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
Property
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.
Permanent Residence applications received and acknowledged
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. However, the certificate of special tax status will only be granted when evidence is submitted that the property has actually been purchased, by not later than 31st March 2012.
Furthermore, the old threshold of €4,150 continues to apply to lease agreements entered into prior to the 14th September 2011 where a copy of such agreement, attested by a notary or advocate, is deposited with the Inland Revenue Department, by not later than 31st March 2012.
Such Qualifying Property Holding may not be let or sub-let.
Financial Resources and Insurance
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.
Tax Treatment
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
Property
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.
Permanent Residence applications received and acknowledged
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. However, the certificate of special tax status will only be granted when evidence is submitted that the property has actually been purchased by not later than 31st March 2012.
Furthermore, the old threshold of €4,150 continues to apply to lease agreements entered into prior to the 14th September 2011 where a copy of such agreement, attested by a notary or advocate, is deposited with the Inland Revenue Department, by not later than 31st March 2012.
Such Qualifying Property Holding may not be let or sub-let.
Financial Resources and Insurance
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.
Tax Treatment
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.
Entry and stay in Malta
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.
It 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.
Minimum Stay Requirements
Applicants may not spend more than 183 days in any other jurisdiction.
Registration Fee
A one-time registration fee of €6,000 is levied by the Government. Such fee is however waived in the case of applications for special tax status under the High Net-Worth Individuals Rules made further to an application under the Residents Scheme Regulations, and which application was duly received and acknowledged by the Commissioner of Inland Revenue before the 14th September 2011. This concession will continue to apply in respect of applications submitted until the 15th of September 2012.
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. 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.
However, if such individuals sell their dwelling house, or terminate their current lease agreement, they must acquire a Qualifying Property Holding in order to maintain their eligibility for the Scheme, being a property in Malta acquired for a consideration of not less than €400,000, or leased for a consideration of not less than €20,000 per annum.
In those cases where the holders of a Permanent Residence Scheme certificate sold their dwelling house or terminated their lease agreement before the 14th September 2011, the property will still qualify as a Qualifying Property Holding if such individuals:
- Purchased another property before the 14th September 2011 for a consideration of not less than €116,000; or
- Entered into a promise of sale agreement prior to the 14th September 2011 to buy a property for a consideration of not less than €116,000 and actually purchase the property to which the promise of sale agreement refers by not later than 31st March 2012; or
- Entered into a new lease agreement prior to the 14th September 2011 for an amount of not less than €4,150 per annum, and deposit a copy of such agreement, attested by a notary or advocate, to the Inland Revenue Department, by not later than 31st March 2012.
In all cases, the property must be occupied by the individual as his/her primary residence worldwide, and the only persons that may reside in the property other than the individual beneficiary are his/her family members.
The holder of the certificate is also required to submit an annual declaration accompanied by documentary evidence and/or professional attestation as proof that he/she has satisfied all the conditions required by the Permanent Residence Scheme Regulations.
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.
However, no such duty is payable on share transfers effected by shareholders in or by trading companies which have business interests to the extent of more than ninety per cent outside Malta. Likewise, an exemption from duty on share transfers in holding companies exists where more than half of the ordinary share capital, voting rights and rights to profits are held by persons who are not resident in Malta. Subject to certain exceptions, duty is due at the rate of five per cent in the case of real estate, and two per cent in the case of shares.
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 28th February 2012
