Taking up residence in Malta is regulated by a number of legislations (the “Rules”). These Rules run parallel to the amended Residents Scheme Regulations but will not regulate holders of a valid permanent residence issued by the Commissioner of Inland Revenue (the “Commissioner”) according to the Residence Scheme Regulations.
The Malta Residence Permit
The EU/EEA/Swiss Nationals have the right to reside in Malta if they are exercising any of their Treaty rights as: workers, family members, self-employed persons, economically sufficient persons or students. Such rights may be restricted on grounds of public policy, public security or public health grounds or in cases of unreasonable burden on social assistance system of Malta.
The EU/EEA/Swiss Residence Permit is issued in terms of the Immigration Regulations, 2004 and valid for a period of five years from the date of issue, renewable automatically, provided there have been no changes to the Permit holder’s residential status and there has been no breach of any of the conditions listed in the said Regulations. Breaks in residence not exceeding six consecutive months and absence on military service shall not affect the validity of the Residence Permit.
Conditions for application
The Residence Permit cannot be withheld if the applicant in an EU/EEA national, does not qualify as a “prohibited immigrant” in terms of Article 5 of the Immigration Act and shows that he has sufficient means of supporting himself and his dependents (if any) and that he or his dependents are not likely to become a charge on public funds.
It should be noted that the granting of a Residence Permit does not automatically entitle the holder thereof to the right to take up employment in Malta. If the applicant wishes to take up employment, he will have to apply for an Employment Permit from the Employment and Training Corporation in Malta.
Non-EU/EEA nationals shall only be entitled to reside in Malta if a Uniform Residence Permit for a specific purpose has been granted. The specific purpose may include but does not limit only to: employment, self-employment; health reasons; study; partner and long term residence. Such permit is granted accordingly to the provisions of the Immigration Regulations, 2004 and on the basis of national legislation, policy and in accordance with the provisions of specific EU Directives.
An Individual holding a Residence Permit qualifies as a resident in Malta for Maltese income tax purposes, and is therefore subject to the normal income tax rules and rates applicable for every Maltese resident person. Maltese residents are taxed at progressive rates going up to 35% and the tax is calculated on chargeable income and capital gains arising in Malta and on foreign income (excluding capital gains) remitted to Malta, for as long as the individual is deemed not to be domiciled in Malta for Maltese income tax purposes.
The current income tax rates are as follows:
The First EUR 8,500 : 0%
EUR 8,501-14,500 : 15%
EUR 14,501-60000 : 25%
EUR 60,001 & over : 35%
The First EUR 11,900 : 0%
EUR 11,901-21,200 : 15%
EUR 21,201-60,000 : 25%
EUR 60,001 & over : 35%
An individual, who is either resident in Malta or domiciled in Malta, but not both, is subject to tax on income arising in Malta, on income arising abroad but received in Malta, and on capital gains arising in Malta. Individuals who are neither resident in Malta nor domiciled in Malta (temporary residents) are subject to tax only on income and capital gains arising in Malta.
A resident individual of Malta means an individual who resides in Malta, except for such temporary absences that the Commissioner of Inland Revenue believes are reasonable and not inconsistent with the claim to be resident in Malta. An individual physically present in Malta for one hundred and eighty three (183) days (not necessarily consecutive) in a calendar year is generally considered to be resident in that particular year, regardless of the individual’s nationality.
Income Subject to Tax
An individual’s chargeable income is composed of an individual’s aggregate income from all sources, after omitting exempt items and deducting allowable expenses.
Income tax is imposed on earnings from employment of office, including pensions. Employment income includes the value of any fringe benefits, determined in accordance with the Fringe Benefit Rules. Such rules contemplate that any benefit provided by reason of employment by an employer or related company to an employee or to a member of his family is deemed to constitute a fringe benefit. Some of the fringe benefits regulated by the said rules include: use of a company car or car allowance, use of company property, provision of free or subsidized board and free non-business travel.
No deductions are allowed against employment income.
Employment income, including the value of fringe benefits, is subject to deduction at source under the final settlement system.
Self-Employment and Business Income
Business income includes any gains or profits from a trade, business, profession, or vocation, including profits arising from the sale of any property acquired by an individual for the purpose of making a profit through a sale, undertaking or scheme. Trading profits are calculated in accordance with generally accepted accounting principles and are adjusted to arrive at chargeable income.
