Malta Developers Association Proposes Minimum Wage Increase and Universal 15 Percent Corporate Tax Rate

September 15 2024 07:36 by PCLMedia

The Malta Developers Association (MDA) has put forward a set of significant proposals aimed at addressing key economic and housing challenges in Malta. Central to their proposals is a call for an increase in the tax-free minimum wage to €1,100 per month, alongside the introduction of a universal 15% corporate tax rate. The association's recommendations come in the lead-up to the upcoming national budget.

Minimum Wage Proposal

The MDA recognizes the difficulty in raising the minimum wage without negatively impacting employers. However, their proposal argues that a minimum wage increase to €1,100 is both necessary and achievable, provided that other fiscal measures, such as the corporate tax reform, are also implemented.

The association believes that aligning the minimum wage with the rising cost of living will help alleviate financial pressures on workers. Coupled with tax reforms that boost corporate profits, businesses would have greater capacity to reinvest in their employees, thus creating a positive economic cycle that benefits both workers and employers.

Corporate Tax Reform

On the corporate tax front, the MDA has reiterated its long-standing support for a harmonized corporate tax rate of 15%. This would involve a five-year plan where the tax rate on foreign companies, currently at 5%, gradually increases to 15%, while local companies, currently taxed at 35%, see their tax rate reduced to 15%.

The MDA contends that a harmonized tax rate would make Malta more competitive internationally, while ensuring that companies contribute equitably to the national economy. The global minimum corporate tax rate of 15%, agreed upon by the Organisation for Economic Co-operation and Development (OECD) and endorsed by many European countries, is a key context for this proposal. Several European nations, including Ireland and Germany, are either adopting or aligning their corporate tax systems with this global standard to prevent tax evasion and ensure fair competition. By harmonizing Malta’s tax regime, the MDA argues, the country can remain an attractive destination for both foreign and domestic investors.

Minimum Wage and Corporate Tax in Europe

Across Europe, minimum wages and corporate tax rates vary significantly, reflecting diverse economic structures and cost-of-living standards. Countries like Luxembourg and Ireland offer some of the highest minimum wages in the EU, with Luxembourg's minimum wage exceeding €2,300 per month. Meanwhile, countries in Southern and Eastern Europe, such as Greece and Bulgaria, maintain minimum wages below €800 per month.

In terms of corporate taxation, Malta's current tax structure, particularly the effective 5% tax rate for foreign companies, has been a key element of its appeal to international businesses. However, with the global trend towards corporate tax harmonization, several countries, including the Netherlands and Spain, are moving towards a 15% rate. The MDA’s proposal aligns Malta with this shift, ensuring that the country remains competitive while promoting fair taxation practices.

Housing and Property-Related Proposals

The MDA also made several proposals aimed at improving housing affordability and addressing the challenges faced by both buyers and renters. One key suggestion is to reduce the tax on long-let residential rentals from 15% to 5%, limited to rentals with a value of €1,000 or less. This measure, the MDA argues, would encourage homeowners to offer more affordable rental properties, addressing the ongoing affordability crisis in the rental market.

Additionally, the MDA addressed the needs of different demographics in the housing market. Young people seeking larger homes, and retirees looking to downsize, face challenges due to double taxation on both the sale and purchase of properties. To address this, the MDA proposes a tax relief scheme that incentivizes both upsizing and downsizing of primary residences.

The association also emphasized the importance of restoring traditional properties, particularly in Urban Conservation Areas (UCA). They recommended extending the government’s current restoration schemes to apply to properties outside UCAs, encouraging owners of traditional properties across Malta to invest in restoration rather than redevelopment.

Other Proposals

The MDA outlined additional proposals, including updates to existing housing schemes. The association suggested increasing the value of the first-time buyers scheme to €300,000, and broadening the second-time buyers scheme by raising its limit from €86,000 to €150,000. The MDA believes these adjustments are necessary to keep pace with the rising property prices in Malta, ensuring that these schemes remain effective for prospective homebuyers.

They also proposed incentives for individuals who do not leave their vehicles parked on the streets. These include reduced taxes and exemptions from stamp duty on the transfer of garages or domestic parking spaces, as well as lower registration and licensing fees for vehicles not parked on public streets. This measure is intended to alleviate Malta’s congestion and parking challenges while encouraging more responsible car ownership.

The MDA’s proposals for the upcoming budget reflect a comprehensive approach to tackling key economic and social issues in Malta. The suggested minimum wage increase and corporate tax harmonization are designed to stimulate economic growth while ensuring fair wages and equitable taxation. At the same time, the housing-related proposals aim to make property ownership and rental more accessible for all, while promoting the restoration of Malta’s architectural heritage. As the country prepares for its next fiscal year, these recommendations could shape the future of Malta’s economy and housing market.