Through the publication of Legal Notices 245 and 246 of 16 June, Tax on Overtime Rules and amendments to the FSS Rules were enacted, laying down provisions on the income tax treatment of income from certain overtime work.

As announced in the Malta Budget 2020 and further to the addition of Article 90B to the Income Tax Act through the Budget Measures Implementation Act, 2020, with effect from 1 January 2020, qualifying overtime income derived by individuals shall be subject to tax at 15%. 

Qualifying overtime income refers to income for overtime work performed by a full-time employee who does not occupy a managerial post, where the basic weekly wage is no more than €375.

The 15% rate applies on a maximum of 100 hours of qualifying overtime worked, multiplied by the hourly rate paid. Such rate is capped at twice the hourly rate equivalent of the basic weekly wage, based on a 40-hour week.  

The 15% tax is the default rate to be withheld by the employer from the employee’s overtime pay as aforesaid, following standard FSS (final settlement system) procedures. However, the employee may opt out of the 15% regime through notification to the employer.

The 15% tax is considered a final tax unless:

• The employee opts to declare the qualifying employment income in his tax return together with his other income; or
• The employee is a ‘non-filer’ and the Revenue determines that opting out of the 15% regime would have been more beneficial for the employee. 

Details of the qualifying employment income and the tax withheld thereon are required to be submitted by the employers on the standard FSS forms. Thus, we expect the FSS forms to be amended to cater for such new requirements.