such senior employees may opt to pay tax at the flat rate of 15 per cent on employment income and fringe benefits derived in respect of work or duties carried out in Malta (or in respect of any period spent outside Malta in connection with such work or duties). Certain conditions need to be fulfilled before this beneficial tax rate can be applied. An RA17 form would need to be completed and endorsed by the respective authority.

Fringe benefits

The term ‘fringe benefit’ refers to any benefit provided or deemed to be provided by reason of an employment or office.

Only fringe benefits listed in the regulations are subject to tax. The regulations determine the value of the benefit for tax purposes. Most common fringe benefits relate to company cars, car cash allowances and provision of accommodation to employees. 

A recent change occurred in the Share Option Scheme.

The value of the benefit is the excess, if any, of the market price of the shares if sold on the date when benefit is provided over the option price of the same shares. This benefit is being taxed at the special flat tax rate of 15 per cent.

Not all fringe benefits are subject to tax and below is a list of just a few exemptions:

• The cost of travel for business purposes including a reasonable subsistence allowance;

• Cost of travel between Malta and Gozo;

• Cost of business related training;

• Subscriptions in respect of an employee’s membership of a professional body.

Part-time rules

These apply to full-time students, apprentices, full-time employees and pensioners. 

The benefits and conditions that apply to these rules are the following:

• Income from part-time is taxed at 15 per cent up to €10,000 i.r.o. employment income/€12,000 i.r.o. self-employment.

• Once €10,000 is exceeded, normal tax rates will apply.

• Part-time activity can be either employment or self-employment.

• Employee must be registered with Jobsplus.

• Full-time and part-time employment must not be carried out with the same employer or employers within the same group of companies.

• Part-time employment cannot exceed 30 hours per week.

Due to the above and many other considerations that one needs to be aware of during payroll processing, outsourcing the payroll to a professional service provider – whose payroll and tax department work hand in hand and are continually updated with new regulations – is the recommended way forward. Besides confidentiality and continuity, this is one important advantage of outsourcing your payroll.

The article has been submitted by Christabelle Agius, CSB Group Accounting Services team leader, with the assistance of the Payroll team.