Malta, a small archipelago in the Mediterranean Sea, consists of the sunny islands of Malta, Gozo, Comino, and the uninhabited islands Filfla, Cominotto, and St. Paul’s Island. A British colony for nearly two centuries, English is an official language alongside Maltese, with French and Italian also widely spoken. The main island, Malta, is known for its rich cultural and architectural heritage, beautiful bays, and rugged coastlines. Valletta, the capital, boasts many historic buildings. Malta’s EU membership makes it an attractive destination for residency, offering visa-free access to the Schengen area for non-EU nationals.
Malta’s tax system is highly beneficial for entrepreneurs, wealthy individuals, and investors. Maltese residents pay personal income tax on worldwide income at progressive rates from 0% to 35%. However, Malta’s remittance-based tax system, a legacy of its British colonial past, provides significant advantages for foreigners.
Non-Maltese individuals can qualify for special residence schemes, resulting in taxation only on Maltese-sourced income and foreign income remitted to Malta. This means foreign-sourced income not brought into Malta is tax free, and foreign capital gains remain untaxed even when remitted.
The High Net Worth Individual (HNWI) residence scheme in Malta offers significant tax benefits, including a 15% flat tax rate on foreign income remitted to Malta and a 35% rate on Maltese income.
To qualify, applicants must purchase property worth at least EUR 400,000 or rent property for a minimum of EUR 20,000 annually. Additionally, there is a minimum annual tax of EUR 20,000, increasing to EUR 25,000 for non-EU/EEA/Swiss nationals.
Applicants must obtain a local residential address by purchasing or renting a house or apartment in Malta or Gozo. HNWI residence permit holders are not required to remit a minimum annual amount of income to a Maltese bank account. However, they must pay an additional annual tax of EUR 2,500 for each dependent, which rises to EUR 5,000 for non-EU/EEA/Swiss nationals. The spouse is considered a dependent, and the EEA includes EU member countries plus Iceland, Liechtenstein, and Norway.
The HNWI scheme requires residents to spend no more than 183 days in any foreign jurisdiction each year. Applicants face an application fee of EUR 6,000, payable to the Maltese tax authorities, and must have local or international health insurance to prevent the use of the Maltese health and social security system.
However, the HNWI residence scheme is considered unattractive due to the high minimum annual tax payable. Since July 1, 2013, Malta introduced the Global Residence Programme, designed as a solution for non-EU/EEA/Swiss nationals. For EU/EEA/Swiss nationals, it’s easier and cheaper to apply for a residence permit under the ordinary residence scheme.
The ordinary residence scheme, available to EU/EEA/Swiss nationals, offers progressive tax rates up to 35% on local income and foreign income remitted to Malta. Unlike the HNWI scheme, there are no minimum property value requirements or minimum annual taxes. Applicants must reside in Malta for at least 183 days a year and prove financial independence.
Applicants must demonstrate they have suitable financial means to be financially independent and support their family members who wish to reside in Malta. This means assuring the Maltese government that they won’t need any financial support. The current thresholds are set at a minimum capital of EUR 14,000 for single persons and EUR 23,300 for married couples.
Health insurance, either local or international, is required to prevent applicants from relying on the Maltese health and social security system. Unlike the HNWI scheme, there’s no requirement to remit a minimum amount of income to a Maltese bank account, and no minimum annual tax is payable, even for dependents. Additionally, applicants won’t face any application costs.
Applicants need to obtain a local residential address by buying or renting a house or apartment in Malta. There are no minimum value requirements for the property to be acquired or rented. The ordinary residence scheme grants the same access to the beneficial remittance-based tax system as the HNWI scheme, making it more attractive, especially for EU/EEA/Swiss nationals.
Ordinary residence permit holders can engage in employment and business activities in Malta. This scheme offers the flexibility to legally pay zero income tax in Malta if planned properly. However, it is recommended to pay some tax in Malta, even if it’s a small amount.
Launched in July 2013, the Global Residence Programme is specifically designed for non-EU/EEA/Swiss nationals. It serves as a more attractive alternative to the HNWI residence scheme, which is relatively unattractive due to its high minimum annual tax requirements. The Global Residence Programme is expected to eventually replace the HNWI scheme for EU/EEA/Swiss nationals as well.
To qualify for the Global Residence Programme, applicants must purchase property worth at least EUR 275,000 or pay a minimum annual rent of EUR 9,600. If the property is located in Gozo or the south of Malta, the minimum value is reduced to EUR 220,000, and the minimum annual rent to EUR 8,750. These thresholds are significantly lower compared to the HNWI scheme, which requires a minimum property value of EUR 400,000 or an annual rent of EUR 20,000.
The Global Residence Programme offers a 15% flat tax rate on foreign income remitted to Malta and a 35% rate on Maltese income. Additionally, a minimum annual tax of EUR 15,000 is payable, which is more favorable compared to the EUR 25,000 minimum under the HNWI scheme. Application costs of EUR 6,000 and health insurance are mandatory to prevent applicants from relying on the Maltese health and social security system.
Exclusive to EU/EEA/Swiss nationals, the retirement programme is designed to attract pensioners to Malta. This programme offers significant tax benefits, including a 15% flat tax rate on foreign pension income remitted to Malta and a 35% rate on Maltese income. Unlike the ordinary residence scheme, which applies progressive income tax rates up to 35%, the retirement programme provides access to Malta’s remittance-based tax system. This means pensioners are not subject to income tax on foreign-sourced income not remitted to a Maltese bank account, nor on any foreign-sourced capital gains, regardless of whether they are remitted to Malta.
Applicants must secure a local residential address by purchasing or renting a house or apartment in Malta. The required minimum property value is EUR 275,000 (EUR 250,000 in Gozo) or a minimum annual rent of EUR 9,600 (EUR 8,750 in Gozo). Retirement permit holders must reside in Malta for more than 183 days a year and must not reside more than 183 days in any foreign jurisdiction annually.
Applicants need to receive a minimum annual pension income of EUR 37,500 in a Maltese bank account. This pension should account for at least 75% of the taxable income of the retirement permit holder. The minimum annual tax payable is EUR 7,500, calculated as a 15% flat tax on EUR 37,500, with an additional EUR 500 annual tax for each dependent, including the spouse. If the annual foreign income remitted to Malta exceeds EUR 50,000, the tax payable is computed at a 15% flat tax rate on the total taxable income.
The application cost is EUR 2,500, payable to the Maltese tax authorities. Additionally, applicants must have a local or international health insurance policy to ensure they do not rely on the Maltese health and social security system.
Retirement permit holders can benefit from Malta’s Double Taxation Avoidance Agreements. These agreements allow for certain pension incomes that have already been taxed abroad to qualify for tax relief in Malta, depending on the country of origin of the pension income.
While Malta certainly has some attractive taxation, there are also some drawbacks. Opening bank accounts can be complex, and there may be long waits to receive tax refunds, such as the 30% tax rebate. Additionally, establishing a foundation, residency or business often requires navigating a complicated structure. Living in Malta might not be ideal for everyone due to its small size, high population density, and very warm climate.
Why not consider a simpler alternative, like setting up a company in Bulgaria? Bulgaria has maintained a flat tax rate of 10% for decades. It is also an EU member, offering low wages and limited social contributions. The 10% tax rate can only be changed by a two-thirds majority in the parliament, ensuring stability. In some cases, the tax rate can even be 0%. Notably, Bulgaria boasts the lowest personal tax rate in the EU at just 10%, which is unique.
So, consider Bulgaria as an alternative. If you want to learn more, contact us at info@dehoon-dhp.com.