Changes to the rules in respect of the taxation of employment income

Changes to the rules in respect of the taxation of employment income derived by individuals employed in the development of innovative and creative products The Principal Rules By means of L.N. 462 of 2014, the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules were amended.  The principal rules were introduced in 2013 which granted […]

Written By ACT Team

On January 5, 2015
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Changes to the rules in respect of the taxation of employment income derived by individuals employed in the development of innovative and creative products

The Principal Rules

By means of L.N. 462 of 2014, the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules were amended.  The principal rules were introduced in 2013 which granted special tax incentives to individuals who derive employment income from a qualifying contract of employment, which is an employment in a role directly engaged in the development of innovative and creative digital products

Qualifying employees can opt to be taxed at a flat rate of 15% on their employment income derived from an eligible office amounting to a minimum of €45,000 (excluding the value of any annual fringe benefits). Any income in excess of €5 million derived from a qualifying contract of employment will not be subject to tax in Malta.

The Changes

With the amendments to the principal rules, the definition of an ‘eligible office’ has been extended to include an employment in a role which is directly engaged in industrial research, experimental, development, product development, product design, product or process innovation or senior management.  It is expected that Malta Enterprise Corporation will be issuing new Guidelines in this respect.

Furthermore, the changes provide that qualifying employees can benefit from the reduced rate of 15% even where the employment income is paid by an employer (or a person related to the employer) who has received benefit/s under any business incentives laws applicable in Malta.

Both EU and third country nationals may benefit from the reduced rate of tax for up to three consecutive years, commencing from the year in which the person is first liable to tax.  Malta Enterprise Corporation may extend this option by one year to any person whose employment commences after the 31st August of a particular year.

Before the changes, third country nationals who either physically stay in Malta in aggregate, for more than 1,460 days, or acquire real rights over immovable property in Malta or holds a beneficial interest of real rights over immovable property situated in Malta will have their right to be taxed at 15% withdrawn with retrospective effect.  This limitation has now been lifted and therefore third country nationals who reside in Malta for more than 1,460 and who directly or indirectly acquire immovable property situated in Malta will not have their right to be taxed at 15% withdrawn with retrospective effect.

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].