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Expat Briefing Editorial Team, 03 July, 2013
Like many places around the Med, those who have holidayed in Malta often return to buy second homes on the island, or to settle there on a long-term or permanent basis, particularly those hailing from cold northern European climes. Indeed, in recent years, immigration by wealthy foreigners has been positively encouraged by the Maltese Government because they contribute significantly to economic growth, and Malta’s newly-improved expat scheme known as the Global Residence Programme aims to do just this.
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.
Malta’s climate is warm with an average of 300 days of sunshine each year, and average temperatures range between 14°C in winter and 32°C in summer. Rainfall averages around 590mm.
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 credit crunch elsewhere in Europe and beyond. 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.
In June 2008, the IMF highlighted that Malta's banking system was well-placed to weather the global financial turmoil. The IMF report said that banks have healthy liquidity positions and a good funding profile rooted in domestic retail deposits. Additionally, they appeared to have no direct exposure to US subprime mortgage-based assets. With public finances being given a clean bill of health in a follow-up report in January 2013, the IMF is now warning that safeguards must be introduced to protect the Maltese banking sector. "Banking and insurance companies appear healthy with relatively sound capital and liquidity ratios, but the sector’s sheer size (above 8 times GDP) and large foreign ownership represent a number of risks to financial stability and fiscal sustainability," the Fund warned. At the moment however, Malta would appear to be in far healthier economic shape than the likes of Cyprus, Greece, Italy and Spain.
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.
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 is enhancing the terms of the incentive scheme offered to high net worth individuals (HNWIs) seeking to obtain a residence permit.
As under the existing 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. This is a marked reduction on 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). This is a substantial reduction to the existing 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 existing scheme, which requires a revenue contribution of EUR25,000 plus EUR5,000 per dependant.
The improved scheme also removes 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 dependent.
Zammit Lewis said the Global Residence Programme would boost the housing market, generate additional revenues for Malta, and provide a boost to the financial services, leisure and hospitality industries.
“The Government will support this scheme with all the necessary infrastructure to operate and work well,” he said. “We will see that the procedures that operate this program are not bureaucratic and create the least possible disruption to applicants who want to invest and pay taxes in our country.”
“We are doing this because we believe in economic growth and because we believe in the potential that our country offers,” he added. “This is another positive sign resulting from responsible administration which has clear priorities for our country.”
The proposal was 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.”
Certainly, the new scheme sounds a lot more attractive than the existing HNWI expat incentive, but we still await the small print. Zammit Lewis said that the Government intended to introduce legislation giving effect to the improvements by the end of June, but it remains unclear whether the new scheme applies to EU/EEA nationals as well as non-Europeans. Some commentators have suggested that it will initially apply only to non-Europeans, with additional regulations extending the scheme to EU/EEA nationals coming later in 2013. The name of the scheme at least suggests it should be open to applicants regardless of their origin when fully up and running.
The following table provides a comparison of the main points of the existing HNWI scheme and the Global Residence Programme.
Global Residence Programme
Gozo; Malta (South)
Immovable Property Purchase
500,000 plus 150,000 per dependant
25,000 plus 5,000 per dependant
Malta Highly Qualified Person Scheme
While the recent focus has been on the Global Residence 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. However, rules surrounding residence in Malta are quite complicated, having been derived from UK concepts and precedents, which are themselves something of a mess and currently subject to change! 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 EUR80,100 for basis year 2013. The 15% flat rate is imposed up to a maximum income of EUR5 million; 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 must show that he or she is in receipt of stable and regular resources sufficient to maintain themselves and their family in Malta without recourse to Malta’s social security system
the individual resides in accommodation regarded as “normal” for a comparable family in Malta
the individual is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for themselves and the members of their family.
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 receives 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.