Ordinary Residence and The High Net Worth Individuals Residency Scheme

Malta is an ideal place to take up residence. Besides its pleasant climate, safe environment and hospitable English-speaking population, it offers a range of benefits to individuals seeking to acquire residence on the island, given its advantageous tax regime and competitive cost of living.

Any EU/EEA or third country national who resides in Malta for more than three months requires a permit from the immigration authorities, which is granted on specific grounds, some of which are listed below.

Ordinary Residence

Ordinary residence in Malta requires individuals to physically live on the island for a period of six months or more. The transfer of one’s residence from a high-tax jurisdiction to a lower tax overseas country is available to both EU/EEA and non-EU/EEA nationals. There is no minimum value property requirement for non-residents seeking to obtain ordinary residence in Malta, unless there is the need for an Acquisition of Immovable Property (AIP) permit, which applies in specific circumstances.

The qualifying criteria, which vary according to whether the individual seeking to obtain ordinary residence in Malta is an EU/EEA national or a third country national, can be easily complied with, thus making the attainment of Maltese ordinary residence even more attractive.

EU/EEA Nationals

There are different grounds on which EU/EEA nationals may become ordinarily resident in Malta, including economic self-sufficiency, employment, education and opening a business.

This criterion requires that applicants show that they are able to provide for themselves and for their accompanying dependants by being financially stable and not being in need of any financial support from the Maltese government. The current thresholds for EU/EEA nationals are set at a minimum capital of € 14,000 or a weekly income of € 84.95 for single persons, and at a capital of at least € 23,300 or a weekly income of € 93.10 for married couples.

A second ground on which EU/EEA nationals may obtain ordinary residence in Malta is employment. Hence, an individual must accept offers of employment or seek employment in Malta, work in Malta as an employee or be self-employed. Alternatively, an individual may opt to set up a business in Malta and work for his / her own business.

Third Country Nationals

The qualifying criteria for Maltese ordinary residence in respect of third country nationals vary from those applicable to EU/EEA nationals. We are setting out below a few of these possibilities. An employment licence is required in order for non-EU/EEA nationals to work in Malta. This is granted upon satisfying certain criteria. Candidates qualified in the financial services, and information technology fields are sought after, and therefore it may be easier for such individuals to get an employment licence.

In order to qualify to apply for self-employed status and work for one’s business, a third country national must meet one or more of the following criteria:

• An investment of at least € 100,000. In relation to such investment, expenditure ought to comprise solely capital expenditure, which must consist of fixed assets (such as immovable property, plant and machinery) used for business purposes and this must be reflected in the business plan submitted with the application. Rental contracts do not qualify. Likewise, expenses such as salaries and legal fees cannot be paid from the €100,000 invested by way of minimum investment;
• Status of a highly skilled innovator with a sound business plan, committed to recruiting at least three EU/EEA nationals within eighteen months of establishment of business;
• Status of sole representative of an overseas company (with a sound reputation and established for at least three years abroad) wishing to open a branch in Malta; or
• The holding of a directorship in a company forming part of a project that has been formally approved by Malta Enterprise, and which has been formally notified by the latter to the Employment and Training Corporation.

A firm commitment regarding the engagement of EU/EEA nationals as part of the applicant’s staff will assist in the favourable consideration of an application.

Long-Term Residence

Long-term residence status may be granted to individuals who have been legally residing in Malta for five continuous years. The term “continuous” means that such individuals must not have absented themselves from Malta for more than six consecutive months in any given year of the said five-year period and further must not have been absent from Malta for more than a total of ten months throughout this five year period.

Furthermore, a third country national who has been granted long-term residence status by another Member State other than Malta, may reside in Malta, for a period exceeding three months, for the exercise of an economic activity in an employed or self-employed capacity, provided that such person is in possession of an employment licence; is pursuing studies or vocational training; or is engaged in other such activities.

Education

Temporary residence is granted for the entire period of education to students in any Private School, College, or at the University of Malta. If the student is a minor, his or her legal guardian can apply for Malta residence to accompany him or her. Such person has to confirm that he or she is in receipt of stable and regular income and has a suitable place to live.

