On the 7th of December 2023, the Government of Malta has issued new rules entitled the ‘Nomad Residence Permits (Income Tax) Rules 2023’ which are applicable to digital nomads residing and working in Malta. By means of the new rules, an individual who is in possession of a valid nomad residence permit issued by Residency Malta Agency will be subject to income tax at a rate of 10% on income derived from “authorised work” instead of the progressive rates of tax applicable to resident individuals which can go as high as 35%.
“Authorised work” is defined by the Rules as services provided by an eligible main applicant in accordance with a contract of employment with an employer who is not resident in Malta and who does not carry on business in Malta through a fixed place of business. It also includes services performed by an eligible main applicant in a self-employed capacity for clients who do not reside in Malta and who do not carry on business in Malta through a fixed place of business. Both type of services, are to be provided remotely by means of telecommunications technology as may be approved by Residency Malta Agency.
The individual will also be able to benefit from double taxation relief, both in terms of Malta’s tax treaties as well as through other unilateral relief provisions found in Mata’s tax legislation.
The Rules also provide in Rule 3(2) that the income derived from authorised work will be considered to constitute the initial part of the individual’s total chargeable income for that particular year of assessment. This implies that the income derived from authorised work, which is subject to the 10% income tax rate mentioned in sub-rule (1), will be treated as the starting component when calculating the person’s total chargeable income for the year.
Rule 3(3) introduces an “exemption” period during which an eligible main applicant is not obliged to pay income tax derived from authorised work. This exemption applies for a period of 12 months, starting from the issuance date of the nomad residence permit or the 1st January 2024 whichever is the later. This means that those individuals who already held a permit for more than a year will not be subject to any income tax on income received by them before 1st January 2024. This will certainly provide certain clarity from a Maltese income tax perspective to those individuals who have already been granted a digital nomad visa before 1st January 2024 and who were left in the dark on their tax situation in Malta.
To benefit from this exemption, the eligible applicant must file a written declaration with the Residency Malta Agency stating that his or her residence in Malta during this twelve-month period is not merely of a casual nature. This provision aims to provide a tax relief period for individuals who have been granted a newly nomad residence permit, allowing them time to establish a more settled presence in Malta before becoming subject to income tax on their income derived from authorised work.
This exemption is not available however to persons who are not in possession of a valid nomad visa (such as for example in cases when the visa has expired), but who were granted a nomad visa within 2 years from the date of when they ceased to hold the original nomad visa. This means that while they will be able to benefit from the reduced 10% income tax rate, they will have to aggregate their total income derived from the authorised work and pay on that gross amount the 10% income tax rate. For those persons who were granted the new nomad visa after 2 years from the date of when they ceased to hold the original nomad visa, they are eligible for the exemption mentioned above.
Any other income not derived from the authorised work will be subject to the general taxation rules as per Malta’s Income Tax Act. Thus, the general rules in relation to tax rates, dividends and interest by way of example will apply to such individuals.
The Rules also prescribe certain reporting obligations to digital nomads. The Rules prescribe that nomad visa applicants must file income tax returns. Eligible main applicants, whose income is taxable in Malta, must register themselves for income tax purposes and must also submit their income tax return. The applicants need to register for income tax purposes, even for activities done before the completion of the initial twelve-month period.
For the first twelve months, they do not have to report income from authorised work unless they submit a written declaration to Residency Malta Agency as referred to above. If their income is only derived from authorised work and other income which does not require reporting, and the period covered does not go beyond the first twelve months, they are exempt from filing a return of income.
Regarding foreign taxes, if an eligible main applicant is subject to tax on income from authorised work for any part of the year, provides proof of paying taxes outside Malta at a rate of at least 10% it will mean that they do not have to report that income for Maltese tax purposes. This is because the tax due is considered settled through double taxation relief provisions.
The responsibility of forwarding the proof of foreign tax payment lies with Residency Malta Agency, submitting it to the Commissioner for Revenue of Malta.
