Maltese tax law provides for rules which grant beneficiaries referred to as ‘Highly Qualified Persons’ to be taxed at a reduced rate of tax of 15% on their employment income, provided certain conditions are satisfied. Such persons must be highly qualified expatriates who occupy an eligible office with companies licensed and / or recognized by the Malta Financial Services Authority (MFSA), the Malta Gaming Authority (MGA) and Transport Malta (TM). The purpose of these rules is to attract foreign expertise and senior professionals to Malta.
A beneficiary is a person who:
- derives income from a ‘qualifying contract of employment’;
- is engaged in an employment activity constituting an ‘eligible office’;
- is not domiciled in Malta;
- derives employment income subject to tax in Malta and received in respect of work or duties carried out in Malta (or in respect of any period spent outside Malta in connection with such work or duties);
- is protected as an employee under Maltese law;
- proves to the satisfaction of the competent authority that he/she is in possession of professional qualifications;
- is in receipt of stable and regular resources which are sufficient to maintain him/herself and the members of his/her family (without recourse to the social assistance system in Malta);
- resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
- is in possession of a valid travel document; and
- is in possession of a sickness insurance policy (for him/herself and the members of his/her family).
A qualifying contract of employment is considered to be such if it gives rise to emoluments from an eligible office amounting to a minimum of €75,000 (exclusive of the annual value of any fringe benefits) in respect of a year of assessment (this minimum is adjusted annually in line with the Retail Price Index).
The employment activity contemplated in the contract of employment is an eligible office if the employment is with a company licenced and/or recognised by the MFSA, the MGA, or with an undertaking holding an air operators’ certificate. The employments and offices that are eligible for the reduced rate of tax are listed at the end of this article.
Emoluments paid by a person receiving a benefit under the Business Promotion Act, Malta Enterprise Act, or similar incentive legislation, or by a person who is related to the employer who has received such benefits, may not qualify as income from a qualifying contract of employment.
The Rules also state that no further tax would be charged on income from a qualifying contract of employment in excess of €5,000,000. The reduced rate of 15% tax applies without the possibility to claim any relief, deduction, reduction, credit or setoff of any kind.
Income charged to tax at the reduced rate of 15% will constitute the first part of the individual’s total income, and the tax on the remaining income will be calculated at the standard rates applicable to such individual.
What does one need to do?
Individuals who intend to avail themselves of such an option should apply for a formal determination relating to the eligibility under the Rules. Such application must be filed with the MFSA, the MGA or TM. No determinations will be issued after 31 December 2020.
Beneficiaries should disclose for tax purposes, emoluments received in respect of income from a qualifying contract of employment and all income received from a person related to the payer of such income as chargeable to tax in Malta, irrespective of whether this is paid in respect of the performance of duties in Malta or otherwise.
The Commissioner for Revenue and/or the competent authority may request the individual to produce, within a specific timeframe, additional documents and information for the purpose of ascertaining the individual’s right to exercise the option.
From and until when can an individual benefit from these rules?
The option to have such income charged to tax at the reduced rate of 15% may be exercised as from the year of assessment 2011 (year of income 2010) up to year of assessment 2026 (year of income 2025).
However, such option may not be exercised where individuals were employed under a contract of employment requiring the performance of duties in Malta for a period exceeding 2 years preceding the 1 January 2010 or where individuals were employed prior to 1 January 2012 by employers holding an air operators’ certificate issued by the competent authority.
Generally this option is available for a period of 10 consecutive years for EEA and Swiss nationals (any person who has already availed himself of the benefit provided by these rules should apply for a 5 year extension) and for a period of 4 consecutive years for third-country nationals, after the expiry of which the employment income would be chargeable to tax at the standard rates applicable to the individual. The 10/4 year period, during which the reduced rate of tax is applicable, commences in the year in which the recipient is first liable to income tax in Malta.
Notwithstanding the above, the reduced rate of tax claimed by third country nationals will be deemed not to apply, with retrospective effect, if such individual either:
- physically stays in Malta, in aggregate, for more than 1,460 days; or
- acquires directly or indirectly, real rights over immovable property situated in Malta, or holds a beneficial interest directly or indirectly consisting in, amongst others, real rights over immovable property situated in Malta.
Eligible employment and eligible offices
In line with the Rules, “eligible employments and offices” include, amongst others, the following positions:
- Chief Executive Officer
- Chief Risk Officer (including Fraud and Investigations Officer)
- Chief Financial Officer
- Chief Operations Officer (including Aviation Accountable Manager)
- Chief Technology Officer
- Chief Commercial Officer
- Portfolio Manager
- Chief Investment Officer
- Senior Trader/Trader
- Senior Analyst (including Structuring Professional)
- Actuarial Professional
- Chief Underwriting Officer
- Chief Insurance Technical Officer
- Odds Compiler Specialist
- Head of Research and Development (including Search Engine Optimisation and Systems Architecture)
- Aviation Continuing Airworthiness Manager
- Aviation Flight Operations Manager
- Aviation Training Manager
- Aviation Ground Operations Manager
- Head of Marketing (including Head of Distribution Channels)
- Head of Investor Relations.
In addition to the above, employments with undertakings holding an aerodrome licence issued by the competent authority, consisting in employment as Chief Executive Officer would also be eligible for the above-mentioned benefit.