The 2025 Budget in Malta marks a significant adjustment in tax bands across all income levels. By now, you might have heard of the €12,000 income that is not taxable, but how do these changes compare over time, and what impact will they have on your paycheck?

COLA and minimum wage increase

Before diving into tax, let’s look at the increase in basic pay. Most employees will see a €5.24 per week increase in the Cost of Living Adjustment (COLA), with an additional increase to the minimum wage, totalling to €8.24. This sets the new minimum wage for 2025 at €221.78 per week, or €11,532.56 annually.

Additionally, by law, each employee is entitled to “government bonuses” (actually paid by employers), totalling €512.52 annually. This brings the full-time minimum wage to €12,045.08 annually. Note that whilst not all salary calculators include these bonuses automatically, our calculator does, ensuring a more accurate view of your pay.

How are minimum wage earners impacted?

For those on minimum wage, the changes effectively mean a €370 tax reduction, along with a basic increase of €428.48 per year. In practical terms, minimum wage earners may see an additional €750 in annual net income, after social security deductions.

This averages to a weekly increase of approximately €14.42. Arguably, minimum wage earners qualify for an exemption on income tax, however there's a lack of clarity on how effectively this is implemented. We'll delve deeper into this later on in this article.

Tax impact on other tax bands

A significant improvement in the system is the merging of the two 25% tax bands which previously caused tax spikes for employees in a few unlucky ranges.

To take an example, someone earning an annual wage of €20,000 in 2024 will see a COLA increase of €272.48 in gross annually, but approximately gain €852 in net income. This is due to a reduction of around €675 in taxation.

Those earning over €60,000 a year will see an equivalent increase, showing consistency in the tax band adjustment across the different tax bands.

This increase averages to €16.38 net per week, which is the highest increase Maltese employees have seen, even when compared to the €12.81 COLA increase in 2024 (which was then taxed).

Income tax throughout the years

Whilst this revision of tax bands is welcomed, is it as revolutionary as it is made to be?

Going back in history, the last revision of tax bands occurred in 2016. At the time, the basic minimum wage (including government bonuses) amounted to €9,249.04, and the non-taxable portion stood at €9,100.

In 2025, the annual minimum wage will be €12,045.08. This comparison shows that the income tax band revision is merely an alignment to the 2016 revision, with the amount of income non-taxable standing just below the minimum wage. Rather than a revolutionary contribution to employees, this highlights the negligence of the past eight budgets, especially during record inflations.

Is the minimum wage now taxable?

Introducing these updates, Finance Minister Clyde Caruana stated that minimum wage earners will remain tax-free. How true is this statement?

If we use salary calculators, minimum wage earners in 2025 are calculated to pay €7 income tax, a significant improvement on the €378 income tax that they might pay in 2024.

In theory, employees can fill in their FS4, stating that their income won't exceed minimum wage, and are therefore not taxable.

A section within FS4 forms allows minimum wage employees to ensure they are not taxed.

However, in my five years of experience in the payroll field, only a handful of employers were aware of such, with thousands of minimum wage employees paying tax each month.

Jeremy Mifsud.

It is unclear whether the Malta Tax and Customs Administration (MTCA) issues refunds automatically to low-income earners during tax returns, or whether the responsibility is put on the employees to select and submit the correct tax rate.

Even if we were to assume that these employees were exempt, it's still necessary to highlight that those who earn at least €5 more than the minimum wage will still be paying €378 in income tax in 2024.

Overall reaction

Whilst welcoming these long-awaited revisions to the tax bands, one has to realise there is nothing exceptional about this revision. Considering that this re-aligns the tax bands to a similar range of 2016, professionals in the field will expect the government to announce an annual revision in each Budget from here on out.

Jeremy Mifsud is head of customer success at Buddy, a cloud-based payroll service provider.