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Expat Briefing Editorial Team
21 July, 2014
Little more than two or three hours flying time from most places in Europe, Malta has an average of 300 days of sunshine each year, temperatures of between 14°C in winter and 32°C in summer and a typically laid-back Mediterranean lifestyle. Little wonder then that this island is one of the most popular bolt-holes for expats Britons and other Europeans. In this feature we briefly describe Malta the country, its tax rules, and special expat tax schemes.
Malta is in fact a collection of islands situated in the Mediterranean Sea, about 100 km from Sicily and 290 km from North Africa. The inhabited islands comprise Malta (390 sq km) Gozo (65 sq km) and Comino (2.5 sq km). Malta is the largest of the islands, and is home to the country’s capital, Valletta. The total population of the islands is estimated to be just over 400,000.
With a civilisation dating back to circa 5,000 years BC – one of the oldest in the region – and its strategic position in the Mediterranean, Malta has become an important cultural and commercial centre. The islands' architecture, language and culture are an intriguing and unique blend of Mediterranean and Arabic influences, although after almost 150 years as a British colony, British influences abound and English stands alongside Maltese as the official language. Italian is also widely spoken.
Ten years after the Maltese islands declared independence in 1964, Malta became a republic within the British Commonwealth. However, the economy slumped after the withdrawal of the British military in 1979, and for a while local political conditions were not propitious for business development. Tourism however continued to thrive (now accounting for about a third of GDP), and in the last ten years Malta has made an effort to become more business-friendly, making use of the institutions, infrastructure and public administration left behind by the British. As a consequence, the island now has a rapidly growing and reputable financial centre at its heart. Indeed, Malta’s financial services sector grew by 30% in 2010 when the industry was still reeling from the credit crunch elsewhere in Europe and beyond.
In July 2014, the Malta Financial Services Authority reported that 2013 was another successful year for the financial services industry, with strong growth in the number of registered funds and retirement schemes in particular. Malta was also named as the top European domicile for hedge funds in the prestigious Hedge Funds Review Service Provider Rankings 2013.
The growth of financial services is partly compensating for the fact that, with limited agricultural land and wholly lacking in energy resources, Malta inevitably has to import a great deal.
Malta is a politically stable parliamentary democracy and has been a member of the European Union (EU) since May, 2004, adopting the euro in 2008. The Central Bank of Malta used to apply exchange controls under the terms of the Exchange Control Act 1972, but current transactions were freed from exchange controls in 1994, and capital controls were removed in 2004 as part of EU entry.
Unlike Cyprus, another location favoured by European – and particularly British – expats, Malta has survived the financial crisis and the Eurozone troubles relatively unscathed. Having exited the EU’s excessive deficit procedure programme in December 2012, Malta has been able to cut taxes recently, in contrast with many of its neighbours in the region.
In terms of infrastructure, the islands are reasonably well equipped given their somewhat isolated location. Malta's economic policy encourages information technology operations, and the territory has invested heavily in state-of-the-art telecommunications. There are already a number of Internet Service Providers in Malta, with clear interest being shown in offshore e-commerce development.
The most active e-commerce sector in Malta has been betting and gaming; there are said to be over 360 betting and gaming e-commerce operations in total on the island.
It is necessary to consider both domicile and residence to establish the exact tax situation of individuals in Malta.
Maltese domicile is established on the basis of UK case law principles. Broadly speaking, an individual's domicile of origin (where he was born) can be changed if he establishes a permanent home elsewhere. He can only have one domicile.
Residence is defined as habitual presence in the country; ordinary residence means that an individual is present in Malta in the ordinary or regular course of his life.
Individuals who are domiciled and ordinarily resident in Malta pay income tax on their world-wide income.
Individuals who are domiciled elsewhere, and who are resident but not ordinarily resident in Malta pay tax on their income arising in Malta, or remitted there (but not capital gains, whether remitted or not). The six-month test is likely to be definitive in establishing residence.
Non-resident individuals pay tax on their Malta-source income only; but local interest and royalty income are exempt from tax, as are capital gains on holdings in collective investment schemes or on securities as long as the underlying asset is not Maltese immovable property.
Rates of income tax as of 2014 are as follows for residents:
|Income (EUR)||Tax rate|
|0 - 11,900||0%|
|11,901 - 21,200||15%|
|21,201 - 28,700||25%|
|28,701 - 60,000||32%|
|Income (EUR)||Tax rate|
|0 - 8,500||0%|
|8,501 - 14,500||15%|
|14,501 - 19,500||25%|
|19,501 - 60,000||32%|
For non-residents income tax rates as of 2014 are as follows:
|Income (EUR)||Tax rate|
|0 - 700||0%|
|701 - 3,100||20%|
|3,101 - 7,800||30%|
However, highly qualified expatriate employees may qualify for one of Malta’s concessionary tax schemes (see below).