Income Tax

Individuals who are ordinarily resident, but not domiciled in Malta, are subject to income tax on income arising in Malta, on income arising outside Malta but received in Malta and on capital gains arising in Malta. No tax is chargeable on capital gains which arise overseas but which are remitted to Malta. Personal income tax is charged at progressive rates up to a maximum of 35 per cent, as illustrated by the following tables:

Temporary Residence

Individuals staying in Malta for some temporary purpose with no intention of establishing their residence here, and who have not resided in Malta for a period of more than 183 days in a calendar year shall not be taxed in Malta on their foreign income and gains, whether these are remitted to Malta or otherwise. They are liable to tax in Malta solely on Maltese sourced income and capital gains.

The High Net Worth Individuals Residency Scheme

On the 5th of August 2011, ACT XVI of 2011 was enacted by the Maltese Parliament, thereby inter alia amending the Income Tax Act. A new Article, article 56(23), has been added to the Income Tax Act which prescribes that the Minister may grant special tax status to persons who meet a number of criteria, thereby enabling the new High Net Worth Individuals Residency Scheme.

EU/EEA/Swiss nationals

Applicants are required to own a Qualifying Property Holding, being property in Malta purchased after the 1st January 2011 for a value of not less than €400,000, which must serve as the applicant’s habitual residence, and that of any accompanying family members. Alternatively, the applicant may opt to rent property in Malta for not less than €20,000 per annum.

The old threshold of €116,000 continues to apply to properties purchased before the 14th September 2011, or to any promise of sale agreements entered into prior to this date in pursuit of a Permanent Residence permit. Furthermore, the old threshold of €4,150 continues to apply to lease agreements entered into prior to the 14th September 2011.

Such Qualifying Property Holding may not be let or sub-let.

The applicant must also be in receipt of stable and regular resources which are sufficient to support himself/herself as well as any accompanying dependants. Applicants must therefore be economically self-sufficient and both the applicant and any dependants must hold adequate health insurance covering the EU territory. A new requirement is that the individual must satisfy a “fit and proper test” in order to be granted a permit under this scheme.

The permit holder is given special tax status carrying the right to pay tax at a beneficial rate of 15% on foreign source income received in Malta together with the possibility of claiming double taxation relief. This is subject to a minimum yearly tax of €20,000 and €2,500 per accompanying dependant after claiming any applicable double tax relief. Other chargeable income of the beneficiary (and that of his or her spouse) that is not taxed at the special rate of 15% will be taxed at 35%. A beneficiary of this scheme and his or her spouse cannot opt for a separate tax computation. A beneficiary is also subject to the payment of Provisional Tax payments.

The above minimum amounts of tax payable are not refundable, and the minimum tax for the first year will be payable by not later than the tax return date and will not be subject to Provisional Tax payments.

Non-EU/EEA /Swiss Nationals

Applicants are required to own a Qualifying Property Holding, being property in Malta purchased after the 1st January 2011 for a value of not less than €400,000, and must serve as the applicant’s habitual residence, and that of any accompanying family members. Alternatively, the applicant may opt to rent property in Malta for not less than €20,000 per annum.

The old threshold of €116,000 continues to apply to properties purchased before the 14th September 2011, or to any promise of sale agreements entered into prior to this date in pursuit of a Permanent Residence permit. Furthermore, the old threshold of €4,150 continues to apply to lease agreements entered into prior to the 14th September 2011.

Such Qualifying Property Holding may not be let or sub-let.

The applicant must not already benefit from the Residence Scheme Regulations or from the Highly Qualified Individual Rules. As in the case of EU/EEA/Swiss nationals, the applicant must also be in receipt of stable and regular resources which are sufficient to support himself/herself as well as any accompanying dependants and be in possession of adequate health insurance cover for himself/herself and any accompanying dependants covering the EU Territory. A new requirement is that the individual must satisfy a “fit and proper test” in order to be granted a permit under this scheme.

Furthermore, Non-EU/EEA/Swiss applicants must be fluent in English or Maltese.

