Following an announcement by the Commissioner for Revenue (“CfR”) on the 10th of August 2020, taxpayers have been notified that the FSS forms have been updated to align such with the changes brought about by the Tax on Overtime Rules and the Covid19 Wage Supplement.
Tax on Overtime
By way of background, qualifying overtime income has been brought within the purview of Maltese income tax through the Budget Measures Implementation Act 2020. The Tax on Overtime Rules, 2020 were subsequently published through L.N. 245 of 2020 and further set out the rules governing the application of this tax on overtime.
In terms of the above-mentioned legislative changes, the first 100 hours of income qualifying as overtime time, will be subject to tax at the reduced rate of 15%. Such tax shall be final and shall not be available as a credit, set-off or refund, unless the individual deriving qualifying income elects otherwise.
A number of conditions must nevertheless be satisfied for the employee to benefit from the said reduced rate on overtime income, in absence of which, tax at the progressive rates shall apply:
(a) Overtime is performed in the course of full-time employment;
(b) The basic weekly wage does not exceed €375;
(c) The employee is not a director nor an officer performing managerial duties; and
(d) The eligible overtime amount must not exceed the amount derived by multiplying the number of qualifying overtime hours (maximum 100) by the rate per hour at which the overtime is paid (which cannot be more than double the hourly equivalent of the basic weekly wage).
The accompanying guidance issued by the CfR directs employers to deduct the above-mentioned 15% rate by default on all eligible overtime income, unless the employee selects to opt out of this measure. Opting-out must be made by submitting the updated FS4 form. The new rules on overtime income have additionally necessitated updates to be made to the FS3, FS5 and FS7 forms, which forms now include information concerning the number of overtime hours, overtime amount paid and tax thereon.
However, it is to be noted, that the progressive tax rates will be applied to the employee in case of lack of disclosure of the appropriate amounts in the allocated fields of the updated forms.
COVID-19 Wage Supplement
Pursuant to past communication provided by the CfR on the tax treatment of the Covid-19 Wage Supplement (accessed here), the Government had outlined that whilst the wage supplement would be paid to employers (€800 or less according to eligibility), 10% therefrom would be retained as the employee’s prepaid share of social security contribution. Consequently, employers are expected to declare and pay the difference of the total amount due to the CfR.
This 10% retention has in turn prompted modifications to the FS7 form, which now includes a specific field where the employer is required to state the amount of 10% retained by government while completing the payments reconciliation in section ‘F’ of the FS7 form.
The amounts relative to any directors’ fees must now be declared distinctively from the rest of any other emoluments. This amendment has been reflected in the updated FS3 and FS7 forms.
The updated FSS forms may be accessed through the following link: https://cfr.gov.mt/en/Employers/Pages/Downloads-Employers.aspx