Golden Handshakes, Termination Payments and Long-Service Awards

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 […]

Written By Elaine Camilleri

On March 31, 2021
"

Read more

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 taxThe 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

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

Disclaimer: This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.