Malta has double tax treaties in force with almost 70 countries, including France, Germany, Ireland, Italy, the Netherlands, Russia, the United Kingdom and the United States.
Malta has adopted all standards and requirements applying in the EU relating to exchange of information such as those required under the Savings Tax Directive and the EU Administrative Cooperation Directive.
Malta is also a party to the Multilateral Convention on Mutual Assistance in Tax Matters and joined the so-called “G5-plus” initiative on automatic exchange of information.
Malta signed an intergovernmental agreement (IGA) with the United States on the implementation of the Foreign Account Tax Compliance Act (FATCA) on December 16, 2013. The IGA requires financial institutions in both Malta and the US to submit certain information about their clients to their own tax authorities, which in turn will automatically share such information with the other tax authority.
Expat Tax Schemes
The Global Residence Programme
On June 1, 2013, Parliamentary Secretary for Competitiveness and Economic Growth Dr Edward Zammit Lewis announced in a presentation that the Government was enhancing the terms of the incentive scheme offered to high net worth individuals (HNWIs) seeking to obtain a residence permit.
As under the former program, wealthy persons seeking a permanent residency visa will have to purchase high-value property and make a minimum tax contribution each year to Maltese coffers.
Under the terms of the scheme, the taxpayer must purchase immovable property worth at least EUR275,000 (USD365,000) in Malta or EUR220,000 in Gozo or the south of Malta, where property prices are generally lower – substantially lower than the previous requirement of EUR400,000. Alternatively, the individual may rent property for no less than EUR9,600 in Malta (equating to a monthly rent of EUR800 per month), or EUR8,750 in south Malta or Gozo (equal to EUR730 per month). Again, this represents a large reduction to the former minimum annual rent threshold to qualify for the programme, of EUR20,000 per year in both areas.
To avail of the new scheme, expats must make an annual upfront tax contribution of no less than EUR15,000, regardless of where they live in the islands. This is markedly less than under the old scheme, which required a revenue contribution of EUR25,000 plus EUR5,000 per dependant.
The improved scheme also removed the requirement that non-EU and non-EEA (European Economic Area - EU countries plus Norway, Iceland and Liechtenstein) nationals provide a EUR500,000 bond to the Government, plus an additional EUR150,000 per dependant.
The changes were welcomed by Kevin Buttigieg, CEO of Re/MAX Malta, part of the Re/MAX global real estate network, who said that: “This new scheme has been made very attractive and puts us straight back on the map, where both Europeans and Non-Europeans will find Malta or Gozo a very good option from a lifestyle, language and probably most importantly a fiscal point of view.”
The following table provides a comparison of the main points of the existing HNWI scheme and the Global Residence Programme.
Malta Highly Qualified Person Scheme
The Maltese Government also runs a scheme designed to lure highly-skilled and highly-valued employees to the islands.
The Highly Qualified Persons Rules, 2011, brought into force tax incentives and served to create 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 rules for the scheme came into force with effect from January 1, 2010, and apply to income which is brought to charge from the year of assessment 2011 (basis year 2010) and apply to individuals not domiciled in Malta. In essence, “not domiciled” in Malta means not having born there. A more detailed explanation of Malta’s residence rules can be found on our partner website, www.lowtax.net, which also contains tax and residence information for more than 70 other jurisdictions.
Under the scheme, individual income from a qualifying contract of employment in an “eligible office” is subject to tax at a flat rate of 15% provided that the income amounts to an annual minimum which is adjusted each year in line with the Retail Price Index; this amounts to EUR81,205 for basis year 2014. The 15% flat rate is imposed up to a maximum income of EUR5m; the excess is exempt from tax.
The 15% tax rate applies for a consecutive period of five years for EEA and Swiss nationals and for a consecutive period of four years for third country nationals.
An individual may benefit from the 15% tax rate if he or she derives employment income subject to income tax in Malta (please see the Malta Personal Taxation section of www.lowtax.net for a description of Malta’s personal taxation rules). The employment contract must also be subject to the laws of Malta and should be drawn up for exercising genuine and effective work in Malta. Other stipulations include that:
The individual income derived from employment in an 'eligible office' will not qualify for the 15% reduced 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 recognised by the Malta Financial Services Authority.
Any individual who claims a benefit under the scheme when not entitled to do so is liable to a penalty equal to the amount of benefit claimed and if the benefit is paid the individual is liable to repay the benefit received plus additional tax of 7% per month or part thereof.
An application for a formal determination relating to eligibility under the Highly Qualified Persons Rules must be made to the Chairman, Malta Financial Services Authority on the appropriate form, found on the tax authority website.
For a more detailed overview of the Malta Highly Qualified Persons Rules, the Maltese tax authority also has a page on its website dedicated to the Tax Guidelines of the Rules.
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