Investment Income includes the following:
- Bank interest;
- Interest, discounts or premiums payable by the Maltese government;
- Interest, discounts or premiums payable by a corporation or authority established by law;
- Interest, discounts or premiums payable in respect of a public issue in Malta by a Company, entity or other legal person, whether resident in Malta or otherwise;
- Capital gains arising on the disposal of shares or units in a collective investment scheme licensed under the Investment Services Act, if the collective investment scheme redeems, liquidates or cancels such shares or units; and
- Capital gains arising on the surrender or maturity of units and similar instruments relating to the long-term business of insurance.
Resident individuals may opt to pay 15% final withholding tax on investment income. This may be treated as a final tax at the recipient’s option, and need not be disclosed in the individual’s personal income tax return. However, the recipient may declare such investment income, and apply the normal tax rates. The recipient of investment income may inform the payor not to withhold tax. In such circumstances, the recipient must declare the investment income in his or her personal tax return and apply the normal tax rates.
Interest and royalties paid to non-residents are exempt from tax in Malta, unless they are effectively connected to a permanent establishment in Malta through which the non-residents engage in a trade or business.
Highly Qualified Person Rules in Malta
The objective of Legal Notice 106 of 2011 and 306 of 2012 Highly Qualified Persons Rules, is the creation of a scheme to attract highly qualified persons to occupy an “eligible office” with companies licensed and/or recognized by the Malta Financial Services Authority (the “MFSA”), companies licensed by the Malta Gaming Authority (the “MGA”) and undertakings holding an Air Operators’ Certificate or an Aerodome Licence issued by the Maltese Transport Authority. The definition of an “eligible office” would include but would not be limited to: Chief Executive Officer, Chief Financial Officer, Chief Commercial Officer, Chief Insurance Technical Officer, Chief Investment Officer, Chief Operations Officer, Chief Risk Officer, Portfolio Manager; Chief Technology Officer; Actuarial Professional.
The individual income earned from a qualifying contract of employment occupying an “eligible office” with a company licensed and/or recognized by the MFSA or MGA is subject to tax at a flat rate of fifteen percent (15%) on the income arising in Malta. The income must amount to a minimum of eighty one thousand four hundred and fifty seven euro (EUR 81,457) which amount is changed according to the Retail Price Index. The 15% flat rate is compulsory up to a maximum income of five million euro (EUR 5,000,000), whilst the excess is not taxable. Any other income arising outside Malta and remitted into Malta will be subject to the tax rates tabled above under the heading “Residence Permit”.
The 15% tax rate applies for a consecutive period of five (5) years in the case of EU, EEA and Swiss Nationals whereas for third country nationals the scheme applies for a consecutive period up to four (4) years.
Individuals who have entered into a qualifying contract of employment, occupying an “eligible office,” two years prior to the entry of the scheme may benefit from the 15% tax rate on income arising in Malta, for the remaining years of the scheme.
An individual, who exercised employment in Malta prior to 1 January 2008, is not eligible for the scheme.
The conditions for such scheme to apply are the following:
- The individual derives employment income subject to income tax in Malta;
- The individual is protected as an employee in terms of Maltese law;
- The individual has proved to the satisfaction of the MFSA that he performs activities of an “eligible office” and that he is in possession of professional qualifications as required by the scheme and has at least five years professional experience;
- The individual has not applied for benefits under the Investment and Insurance Services Expatriate Scheme;
- The individual declares the emoluments received from the qualifying contract of employment and all income received from a person related to his employer, for income tax purposes in Malta; and
- The individual proves to the satisfaction of the Authority that he is in receipt of stable and regular resources sufficient to maintain himself and his family and is in possession of sickness insurance in respect of all risks covering himself and his family in Malta. The individual is required to reside in suitable accommodation in Malta and is in possession of a valid travel document.
Exclusions from the Scheme
The individual income derived from employment in an “eligible office” will not qualify for the 15% flat rate if it is paid by an employer who receives any benefits under business incentive laws or is paid by a person who is related to the employer who received any benefits under any business incentive laws or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognized by the MFSA or the MGA or of a company holding an Air Operators’ Certificate issued by the Authority for Transport in Malta or if the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognized by the MFSA or the MGA or not holding an Air Operators’ Certificate issued by the Authority for Transport in Malta (in the case of aviation services) or not holding “eligible office” with a company licensed and/or recognized by the MFSA or the MGA or not holding an Air Operators’ Certificate issued by the Authority for Transport in Malta (in the case of aviation services).
