Self-employment guide to tax, VAT and social security

Any individual who carries on an economic activity in his/her own name (i.e., not through employment) is considered to be self-employed. A self-employed person does not have the benefit of having his/her taxation and social security affairs taken care of by his/her employer, and could also fall within the scope of VAT registration for the first time. As such, all responsibilities to comply with these various authorities, making submissions and payments in an accurate and timely manner, fall on the individual. In such a fast-paced and ever-changing business environment, this could prove to be overwhelming.

Below is a brief guide to the various registration and ongoing obligations of a self-employed person to various authorities.

Value Added Tax (‘VAT’)

Provided that the revenue being generated from the individual’s economic activity is not exempt without credit (a list of all such activities could be found in the VAT Act), that individual is required to register for VAT within 30 days from commencement of the economic activity with the Office of the Commissioner for Revenue. Failure to register in time will result in hefty administrative penalties.

A common misconception is that individuals who fall below a certain annual revenue threshold are exempt from registering for VAT, however, this is not the case. As mentioned, if the revenue being generated is not exempt without credit, registration is required from the very first income generated. The type of registration could however differ, as explained briefly below:

• Article 10 registration – Any individual may opt to register under this article whatever the revenue levels. This registration requires the individual to charge VAT on their supplies of goods or services, and they may claim back VAT incurred in the course of their taxable activities through the mandatory quarterly VAT return submissions.
• Article 11 registration – An individual who will generate annual revenues below €30,000 (in the case of services) and €35,000 (in the case of goods) may opt to be registered under this article. In this case the individual will not charge VAT on their supplies of goods or services, however they will not be able to claim back VAT incurred in the course of their taxable activities. Article 11 persons are required to submit an annual VAT declaration.
• Article 12 registration – An individual not registered under Article 10 who receives goods or services from EU suppliers may be required to register under Article 12. Individuals making intra-community acquisitions of goods exceeding €10,000 in value (over a calendar year) or receiving intra-community services (of any value) must register under this article in order to pay VAT on these transactions. Such individuals would need to submit Notices of Payment of VAT whenever they receive any goods/services from the EU, and on an annual basis they must file a declaration.

Income tax

Unless the individual is Maltese or already working in Malta and in possession of one, he/she must register for a tax number with the Office of the Commissioner for Revenue.

On an annual basis, from the very first year of the economic activity, the individual will be required to submit a tax return and pay tax on his/her profits. The deadline for submission of the tax return and payment of any tax (a submission is still required if no profits are made) is 6 months after the end of the calendar year.

If the individual is self-employed on a part-time basis, he/she may pay tax at a flat rate of 15% on profits up to €12,000, provided the appropriate form is submitted and taxes are paid to the authorities by the end of April of the following year. If this is submitted and paid, the individual will not have to submit a tax return at the end of June as explained above, unless profits from the part-time self-employment exceed €12,000 for the year.

In order for the above to apply, the individual must be registered as a part-time self-employed individual with JobsPlus, must not employ more than two people and must be employed full-time or be a pensioner or full-time student.

Social security

Once again, unless the individual is Maltese or already working in Malta and in possession of one, he/she must register for a social security number with the Department of Social Security.

Once registered, the individual is required to make three annual payments by the end of April, August and December. The payments required are calculated based on the annual net profit for the year preceding the contribution payment year.

If the individual is self-employed on a part-time basis and has another primary source of income (such as from full-time employment), social security contributions are paid only on this main source of income, and no further payments will be required on the part-time self-employment income.

JobsPlus

Whether the individual intends to carry out his/her economic activity on a full-time or part-time basis, JobsPlus must be informed prior to commencing the activity. Individuals who are not already working in Malta will be required to register with JobsPlus.

This article was originally published on the Sunday Times of Malta on the 3rd October 2021.

About the Author

This article has been authored by Timothy Hampton, CSB Group’s Senior Manager – Client Accounting. CSB Group assists with all the above-mentioned registrations and ongoing requirements to ensure that at all times, individuals and businesses are fully compliant with the respective authorities. For any additional information or support required please contact Timothy on info@csbgroup.com.

It is important to note that the above is subject to changes in regulations/legislation, as well as certain exemptions and exceptions to the general rules.