The Malta Retirement Programme (the “MRP”) enacted by Legal Notice 317 of 2012 introduces a special tax status regime for EU, EEA and Swiss pensioners who become Maltese residents. Thus, the MRP is a programme designed to attract nationals of the EU, EEA and Switzerland who are not in an employment relationship and are in receipt of a pension as their regular source of income. Beneficiaries under this programme will be subject to tax at a flat rate of fifteen percent (15%) on foreign-sourced income, subject to a minimum tax payment and with the possibility to claim double tax relief. Beneficiaries under the MRP are prohibited from being employed in any capacity however they may hold a non-executive post on the board of a company resident in Malta. The MRP rules are subject to a number of criteria, in order to entitle successful applicants to a special tax status.
Disclaimer: Readers of this article should note that following the publication of this article, the MRP rules and regulations may be subject to further amendments by the Government of Malta and any relevant Government entities.
In order to be eligible under the MRP, the applicant (the “Applicant”) must fulfill all of the following conditions:
- owns or rents immovable property which the Applicant occupies as his/her principal place of residence worldwide. The value of the property owned needs to be at least two hundred and seventy five thousand euro (EUR 275,000) if the property is situated in Malta or two hundred and fifty thousand euro (EUR 250,000) if the property is situated in Gozo.
- the property needs to have been bought after 1 January 2011. If a property was purchased prior to 1 January 2011 for an amount which is less than the aforementioned amounts, such property may also satisfy this requirement if the Applicant declares in the application that the said declaration is supported by a separate and independent architect valuation of the property and an architect’s plan of the property. The commissioner for revenue (the “Commissioner for Revenue”) may authorize an architect or any other officer in order to ascertain the declared value of the property. A certified copy of the final deed of purchase which clearly indicates the Applicant as the owner of the immovable property is to be submitted together with the application.
- if on the other hand, the immovable property is rented, the lease needs to be taken out for a period of not less than twelve (12) months and is to be evidenced by a certified lease agreement clearly indicating the Applicant as the lessor of the immovable property. It is pertinent to note that the lease agreement is to indicate whether the property is furnished or otherwise. If the property is located in Malta the amount of the lease should not be less than nine thousand and six hundred euro (EUR 9,600) per year whereas if the property is located in Gozo the lease should not be less than eight thousand seven hundred and fifty euro (EUR 8,750) per year.
- is not a beneficiary in terms of any other programme in Malta such as the High Net Worth Individuals Rules, or the Highly Qualified Persons Rules. However, an Applicant may renounce to benefits provided under any other scheme prior to submitting an application under the MRP.
- is either an EU national, or a national of Iceland, Norway or Liechtenstein or a national of Switzerland. Maltese nationals are not entitled to apply.
- is in receipt of a pension supported by original documentary evidence. The entire pension declared in the application to be received by the Applicant needs to be received in Malta.
Furthermore, the pension needs to constitute at least seventy five percent (75%) of the Applicant’s
chargeable income for any particular tax year. An Applicant is deemed to be receiving a pension if he/she is in receipt of:
- periodic payments paid in respect of previous employment.
- remunerations paid as a lifetime or temporary annuities; or
- regular income from an occupational retirement scheme, personal overseas retirement plan or insurance policies. Lump sum payments or any other capital sum received by way of a commutation of pension, retiring or death gratuity are not considered by the Commissioner for Revenue.
- is in possession of a valid travel document. A certified copy of such document is to be submitted together with the application.
- is in possession of a health insurance policy which covers all risks across the whole of the EU. A certified copy of the health insurance policy is to be submitted together with the application.
- is a fit and proper person. Applicant would be required to submit an updated police conduct certificate, accompanied by a sworn declaration before a Commissioner for Oaths in Malta confirming whether the Applicant was found guilty of any civil or criminal convictions as well as providing a confirmation of any civil or criminal ongoing proceedings. If the Applicant was found guilty, details of such convictions would need to be provided in a separate declaration signed in original by the Applicant.
