Reduced rates of tax for expatriates engaged in the development of digital products

A new incentive scheme was introduced by means of Legal Notice 106 of 2013 in which expatriates working in Malta engaged in the development of innovative and creative digital products may opt to have their employment income in respect of work exercised in Malta, chargeable to tax at a flat rate of 15% in lieu of progressive rates of tax which can be as high as 35%.

For an individual to benefit from this scheme, he must hold a qualifying contract of employment and hold an eligible office. . He must also submit an application to Malta Enterprise (ME) for its approval.

An eligible office refers to roles which are directly engaged in the development of innovative and creative digital products. These are as follows: Chief Executive Officer, Chief Technical Officer, Chief Creative Officer, Head of Writing, Lead-in-World Writer, Lead Game Programmer, Software Engineering Director, Game Developer, Director of Online Community, Head of Art Design and Visualisation, Art Director, Digital Artist, Commercial Director (Digital Licensing), Head of Game Design, Game Director, Game Designer, Audio Director, Video Director, Producer and Head of Marketing.

The employee must receive under the qualifying contract of employment an employment income of a minimum value of Eur45,000 per annum exclusive of any fringe benefits. Prior approval in writing is required by ME, which must be satisfied that the employer or a person related to the employer has not received a benefit or benefits from any business incentive laws.

A beneficiary under the scheme must meet all the following conditions:

  • He derives employment income in respect of work or duties carried out in Malta, or in respect of any period spent outside Malta in connection with such work or duties, or on leave during the carrying out of such work or duties.
  • He is in possession of the requisite qualifications and experience to be able to hold the eligible office.
  • He is protected as an employee under Maltese law for the purpose of exercising genuine and effective work for or under the direction of someone else and has the requisite adequate and specific competence as approved by ME.
  • He proves to the satisfaction of ME that he performs the activities of an eligible office.
  • He declares for Maltese income tax purposes all his income received under the qualifying contract of employment and all income received from a person related to his employer.
  • He proves to the satisfaction of ME that he is in receipt of stable and regular resources which are sufficient to maintain himself and his family.
  • He must also have a sickness insurance policy in place which covers him and his family in respects of all risks while in Malta.
  • He must reside in a suitable accommodation.
  • He is not domiciled in Malta.
  • He must be in possession of a valid travel document.

The income will be deemed to be the individual’s first part of his income and will be subject to a flat rate of tax of 15% without the possibility to claim any deductions, relief, set-offs or credits. Any other income received by the beneficiary, will be subject to tax at the rate of 35%. Any income from a qualifying contract of employment which exceeds Eur5,000,000 will not be subject to tax in Malta.

The scheme is effective as from 1 January 2012. It applies for a consecutive period of up to three years for EEA, Swiss and third country nationals. The three consecutive years will commence from the year in which the person was first liable to tax in Malta. If the first year of assessment in which the individual was first liable to tax in Malta was prior to year of assessment 2013, the option will be available for year of assessment 2013 and for the four subsequent years of assessment starting from the first year of assessment.

Any rights acquired by third country nationals under these rules, will be deemed to have been withdrawn if he stays in Malta for more than 1460 days in the aggregate or directly or indirectly acquired immovable property situated in Malta. Individuals cannot benefit from this scheme if they have already benefitted from a reduced rate of tax under any other rules and regulations applicable in Malta. The option may not be exercised in respect of any year of assessment preceding year of assessment 2013 and unless the option has been approved by ME.

For more details please contact

Stephen Balzan – Tax Partner

Elaine Buttigieg – Tax Consultant