A 15% rate of tax is charged in respect of foreign income remitted to Malta with the possibility of claiming double tax relief. The minimum annual tax stands at €25,000 with an added €5,000 per dependant, after claiming any double tax relief. Other chargeable income of the beneficiary (and that of his or her spouse) that is not taxed at the special rate of 15% will be taxed at 35%. A beneficiary of this scheme and his or her spouse cannot opt for a separate tax computation. A beneficiary is also subject to the payment of Provisional Tax payments.

The above minimum amounts of tax payable are not refundable, and the minimum tax for the first year will be payable by not later than the tax return date and will not be subject to Provisional Tax payments.

An applicant for High Net-Worth Individual status who declares in the application that he does not intend to become a long-term resident of Malta may not spend more than 9 months in a calendar year in Malta. Such individual would be expected to leave Malta for a minimum period of 3 months in a calendar year, and will not be eligible for long-term residency status. In such cases, the applicant need not enter into a qualifying contract to benefit from the High Net-Worth Individuals Rules.

However, in the case of an applicant who declares that he intends to become a long-term resident of Malta in the application form, such individual would need to become a party to a qualifying contract. Such contract is an agreement that is entered into between the Government of Malta and the applicant wherein the applicant contributes an amount of funds to the Government of Malta.

t is important to note that the special tax status granted by the High Net-Worth Individuals Rules does not grant the beneficiary a right to enter, stay and reside in Malta, at any time throughout the duration of such status.

Applicants may not spend more than 183 days in any other jurisdiction.

A one-time registration fee of €6,000 is levied by the Government. Permit holders are also allowed to carry on an economic activity in Malta.

Annual Return

An individual who benefits from this special tax status must submit an Annual Tax Return which should include any material changes that affect the beneficiary’s special tax status.

Current Holders of a Permanent Residence Scheme Certificate

Holders of a Permanent Residence Certificate may continue enjoying their current status and conditions unless they opt for this new scheme. However if they sell the property that they have acquired in pursuance of their Permanent Residence application, they will need to purchase another property complying with a minimum value of € 400,000. It should be noted however that the following conditions for eligibility have been added through amendments to the Permanent Residence Scheme Regulations:

• The holder of the certificate must be in receipt of stable and regular resources sufficient to maintain himself/herself and his/her dependants without recourse to the social assistance system in Malta;
• The holder of the certificate must be in possession of sickness insurance in respect of all risks normally covered for Maltese nationals, for himself/herself as well as for any accompanying dependants;
• The property being declared as the holder’s place of residence cannot be occupied by any person other than the holder of the certificate and his/her family members.

In the case of pending applications, the €6,000 Government registration fee has been waived, and where the property had already been purchased, the value threshold of €116,000 should be applicable.

Submission of applications

An application for special tax status under the High Net Worth Individuals Rules may only be submitted to the Commissioner of Inland Revenue through the services of a person that qualifies as an Authorised Registered Mandatory, registered as such with the Commissioner of Inland Revenue under the High Net Worth Individuals Rules. EMD as an Authorised Registered Mandatory may assist you with your application for residency under this scheme as well as with any tax and legal requirements.

Double Taxation Relief

Malta residents are afforded protection by double taxation agreements, which ensure that tax is never paid twice on the same income in different countries. Malta has an extensive network of double taxation treaties. Most treaties are based on the OECD Model Convention, and relief is granted under the credit method whereby a credit for the foreign tax paid is given. Where there is no double taxation treaty, another form of relief from double taxation available under domestic law, namely unilateral relief, largely achieves the same outcome.

Inheritance and Transfer Tax

No death tax or duty is payable in Malta. However, duty on documents and transfers is payable by the heirs of the deceased; the purchaser of real estate situated in Malta, and upon the purchase of shares in Malta companies.

Purchase of Real Estate

Non-residents may freely purchase one property in Malta, subject to obtaining an AIP permit. This restriction does not apply to properties in Special Designated Areas and, in the case of EU citizens who have not been resident in Malta for at least five continuous years, to property which is to serve as their primary residence. On the other hand, EU citizens who have been resident in Malta for at least five continuous years may purchase any number of properties they wish.

Information current as at 23rd January 2012