Taking up Residence in Malta

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Application Process and compliance obligations

In order for an individual to be granted special tax status under the GRPR an individual has to submit an application, questionnaire and all the required documentation to the Commissioner through the services of an ARM together with a non-refundable administrative fee of €6,000 unless the qualifying property owned is situated in the South of Malta, in which case the administrative fee would amount to €5,500. 

 

It is to be noted that unless the applicant is to benefit from the reduced administrative fee of € 5,500 he/she is not required to be the owner of a qualifying property at the time of the application and may submit the final deed or lease agreement at a later stage. It is important to keep in mind, however, that before the confirmation of the granting of the special tax status the final deed or lease agreement is to be submitted accordingly.

Following the successful processing of the application, a letter of intent will be forwarded to the ARM which will be valid for twelve months. The applicant will then have to sign and submit within the 12 month period a declaration of primary residence, in original and submit the lease agreement or final deed in order for the confirmation letter to be issued.

Applicants and beneficiaries of the HNWI Non-EU Rules that apply to have their special tax status regulated by the GRPR are not required to re-submit documentation that had already been submitted in their previous application.

The annual compliance obligations in terms of the GRPR require the beneficiary to submit to the Commissioner an annual tax return in terms of Article 10 of the Income Tax Management Act together with a declaration stating that the circumstances affecting his/her special tax status have not changed.

Cessation of Status

In the case that a beneficiary ceases to possess the special tax status granted by the Commissioner, due to the individual not abiding to certain conditions prescribed by the minister which are listed below, the beneficiary, upon becoming aware of any such event has to give notice to the Commissioner within four weeks or an administrative penalty of €5,000 will apply.  These conditions include the beneficiary (i) staying in another jurisdiction for more than 183 days in a calendar year, (ii) not holding a qualifying property, (iii) becoming a long term resident, (iv) becoming a Maltese national or a national of another EU Member state, (v) not being in possession of sickness insurance (vi) the beneficiary’s stay in Malta is deemed not to be in the public interest.

If any of the above events take place the individual would lose GRPR status with retrospective effect as from the date of the granting of the special tax status. 

Special tax status may also cease either by choice, or due to the non-compliance with the provisions of the Income Tax Act, or due to the death of the beneficiary.

 

Malta Retirement Programme Rules (MRPR)

The Malta Retirement Programme Rules take advantage of Malta’s various benefits as a retirement destination and are prescribed by the Minister pursuant to Article 56(23) of the ITA. These rules provide notably different conditions than the TRP and are discussed below.

The MRPR applies only to EU/EEA/Swiss nationals (other than Maltese nationals). The application has to be made through an ARM and is subject to the payment of an administrative fee of €2,500. The tax rate applied to foreign source income remitted to Malta by individuals granted a special tax status under these rules is a flat 15% which is the same as in the case of individuals granted special tax status under the TRP.

The beneficiary, however, has to receive a pension as supported by documentary evidence, all of which is received in Malta and constitutes at least 75% of the beneficiary’s chargeable income. The beneficiary cannot be in an employment relationship, subject to certain exceptions.

The individual must hold a qualifying property holding which was either (i) purchased after the 1^st July 2013 for a consideration of not less than €275,000 (€220,000 for a property situated in Gozo or the South of Malta); or, (ii) rented for not less than € 9,600 per annum (€8,750 for a property situated in Gozo or the South of Malta), and in either case occupies such property as his/her primary residence and the persons who reside in the qualifying property are not persons other than the beneficiary, his dependents and household staff. The beneficiary or his dependents cannot be persons benefitting from the e is not a person who benefits under the Residents Scheme Regulations, the TRP, the GRPR or the HQPR.

The beneficiary is also subject to a minimum annual tax of €7,500 in respect of himself and € 500 per beneficiary and household staff. This minimum tax is substantially lower than that in the case of a beneficiary under the TRP.

The beneficiary is required to stay in Malta for a minimum of 90 days averaged over a five year period, and may not reside in any one jurisdiction for more than 183 days in a calendar year.

Certain other conditions also apply, such as the beneficiary being a fit and proper person, not being domiciled in Malta, having the required health insurance and valid travel document and neither be a Maltese or third country national.

Highly Qualified Persons Rules (HQPR)

Following Malta’s expansion into the gaming sector and the financial services industry it was recognized that the island needed to attract highly competent and specialized expatriate individuals to work in specific industries and also transfer their skills to local workers. The companies qualifying in the programme are those licensed and/or recognized by the Malta Financial Services Authority (‘MFSA’) or the Lotteries and Gaming Authority (‘LGA’) or companies holding an Air Operators Certificate or Aerodrome Licence which consequently led for which a lower income tax rate for individuals carrying out specific roles within these companies.

