Maltese tax law is somewhat silent when it comes to the tax implications of golden handshakes and other payments made upon termination of employment. For such reason, in order to determine the tax implications applicable to such payments, one would need to refer to case law, both British case law and Maltese case law.
- Relevant provisions under Maltese tax law
Maltese tax law exempts ‘capital sums received by way of commutation of pension (up to a maximum of 30% of the total pension), retiring or death gratuity or received as consolidated compensation for death or injuries)’.
Furthermore, Maltese tax law states that ‘gains or profits from any employment or office, including the value of any benefit provided by reason of any employment or office’, are subject to tax. The above term includes a benefit provided by virtue of an employment or office after the termination thereof. Such payments are generally given as a reward for, or in recognition of, services rendered to that company.
- Reference to Case Law
Local and foreign case law has shown that the key factors that lead to the determination of whether such payments are taxable or not are:
- whether the payment is stipulated in the contract of employment
- whether the recipient of the payment has suffered any loss or has surrendered any rights
- whether the payment was given purely for personal reasons
- whether the payment accrues to the recipient in virtue of his/her office
- whether the payment is a gift or an ex-gratia payment (as opposed to ex-jure)
- whether payment is received in lieu of notice on the termination of employment
- whether such payment originated from employment
