Fringe Benefits

Fringe benefits, also referred to as payments-in-kind, encompass any benefit granted or considered to be granted due to an individual's employment or office. The circumstances regarded as fringe benefits, along with the method for valuing such benefits, are governed by the provisions set out in ‘The Fringe Benefits Rules’ under Subsidiary Legislation 123.55 (commonly known as the "FBR").

With regards to employment or office, a benefit is deemed to arise in Malta if the services in terms of the contract of employment or office are wholly or principally performed in Malta, whereas benefits received by reason of a directorship in a company is deemed to arise in Malta only if the company is managed and controlled in Malta.

The FBR classifies three main categories of Fringe Benefits as per the below:

• Category 1 - Benefits relating to Motor Vehicles

• Category 2 - Use of Property

• Category 3 - Other Benefits

Category 1 – Benefits relating to Motor Vehicles

The term “vehicle” is broadly defined as any kind of vehicle designed for transporting goods but also used to carry people. However, certain vehicles are excluded from this definition, including:

• Vehicles weighing more than 3,500kg; 

• Motorcycles;

• Vehicles used by disabled individuals and used as such to commute between home and work;

• Vans specifically used for transporting goods (as per LN 205 of 2017);

• Any other vehicle as the Commissioner may specify by order in writing.

Among the various vehicle-related benefits available to employees, a notable example is the car cash allowance. This benefit provides an annual cash sum to employees who use their own vehicle to travel to work. The tax treatment of this allowance is structured such that 50% of the amount is taxable up to a cash allowance threshold of €2,340, while any portion exceeding this limit is subject to tax in full. 

Alternatively, when an employee is granted the use of a company car, the taxable value of the corresponding fringe benefit is determined using a formula. This calculation considers key factors such as the vehicle’s age, its market value, and whether the employer covers fuel expenses for the employee.

This system ensures that both cash allowances and the private use of company cars incur tax in a manner proportionate to their value and usage circumstances, promoting fair and transparent taxation of non-monetary employment benefits.

Category 2 - Use of Property

In the case of Category 2 benefits, there are several types of assets with their respective value of fringe benefit being calculated at the higher of market value at set percentages, with allowable deductions in some cases.  The benefit regarding movable property owned by the employer or by a related person is calculated at 12% of the higher of the market value and the original cost of property. After 6 years of ownership, the original cost for valuation purposes will be deemed to be 60% of the original cost. Another notable example is when an employee pays rent for the private use of immovable property. In such cases, the annual value of the fringe benefit is calculated at 5% of the higher of market value or original cost of the property, minus the rent actually paid by the employee.

Category 3 - Other Benefits

Any other benefit that does not fall under Category 1 or Category 2 is deemed to fall under Category 3. These include various forms of economic advantages such as the transfer of assets at subsidized prices, loans offered at interest rates below the market norm, and the reimbursement of personal expenses—for example, school fees. Additionally, Category 3 benefits extend to the provision of free or discounted goods or services, which might include insurance, meals, travel, professional advice, or transportation. Generally, these benefits are subject to taxation based on their fair market value, thereby reflecting the true economic benefit conferred upon the employee.

In conclusion, due to fringe benefits being taxed in the same manner as cash wages or salaries, employers are entitled to deduct the cost of providing these benefits from their business income for income tax purposes. This alignment ensures both fair taxation and appropriate recognition of business expenses related to employee compensation.

Get in Touch:

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Sarah Magri

smagri@quazar.mt / +356 2388 4600