The ITA, by virtue of Article 56(21), gives the option to an individual to have employment income earned under a ‘qualifying contract’ of employment to be taxed at a rate of 15 per cent, generally without the possibility to claim any relief, deduction credit or set-off. Furthermore, any qualifying employment income in excess of €5,000,000 will not be subject to tax in Malta. In the case that this option is exercised, the income, which cannot be less than € 81,205 as from 2014 , will be deemed to constitute the first part of the individual’s income, therefore, the individual will forfeit the ‘tax free’ portion of income in terms of the progressive income tax rates.  

The rules prescribed by the Minister in connection to Article 56(21) of the ITA were introduced through Legal Notice 106 of 2011 as amended by Legal Notices 192 and 428 of 2011, 306 of 2012, 152 of 2013 and 16 of 2014.

These rules state that in order for a contract to be deemed to be a ‘qualifying contract’ it has to consist of emoluments earned from an ‘eligible office’. The exhaustive list of eligible employments and offices which can be found as a schedule to the rules, includes amongst others a Chief Executive Officer, Chief Financial Officer and Chief Operations Officer.

In order to be deemed to be a beneficiary receiving income from a qualifying contract of employment various conditions need to be satisfied namely that the individual:

• receives income related to employment income subject to tax under article 4(1)(b) of the ITA and received in respect of work carried out in Malta or time spent outside Malta in connection with such work or duties;
• is a person protected as an employee under Maltese law;
• can prove to the competent authority that he is in possession of professional qualifications;
• has not benefited under Article 6 of the ITA (Investment Services and Insurance Expatriates);
• fully discloses for tax purposes emoluments received under qualifying contract of employment;
• proves to the competent authority that he performs activities of an ‘eligible office’;
• can maintain himself and his family without recourse to the social service of the state;
• resides in accommodation which meets health and safety standards in Malta;
• is in possession of sickness insurance (all risks) for himself and the members of his family;
• is not domiciled in Malta.

If availed of, the option available under A56 (21), commences from the year in which the expatriate takes up residence in Malta and derives income which is subject to tax in Malta. The option shall apply for a consecutive period of five years for an EEA national and for four consecutive years for a third party national. A beneficiary who is third country national cannot physically stay in Malta in the aggregate for more than 1,460 days or acquire immovable property in Malta.

Once eligible, the practical aspects of exercising the option available under Article 56(21) of the ITA require the beneficiary preparing and signing a declaration endorsed by the MFSA or the LGA or Transport Malta as applicable. This form has to be attached to the respective tax return which is to be filed with the Inland Revenue by the tax return date. 

It is also important to note, that as do various other provisions found in the Income Tax Act and its subsidiary legislation, the HQPR contain certain anti-abuse provisions to avoid any benefits gained through artificial arrangements.

Property deemed to be situated in the South of Malta.

For the purposes of the TRP, MRP and the GRPR the South of Malta is defined as being the following localities.

Bir?ebbu?ia, Cospicua, Fgura, G?axaq, Gudja, Kalkara, Kirkop, Luqa, Marsascala, Marsaxlokk, Mqabba, Paola, Qrendi, Safi, Santa Lu?ija, Senglea, Si??iewi, Tarxien, Vittoriosa, Xg?ajra, ?abbar, ?ejtun, ?urrieq

Ordinary Residence

There is also the option for an individual to take up ordinary residence in Malta without availing of any of the above mentioned programmes. Ordinary residence is open to all EU/EEA/Swiss nationals however very restrictive conditions apply to non-EU nationals in this regard.

In order to take up residence in Malta EU/EEA/Swiss nationals are required to reside on the island for at least 183 days a year (in terms of the Income Tax Act) coupled with an intention to reside in Malta which is ascertained through the conclusion of a purchase or lease contract in respect to immovable property situated in Malta. There is no minimum annual tax payable and the individual would be taxable on the ‘remittance basis’ of taxation as explained previously. Foreign source income remitted to Malta and any income arising in Malta would be taxed in accordance with the progressive tax rates.

It is also important to note, that subject to certain conditions, an individual transferring his/her residence to Malta is entitled, under the Motor Vehicles Registration and Licensing Act (Cap. 368), to an exemption from Motor Vehicle Registration Tax on an M1 vehicle (a vehicle used for the carriage of not more than eight passengers in addition to the driver) or a motorcycle which is registered in the name of that person.

All in all, there are various options available for an individual wishing to relocate and take up residence in Malta. The success of the above discussed programmes will depend on various factors namely whether the programmes are updated regularly to reflect economic reality, be it from the conditions required to apply and the tax benefit when compared with the cost of relocating and whether the programmes are promoted effectively overseas.

Be it as it may the financial services industry has thrived through promoting Malta as a favorable business jurisdiction and it is important that we continue to excel as a transparent, tax beneficial, professional jurisdiction in this regard.