A co-operative society is an autonomous group of individuals who voluntarily unite to meet their economic, social, and cultural needs through a jointly owned and democratically controlled enterprise. Here are some key points about co-operatives: 

Co-operative Contribution:

Co-operatives in Malta are exempt from paying income tax. However, they are required to contribute 5% of the annual surplus from their activities, operations, investments, and other sources to the Central Co-operative Fund. The Central Co-operative Fund is a public fund, which finances programmes relating to co-operative education, training, and development. 

Patronage Refund:

Co-operatives can distribute all or part of the remaining net surplus to their members through a patronage refund. The patronage refund distribution to members, is distributed in proportion to the volume of work carried out by them within the co-operative society.   

Members who are no longer part of the co-operative society cannot have their share of profits distributed to other members. They are still entitled to receive their share of distribution in proportion to the volume of business done by them with the society. 

The patronage refund is subject to a withholding tax of 15%, if distributed to individuals resident in Malta. The tax due is to be paid by the co-operative. The distributed patronage refund withholding tax is not a final tax so if the recipient’s income tax bracket is lower than that of 15%, then the recipient can claim a refund on the tax incurred.  

Remuneration: 

With regards to remuneration there shall be a distinction between the remuneration provided to members of the committee management and remuneration provided to members that provide a service to the co-operative.  

1. Members of the committee of management   

Remuneration provided to members of the committee of management authorised by the statute or by the general meeting of the society, is considered as employment income. Thus, the member must register with JobsPlus, and the co-operative is responsible to deduct the FSS tax and social security contributions from the member’s salary. 

It is important for the committee member, to advise the co-operative if the allowance received, is the individual’s full-time or part time income. This ensures that the correct tax rates are applied by the co-operatives. Full-time income is taxed at the progressive rates of tax, while part-time income may be taxed at a fixed rate of 10% applicable up to a maximum of €10,000 per annum.  

2. Members providing a service to the co-operative  

If an individual is a member of the co-operative but is providing a service to the co-operative as a subcontractor, that individual is considered as self-employed for that service. Therefore, the individual shall issue an invoice to the co-operative for that service and is responsible to settle the tax and social security obligation on his own behalf, as a self-employed.  

For further information contact: 

Daniel Borg                                                                               Neil Maniscalco 

Director Accounting & Advisory                                             Director Audit & Assurance 

E: daniel.borg@dfkmalta.com                                         E: neil.maniscalco@dfkmalta.com                                                                                                  

*The objective of this summary is to outline the principal elements of the rules being summarized herein. Accordingly, it is not intended to be provided by way of comprehensive and definitive advice. Interested parties should seek professional advice by contacting DFK Malta Tax & Consultancy Limited before acting upon any information included in this document.