New Rules related to Qualifying Contracts of Employment
By means of Legal Notice 106 of 2011, new rules were issued known as the ‘Highly Qualified Persons Rules, 2011’ which provide for the application of the incentive introduced by Act 1 of 2010, namely that individuals in receipt of employment income from an ‘eligible office’ will be subject to a flat rate of tax of 15% on their employment income instead of the progressive rates of tax which can be as high as 35%.
The new rules came into force with effect from 1 January 2011 and apply to employment income which is subject to Malta income tax as from year of assessment 2012 (basis year 2011). The purpose of these rules is to attract a number of expatriates working in the financial services industry to relocate to Malta and increase Malta’s attractiveness as a reputable financial services centre.
Employment income from an eligible office will benefit from a reduced tax rate of 15% if it amounts to at least €75,000 p.a. If the income exceeds €5 million, the excess is exempt from tax. An ‘eligible office’ is defined as an employment with a company licensed and/or recognized by the Malta Financial Services Authority (MFSA) consisting of the following posts:
- Chief Executive Officer, Chief Risk Officer, Chief Financial Officer, Chief Operations Officer, Chief Technology Officer;
- Portfolio Manager, Chief Investment Officer, Senior Trade/Trader, Senior Analyst (including Structuring Professional), Actuarial Professional, Chief Underwriting Officer, Chief Insurance Technical Officer;
- Head of Marketing, Head of Investor Relations.
The conditions which need to be satisfied to benefit from the 15% reduced rate of tax are the following:
- The individual derives employment income which is subject to tax in Malta in respect of work carried out in Malta or in respect of any period spent outside Malta in connection with such work;
- The individual is in possession of professional qualifications and has at least five years experience;
- The individual has not benefitted from any other deductions available to investment services expatriates;
- The contract of employment is subject to Maltese laws for the purposes of carrying out genuine and effective work;
- The individual fully declares in his Maltese personal income tax return all income derived from his contract of employment;
- The individual proves to the satisfaction of the MFSA that:
- He is in receipt of stable and regular resources which are sufficient to maintain himself and his family members without recourse to social assistance in Malta;
- He resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
- He is in possession of a travel valid document;
- He is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and his family members; and
- He is not domiciled in Malta.
It would not be possible to claim any relief, deduction, reduction, credit or set-off of any kind, should the employee avail himself/herself of the reduced rate of tax.
The employment income will not benefit from the 15% reduced rate of tax if the employer has received any benefits under business incentive laws applicable in Malta or if the income is paid by a person related to the employer who has received such benefits.
Any rights are withdrawn with retrospective effect if the individual is a third country national and he either:
- Physically stays in Malta, in the aggregate for more than 1,460 days; or
- Directly or indirectly acquires any real rights over immovable property situated in Malta or holds a beneficial interest directly or indirectly consisting in, amongst others, real rights over immovable property situated in Malta.
The reduced rate of tax applies for a consecutive period of five years for EEA and Swiss nationals and for a consecutive period of four years for third-country nationals. Persons who were employed under a contract of employment requiring the performance of their duties in Malta before 1 January 2009 cannot benefit from the flat rate of 15%. EEA and Swiss nationals who commenced their employment between 1 January 2009 and 31 December 2009 will be able to benefit from the reduced rate for not more than three consecutive years starting from YA 2011 (for third country nationals the benefit is for not more than two consecutive years starting from YA 2011). EEA and Swiss nationals who commenced their employment between 1 January 2010 and 31 December 2010 will be able to benefit from the reduced rate for not more than four consecutive years starting from YA 2011 (for third country nationals the benefit is for not more than three consecutive years starting from YA 2011).
This note has been prepared for general guidance and does not constitute professional advice. You should not act upon the information contained in this presentation without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy and completeness of the information contained in this presentation and the firm does not accept any liability and disclaims all responsibility for the consequences of anyone acting, or refraining to act, in reliance on the information contained in this note or for any decision based on it.