Insight

Final Settlement System (FSS)

February 26, 2026 | by Brainston Advisory
Final Settlement System (FSS) & Payroll Compliance in Malta
The Final Settlement System (FSS) is Malta’s mandatory tax and social security withholding system for employment income.

FSS compliance carries real risk if not handled correctly. Late or incorrect submissions are subject to penalties and interest, and even small errors can trigger statutory fines unless properly managed.

What is the Final Settlement System (FSS)?
Introduced in 1998, FSS is regulated by Articles 4(1)(b) and 4(1)(d) of the Malta Income Tax Act.

It applies to:

  • Employment income
  • Pensions
  • Annuities
  • Other annual payments

 

Under FSS, employers must deduct tax and Social Security Contributions (SSC) from employees and remit them to the Commissioner for Revenue through a monthly and annual reporting system.

Before Hiring: Permission to Employ (PE)
Any person or company employing staff in Malta must first obtain a Permission to Employ (PE) number.

Once registered, employers must:

  • Apply the correct FSS tax treatment for each employee
  • Calculate payroll tax and Social Security Contributions (SSC)
  • Deduct and pay the relevant tax and SSC amounts
  • Submit the required statutory forms within the prescribed timeframes
  • Complete annual reconciliations to confirm all figures are aligned

 

If obligations are not met on time, this may result in penalties and interest.

Key FSS Forms and Their Purpose
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Social Security Contributions (SSC)
Under the Social Security Act, taxpayers must pay regular social security contributions. These are categorized as:

    • Class 1: For employees, contributions are deducted monthly from their gross emoluments by their employers. Employers are required to remit these contributions to the Malta Tax and Customs Administration (MTCA) each month.
    • Class 2: For self-occupied individuals (earns income from a trade, business, profession, vocation or other economic activity), contributions are paid quarterly directly to the Commissioner for Revenue (April, August and December) on the net annual income from the prior year.

 

Contribution rates and categories are updated annually and vary based on age, wage level, and student status.

https://mtca.gov.mt/personal-tax/fss/social-security-contribution-rates/social-security-contribution-rates

Submission Deadlines and Penalties
  • FS5: By the end of the following month
  • FS3: By 15 February
  • FS7: By 15 February

 

Penalties for non-compliance with FSS obligations are outlined in S.L 372.14 – Final Settlement System Rules.

PE Deactivation & Reactivation
A PE number can only be deactivated once all FS3 and FS7 forms are filed. It must be reactivated before hiring new staff.
How can Brainston Advisory assist you
Payroll and FSS compliance require accuracy, consistency, and up-to-date technical knowledge. Our team specialises in Maltese payroll, FSS, and Social Security compliance, supporting businesses across every stage of employment, including work permits for Third Country Nationals (TCNs).

We can assist you by:

  • Payroll setup and onboarding
  • Employee registration and compliance support
  • Preparation of payslips
  • Monthly FSS and SSC calculations and submissions
  • Ongoing compliance and payroll consultation
  • Updates on legislative and rate changes
  • Direct liaison with the MTCA on your behalf
  • Payroll reviews and annual reconciliations
  • Work permit applications for Third Country Nationals
Book a Free Initial Consultation

Let’s discuss your payroll needs and show you how we can support your business.

Contact us

📞 +356 2152 1025/6

✉️ info@brainston.mt