By virtue of a new Legal Notice, the Government of Malta has issued new rules which provide for an exemption from income tax to beneficiaries who are in receipt of a pension or a widow’s / widower’s benefit from the United Nations and to a reduced rate of tax of 15% on any other income, with the exception of income and capital gains arising in Malta. These rules will apply to both EU and third-country nationals, with the exception of Maltese nationals.
Beneficiaries
A beneficiary under the programme is an individual who is neither a permanent resident nor a long term resident of Malta and who proves to the satisfaction of the Maltese tax authorities that:
- he is in receipt of a UN pension or a widow’s / widower’s benefit and remits 40% of such pension or benefit to Malta;
- he is not a person who benefits under the Residents Scheme Regulations, the High Net Worth Individuals – EU / EEA / Swiss Nationals Rules, the High Net Worth Individuals – Non-EU / EEA / Swiss Nationals Rules, the Malta Retirement Programme Rules, the Global Residence Programme Rules, the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules or the Highly Qualified Persons Rules;
- he is not a Maltese national;
- he holds a qualifying property holding;
- he is in receipt of stable and regular resources which are sufficient to maintain himself and his dependants without recourse to the social assistance system in Malta;
- he is in possession of a valid travel document;
- he is in possession of sickness insurance in respect of all risks across the whole of the European Union normally covered for Maltese nationals for himself and his dependants;
- he can adequately communicate in one of the official languages of Malta; and
- he is a fit and proper person.
Dependents
The rules establish that dependents shall comprise:
- the beneficiary’s spouse or person with whom the beneficiary is in a stable and durable relationship;
- minor children, including adopted minor children and children who are in the care and custody of the beneficiary or the person mentioned in (i) above;
- children who are under the age of twenty-five, including adopted children and children who are in the care and custody of the beneficiary or the person mentioned in (i) above. Such children must not be economically active;
- children, including adopted children and children who are in the care and custody of the beneficiary or the person mentioned in (i) above, who are not minors but who are unable to maintain themselves because of circumstances of illness or disability of a serious gravity;
- dependent brothers, sisters and direct relatives in the ascending line of the beneficiary or the person mentioned in (i) above and who are not beneficiaries under the Residents Scheme Regulations, the High Net Worth Individuals – EU / EEA / Swiss Nationals Rules, the High Net Worth Individuals – Non-EU / EEA / Swiss Nationals Rules, the Malta Retirement Programme Rules, the Global Residence Programme Rules, the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules or the Highly Qualified Persons Rules. Furthermore, the dependent brothers, sisters and direct relatives in the ascending line must reside with the beneficiary in the qualifying property.
Minimum stay in Malta
A beneficiary is not required to stay in Malta for any minimum number of days but will lose the special tax status in terms of these rules, if he / she resides in any other jurisdiction for more than 183 days in a calendar year.
Immovable Property
If the beneficiary opts to acquire immovable property, the value must be of at least €275,000. However, if the property is situated in the south of Malta or in Gozo, the minimum value can be of €220,000.
A beneficiary under the programme has the option to rent instead of buying immovable property. This minimum annual rental payment has to be at least €9,600 if the immovable property is situated in Malta or €8,750 if in Gozo or in the south of Malta.
Tax Implications
Beneficiaries under this programme will be exempt from tax in Malta on any UN pension income and widow’s / widower’s benefit which is received in Malta.
On the other hand, beneficiaries under the programme will be subject to a flat rate of tax of 15% on any income excluding UN pension income and widow’s / widower’s benefit, which arises outside Malta and received in Malta by the beneficiary, the beneficiary’s spouse, children and other dependents as defined, with the possibility of granting relief from double taxation in terms of the Maltese Income Tax Act.
The minimum annual tax liability payable on any income excluding UN pension income and widow’s / widower’s benefit, which arises outside Malta and received in Malta is of €10,000 in the case of the beneficiary and an additional €5,000 in the event that both spouses are in receipt of a UN pension.
The minimum tax payable is due in advance every year, and shall be payable before the 30th of April. In the year in which the special tax status is granted, where it is evident that the special tax status will not be granted before the 30th April, the minimum tax is to be paid before the special tax status is granted.
The 15% tax rate shall therefore apply on any income (excluding UN pension income and widow’s / widower’s benefit) arising outside Malta in the year immediately preceding the year of assessment which is received in Malta (including income arising outside Malta and received in Malta during the whole of the year in which the special tax status was granted) by the beneficiary, the beneficiary’s spouse and children.
Income and capital gains (with the exception of transfers of immovable property situated in Malta, where the final withholding tax would apply) of the beneficiary, the beneficiary’s spouse and children arising in Malta will be subject to a flat rate of tax of 35%.
An individual who is either a permanent resident or a long term resident of Malta will be subject to tax in Malta on his world-wide income and capital gains (including that part which is not remitted to Malta) at the progressive rates of tax applicable to resident individuals.
Submission of applications
An individual, who wishes to submit an application in terms of these rules, must be represented by an Authorized Registered Mandatory (ARM). A non-refundable administrative fee of €4,000 has to be paid upon application or €3,500 where the beneficiary has opted to acquire immovable property situated in the South of Malta.
ACT Advisory Services Limited is an ARM and can advise and assist you in the preparation and submission of the application and the pertinent documentation. At ACT, we will advise our clients with any tax planning opportunities which may be applicable as well as ensure (together with our foreign tax advisors) that there will be no negative tax implications in the departing country. Through our in-house tax specialists we will also be able to advise and assist our clients with their annual income tax compliance requirements.
For more information about the various residency schemes applicable in Malta and on the tax aspects thereof, please contact either Stephen Balzan ([email protected]) or Liana Falzon ([email protected]).
