Final Settlement System (FSS)

Introduced in 1998, the Final Settlement System (FSS) is a tax collection mechanism applicable to specific categories of income. It is regulated by Articles 4(1)(b) and 4(1)(d) of the Malta Income Tax Act and applies to income derived from employment, pensions, annuities, and other annual payments.

FSS Registration and Employer Obligations

Any individual or entity that plans to employ staff in Malta must first obtain a Permission to Employ (PE) number.

After receiving a PE number, employers can hire full-time or part-time employeed and must comply with the Final Settlement System Rules (S.L 372.14). This includes:

• Submitting a payee status declaration form for each employee (FS4).
• Making periodic FSS tax and Social Security (SSC) deductions from employee wages.
• Filing FS5 forms and paying the deducted amounts to the Commissioner on a monthly basis.
• Submitting FS3 end-of-year reconciliations by February 15th of the following year.
• Filing the FS7 annual reconciliation for all earnings in the relevant basis year.

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

Key FSS Forms and Their Purpose

To comply with FSS regulations, employers must submit several specific forms. Employees are also responsible for ensuring their registration and tax status are accurate.

• FS4 – Payee Status Declaration: All employees must complete an FS4 form for each source of local emolument income. This form determines the correct tax rate by declaring the employee’s tax status (single, married, or parental) and employment type (full-time or part-time). The form must be submitted to the MTCA within seven days of the start of employment.
• FS3 – Payee Statement of Earnings: This form provides a summary of an employee’s earnings with a specific employer for the preceding basis year. It includes details such as gross emoluments, fringe benefits, tax deductions, and social security contributions. Employees who have had more than one employer in a year will receive multiple FS3s.
• FS5 – Payer’s Monthly Payment Advice: This form summarizes all monthly payments an employer owes to the MTCA. This includes the number of employees, gross emoluments, FSS tax, and SSC deductions. Employers must submit FS5 forms and corresponding payments monthly, within 15 days after the end of the month.
• FS7 – Payer’s Annual Reconciliation Statement: The FS7 is an annual summary of all FSS and SSC payments made by the employer to the MTCA. Employers with 10 or more employees must file this form online, while those with fewer than 10 employees have the option to submit it manually.
• FB1 – Fringe Benefits Personal History Sheet: The FB1 form is used to record the taxable fringe benefits an individual receives during their employment.

Submission Deadlines and Penalties

To avoid penalties and interest, employers must adhere to specific deadlines.

• FS5: Due by the end of the month following the reporting month.
• FS7: Due by February 15th of the year following the income year.
• FS3: Due by February 15th of the year following the income year.

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

PE Number Deactivation and Reactivation

A PE number can only be deactivated after all FS7 and FS3 forms have been submitted. This can be done online or manually. Reactivation is required immediately upon hiring a new employee and can also be completed online or manually, depending on access to an e-ID account.

Online Payment Process

Employers are required to use the MTCA online portal to submit forms and payments. This includes monthly FS5 forms and payments, as well as end-of-year FS3 and FS7 forms. The MTCA portal supports various online payment options, including direct credit.