- is in receipt of a Maltese residency card. A certified copy of such residency card is to be submitted together with the application.
Applications need to be undertaken by an Authorised Registered Mandatory (the “ARM”) authorized to act as such by the Commissioner for Revenue. Lecocqassociate Ltd. is authorized to provide such service.
A non-refundable administrative fee of two thousand five hundred euro (EUR 2,500) needs to be paid upon application by means of a bank draft payable to the Inland Revenue Department.
Once the MRP application is submitted to the Commissioner for Revenue, it is checked for completeness accordingly. An acknowledgement letter is sent to the respective ARM indicating any missing documentation and a letter of intent is issued which is valid for twelve (12) months from the date of such letter. A notice of primary residence is to be completed and signed in original by the Applicant.
Once the Commissioner for Revenue is in receipt of the notice of primary residence and all the required documentation is in order, special tax status will be confirmed.
A beneficiary under the MRP will be subject to a rate of fifteen cents (0.15) on every euro thereof on any income that is received in Malta from foreign sources. This rate of tax will apply from the date of confirmation of the special tax status referred to as the ‘appointed day’ up to the day of ‘cessation of status’.
A minimum tax of seven thousand five hundred euro (EUR 7,500) needs to be paid by a beneficiary of the MRP annually. In the first year the beneficiary will not be subject to provisional tax.
Beneficiaries retain the right to request a claim for relief of double taxation under Article 74(a) and (b) of the Income Tax Act, provided that the minimum amount of tax payable by the beneficiary is as provided above. If the tax payable according to the tax computation is such that it is less than the minimum tax required to be paid as aforesaid, the amount to be paid will be the said minimum of seven thousand five hundred euro (EUR 7,500).
Annual Tax Return
An Annual Tax Return must be submitted by a beneficiary of the MRP, by means of which any material changes that affect the beneficiary’s special tax status need to be indicated.
The Special Tax Status can cease upon the occurrence of the below:
By choice of the beneficiary: a beneficiary may opt to cease to possess the special tax status under the MRP through a notification to the Commissioner for Revenue from a particular date in the future. Cessation cannot be in excess of three (3) months from the date of receipt of such notification by the Commissioner for Revenue. If no date is indicated in the notification, cessation will have immediate effect.
By default of the Income Tax Act: a beneficiary will cease to possess special tax status with immediate effect, if the same beneficiary is in breach of any provisions of the Income Tax Act.
Failure in connection with the conditions that need to be satisfied throughout the special tax status: the special tax status will be terminated if the beneficiary:
- does not hold a qualifying property at any time after the appointed day;
- becomes a Maltese national or;
- does not remain a citizen of an EU Member State, Iceland, Norway, Liechtenstein or Switzerland; or
- fails to receive in Malta all the pension indicated in the documentary evidence submitted to the Commissioner for Revenue; or
- is not in possession of a health insurance policy in respect of all risks normally covered for Maltese nationals; or
- establishes domicile in Malta; or
- acquires a permanent residence certificate in terms of Article 7 of the ‘Free Movement of European Union Nationals and their Family Members Order’; or
- stay is deemed not to be in the public interest. This includes instances where the beneficiary’s stay affects the interests of public safety, the protection of public order, national security, territorial integrity, or public health or morals; or
- resides in Malta for less than ninety (90) days a year averaged over any five (5) year period; or
- stays in any other jurisdiction for more than one hundred and eighty three (183) days in a calendar year. The beneficiary needs to make a declaration to this effect in the Annual Tax Return.
Upon becoming aware of any such event, the beneficiary is to notify the Commissioner for Revenue through the services of the ARM, within four (4) weeks of becoming aware of any such event. An administrative penalty of five thousand euro (EUR 5,000) shall be applicable where the beneficiary fails to notify the Commissioner for Revenue of any such event within the stipulated time frame.
The MRP is beneficial for EU, EEA and Swiss retirees who wish to reside in Malta and benefit from a flat tax rate of fifteen percent (15%) on their foreign-sourced income, subject to a number of requirements as described in this article.