High Net Worth Individuals applying for Malta Residency
The special tax status rules regulate the principle objective of which was to attract high net worth individuals into retiring and settling in Malta by applying to the Commissioner for the granting of a special tax status. An individual may apply for a special tax status prior to entering into Malta. The Legal Notice 400 of 2011 entitled the High Net Worth Individuals EU/EEA/Swiss Nationals Rules and the Legal Notice 403 of 2011 entitled the High Net Worth Individuals Non-EU/EEA/Swiss Nationals Rules (the “High Net Worth Individuals Rules”) do not confer to the individual any further rights. This would mean that all other laws need to be adhered to with respect to eligibility to work in Malta.
An applicant who is eligible to be granted a special tax status must prove to the satisfaction of the Commissioner, that:
- The applicant does not benefit from the Residents Scheme Regulations or the Highly Qualified Persons Rules;
- The applicant must be in receipt of stable and regular resources which are sufficient to maintain himself and his dependents without recourse to the social assistance system in Malta;
- The applicant is in possession of a valid travel document;
- The applicant must be in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and the members of his family. The applicant need to provide a certified true copy of such insurance policy;
- The applicant is not domiciled in Malta and does not intend to establish his domicile in Malta within 5 years from the date of the application for the special tax status.
- The applicant must be a fit and proper person and declared so by the Authorized Registered Mandatory (the “ARM”).
- The property being declared as the applicant’s place of residence cannot be occupied by any person other than the applicant and his family members;
- The applicant must hold a Qualifying Property Holding (as defined below).
An applicant holds a Qualifying Property Holding if:
- He owns an immovable property in Malta purchased after 1 January 2011 for a consideration of not less than EUR 400,000;
- The said applicant, having already filed an application under the Residents Scheme Regulations, which application was duly received and acknowledged by the Commissioner either (i) owns an immovable property in Malta which was purchased before 14 September for a consideration of not less than EUR 116,000 or (ii) became a party to a promise of sale before 14 September 2011 to purchase and acquire an immovable property in Malta for a consideration of not less than EUR 116,000;
- The applicant rents an immovable property in Malta for not less than EUR 20,000 annually as lessee;
- Furthermore, the applicant and his/her family members would need to declare that he/she occupies the qualifying property as his/her principal and ordinary place of residence worldwide. It is fundamental that no other individual resides in the Qualifying Property at any time and that the Qualifying Property may not be let or sub-let. If the applicant would have already purchased or rented a Qualifying Property by the application date it is essential that a certified true copy of the contract is presented to sustain such claim.
An application for special tax status under the High Net Worth Individuals Rules may only be submitted to the Commissioner through the services of an ARM. Lecocqassociate is an approved ARM.
The individual granted a special tax status will be subject to an income tax rate of 15% on any income remitted into Malta from foreign sources, subject to a minimum annual tax liability (after taking into account any double taxation relief) of twenty thousand euro (EUR 20,000) in respect of EU/EEA/Swiss Nationals. An applicant with dependents shall in addition to the minimum amount of tax payable, pay another two thousand five hundred euro (EUR 2,500) per year of assessment for every dependent.
In respect of Non-EU/EEA/Swiss Nationals the minimum annual tax liability is that of twenty five thousand euro (EUR 25,000). An applicant with dependents shall in addition to the minimum amount of tax payable, pay another five thousand euro (EUR 5,000) per year of assessment for every dependent.
The above minimum amounts of tax payable are not refundable.
If the tax payable is less than the minimum tax required the amount to be paid will be the aforementioned minimum.
In the case of both EU/EEA/Swiss Nationals and Non-EU/EEA/Swiss Nationals, the income of an applicant and his spouse that is not chargeable to tax under the High Net Worth Individuals rules at the rate of 15%, shall be chargeable to tax at the rate of 35%. That is income arising in Malta from any trade, business, profession or vocation will be subject to a flat rate of tax of 35% on all the income derived there from.
lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.
This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on firstname.lastname@example.org for any questions.