The Institute of Financial Services Practitioners (IFSP) has recently set out its understanding of the tax treatment derived by non-Maltese resident members of an Investment Committee (‘IC’) of a Maltese licensed Collective Investment Scheme (‘CIS’).
In terms of the Standard Licence Conditions in the Investment Services Rules for Professional Investors Funds, issued by the MFSA, a self managed CIS must establish an in-house IC in lieu of an investment fund manager. The IC must be made up of at least three members and the majority of the meetings (which should be held at least on a quarterly basis) are to be physically held in Malta.
Non-resident individuals are subject to tax in Malta at the applicable non-residents’ rates of income tax on all income and capital gains arising in Malta. Such individuals are not subject to tax in Malta on foreign income and capital gains even if such income and gains are received in Malta.
Remuneration derived by a non-resident member of an IC from the holding of an office, similar to directors’ remuneration, is taxed in the country where the company’s effective management is situated. On the other hand, income derived by a non-resident member of an IC derived for services rendered to the CIS is taxed in the country in which the services are performed (subject to any double taxation treaty protection which the IC member may be entitled to).
The Maltese Inland Revenue Department has clarified that remuneration derived by a non-resident member of an IC for providing advice is regarded as income derived from the rendering of services and should therefore be taxed in Malta if the services are physically performed in Malta. The taxable amount is so much of the remuneration as is deemed to arise in Malta subject to the application of a double taxation agreement between Malta and the country of residence of the non-resident member of the IC.
Given the complexity to calculate the amount which is deemed to arise in Malta, the Maltese tax authorities would deem the remuneration arising in Malta as an amount corresponding to the higher of:
- The actual number of days of presence in Malta in a given calendar year; and
- One-twelfth (1/12th) of the IC member’s compensation received during the calendar year.
Such income is subject to tax at the income tax rates applicable to non-resident individuals. One should also however give due consideration to the double taxation agreement for the avoidance of double taxation (if any) concluded between Malta and the country of residence of the non-resident member of the IC. If the pertinent article in the double taxation treaty does not allocate a shared jurisdiction to tax between the two contracting states or does not grant an exclusive right to tax to Malta, then Malta would have no jurisdiction to tax the income received. If the double taxation treaty grants exclusive right to tax to the country of residence of the IC member, then Malta will not tax the income.