Updated Article | Life in the Sun: The Ease of Benefitting from Tax Residence in Malta

Further to the suspension of the Permanent Residents Scheme in December 2010, the Government of Malta has put in place a scheme for special tax status aimed at attracting internationally mobile, high net worth individuals (HNWI) to become tax resident in our islands and benefit from a favourable tax rate of 15% on any income remitted into Malta.

Citizens from the European Union, the European Economic Area and Switzerland could apply for this special tax status in Malta subject to the satisfaction of certain conditions. The special tax status was issued by the Minister of Finance in the last quarter of 2011 in the form of the “High Net Worth Individual Rules”, and was initially offered to both EU/ EEA/ Swiss nationals and third country nationals. However, in July 2013 and by means of Legal Notice 178 of 2013 the HNWI Rules were amended to only be applicable to EU/ EEA/ Swiss nationals.

The conditions for an application in terms of the HNWI Rules are the following (amongst other):

1. The beneficiary must hold a Qualifying Property Holding, which would be either owning a property of not less than €400,000 or renting a property for not less than €20,000 per annum. In either case the applicant and his family will have their habitual residence in such property as their principal place of residence.
2. The beneficiary must not benefit from the Residence Scheme Regulations or the Highly Qualified Persons Rules (other schemes under the Income Tax Act).
3. The beneficiary is in receipt of stable and regular resources that are sufficient to maintain the applicant and his dependents, without any recourse whatsoever to the local social assistance system.
4. The beneficiary must be in possession of a valid travel document.
5. The beneficiary is in possession of sickness insurance which covers himself and his dependents in respect of all risks across Europe. The above-mentioned health insurance must be procured by either a Maltese registered company or an international reputable health insurance company.
6. The beneficiary must declare that he is a fit and proper person and should the applicant be aware of any condition/ circumstance, this must be stated clearly in the application. In this respect the applicant must procure a clean conduct certificate (i..e. “no convictions” certificate”) for himself and any other dependent.

The minimum amount of tax payable in Malta, for a HNWI beneficiary is €20,000 per annum and an additional €2,500 per annum per dependent. Any income arising in Malta and any other chargeable income which does not fall within the above-mentioned bracket will be charged at a rate of 35%.

The Global Residence Program on the other hand, establishes income from foreign sources that is received in Malta, will be taxed at the rate of 15%, with a minimum tax of €15,000 per annum. The program has established new thresholds in respect of value of immovable property bought in Malta by third country nationals, and this is of least €275,000. However, when the property is in the south of Malta or in Gozo, the minimum value can be of €220,000. The rent threshold has also been lowered to €9,600 for leases in Malta and €8,750 in Gozo or the south of Malta. The conditions which the beneficiary of the GRP must satisfy on an ongoing basis are very similar to those of the HNWI, including retaining a valid health insurance at all times and that the beneficiary is in receipt of stable and regular resources.

Both special tax statuses are valid for an indefinite period, provided that all the applicable conditions are satisfied on a continuing basis. An application for a special tax status in terms of the High Net Worth Individuals Rules / Global Residence Program Rules may only be submitted by an Authorised Registered Mandatory (ARM) and are currently being administered by the International Tax Unit, housed within Malta Financial Services Authority premises. A list of the Authorised Registered Mandatories may be found here on the Inland Revenue Website.

The High Net Worth Individuals Rules / Global Residence Program Rules do not require the applicant to reside in Malta for any minimum period of time, it is important that he/ she does not spend more than 183 days in any other jurisdiction as this may cause him/ her to become tax resident in that other jurisdiction.

Applications must be supported by various documents including a birth certificate and marriage certificate (where applicable) and accompanied by a non-refundable administrative fee of €5,500 or €6,000, depending on which status you are availing of and where the property is situated.

Once that the above conditions are satisfied and the special tax status is acquired, the income of the individual who has been granted the special tax status that is received in Malta from foreign sources is taxed at the rate of 15% (subject to minimum tax amounts mentioned above). Such beneficiary has the right to request a claim for relief for double taxation provided that the minimum amount of tax payable in Malta has been settled. Any income arising in Malta and any other chargeable income which does not fall within the above-mentioned bracket will be charged at a rate of 35%.

Malta has a network of over 60 double taxation treaties, which effectively provide the beneficiaries with effective protection from the risk of any double taxation claims raised in another treaty country in respect of the income already taxed in Malta.

Given the simplicity of the application process, the practicality of tax administration procedures and the benefit of a 15% tax rate, Malta’s special tax statuses provide a truly attractive proposition to internationally mobile individuals looking for a low tax jurisdiction to establish their residence within the European Union.