Malta is a small archipelago located in the middle of the Mediterranean Sea and consists of the sunny holiday islands Malta, Gozo, Comino and the uninhabited islands Filfla, Cominotto and St. Paul’s Island. The British occupied the Maltese archipelago for almost 2 centuries and as a consequence, English is one of the two official languages, besides Maltese. French and Italian are widely spoken too. The island of Malta is the main island of the archipelago and is a charming, attractive and sunny holiday island. It has an intriguing and fascinating past with a rich and varied cultural and architectural heritage. The island is characterised by an exceptional landscape of rugged coastlines and beautiful bays. In the capital Valletta, you can find many wonderful cultural buildings with centuries-old history oozing from the walls. Alternatively, you can opt for one of the small beaches in the bays of Malta or for the beautiful white beaches of the neighbouring island Gozo. Why shouldn’t you decide to live there? Or at least reside there for a part of the year. Since Malta is a member of the EU, some things became easier. For example, non-EU nationals who should decide to become resident of Malta can enjoy visa-free access to the Schengen area.
Tax system
Malta’s tax system is beneficial for entrepreneurs, wealthy individuals and investors who are looking for a stable, safe and attractive business environment. Maltese citizens who are resident of Malta are subject to personal income taxes on their worldwide income (progressive rates from 0% to 35%). Nothing special or attractive at first sight. However, there’s something special about Malta, especially for foreigners. A very interesting and welcome legacy of Malta’s British colonial past is the remittance-based tax system. It sounds complicated but it isn’t: the crux of the matter is that non-Maltese individuals (read foreigners with another nationality) can get a very beneficial tax treatment by becoming a resident of Malta. As a foreigner, you can qualify for one of the special residence schemes and as a consequence, the remittance basis of taxation will apply. This means that foreigners resident in Malta are only taxable in Malta on two types of income:
The first type of income subject to Maltese income tax is Maltese sourced income and capital gains. As a resident of Malta, you will be subject to Maltese personal income tax when you’re working as an employee in Malta or when you’re selling handmade Italian shoes to Maltese citizens, for example.
The second type of income subject to Maltese income tax is foreign sourced income but only to the extent that it’s remitted to Malta. And this is extremely interesting of course! Practically, this means that foreigners resident in Malta aren’t subject to income tax in Malta on income arising outside Malta which isn’t remitted to a Maltese bank account. Additionally, foreigners resident in Malta aren’t subject to income tax on any foreign sourced capital gains, even when they remit these gains to a Maltese bank account (for example capital gains made by buying and selling shares on foreign stock markets).
There’s no inheritance tax, no gift tax an no wealth tax in Malta, which are serious additional advantages. There’s only stamp duty to be paid on transfers of Maltese real estate (5%) and on transfers of certain shares in Maltese companies (2%).
Whoever reads between the lines realises that Malta offers fabulous opportunities to entrepreneurs, wealthy individuals and investors. In combination with a tax-efficient but legitimate structure, you can enable yourself to pay very little tax in Malta. Malta offers a number of residence schemes to foreigners wishing to relocate in order to combine a Mediterranean lifestyle, lots of sunshine and a tax-friendly environment in a location close to Europe, Africa and the Middle East.
The High Net Worth Individual (HNWI) residence scheme
Although relatively unattractive, we’ll first have a look at this scheme for the sake of completeness. HNWI permit holders benefit from a 15% flat tax rate on foreign sourced income remitted to a Maltese bank account and are subject to a 35% flat tax rate on income arising in Malta. Individuals holding a HNWI residence permit have access to the remittance-based tax system: they aren’t subject to income tax in Malta on foreign sourced income not remitted to a Maltese bank account and on any foreign sourced capital gains whether remitted to Malta or not.
Qualifying criteria of the HNWI residence scheme
Applicants are required to obtain a local residential address by buying or renting a house or apartment that will serve as their residential property in Malta. The applicant must either acquire immovable property in Malta or Gozo with a minimum value of EUR 400,000 or must rent immovable property in Malta or Gozo for a minimum of EUR 20,000 per year.
HNWI residence permit holders aren’t required to remit a minimum annual amount of income to a Maltese bank account. Nevertheless, there’s a minimum annual tax payable of EUR 20,000 (and non-EU/non-EEA/non-Swiss nationals holding a HNWI residence permit even have to pay a minimum annual tax of EUR 25,000). In addition, annually EUR 2,500 of tax has to be paid for each dependent (non-EU/non-EEA/non-Swiss nationals pay EUR 5,000 annually for each dependent). The spouse is considered a dependent and EEA stands for the EU member countries plus Iceland, Liechtenstein and Norway.
HNWI residence permit holders are required to reside not more than 183 days in any foreign jurisdiction in any year. Applicants will face an application cost of EUR 6,000 payable to the Maltese tax authorities and they’re obliged to be covered by a local or international health insurance policy to prevent that they’ll make use of the Maltese health and social security system.
Critical note
The HNWI residence scheme is unattractive because of the high minimum annual tax payable (EUR 20,000 or EUR 25,000 in the case of non-EU/non-EEA/non-Swiss nationals). However, since the first of July 2013, Malta introduced the new Global Residence Programme designed as the solution for non-EU/non-EEA/non-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
Individuals holding a residence permit under the ordinary residence scheme pay personal income tax, at progressive rates of up to 35%, on any local income and on any foreign sourced income which is remitted to a Maltese bank account. These progressive tax rates contrast with the HNWI residence scheme where flat income tax rates of 15% and 35% apply. But more important and comparable to the HNWI residence scheme is the access to the remittance-based tax system: individuals qualifying for the ordinary residence scheme aren’t subject to income tax in Malta on foreign sourced income not remitted to a Maltese bank account. They’re also not subject to income tax on any foreign sourced capital gains whether remitted to Malta or not. Play your cards right and Malta is simply your dream destination!
Qualifying criteria of the ordinary residence scheme
Applicants must prove that (1) they have suitable financial means to be financially independent and (2) they’re able to support their family members who wish to reside in Malta too. In other words, they must assure 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 at EUR 23,300 for married couples. Applicants are obliged to be covered by a local or international health insurance policy to prevent them from making use of the Maltese health and social security system.
Under the ordinary residence scheme, permit holders aren’t required to remit a minimum amount of income to Malta. There’s no minimum annual tax payable, also not in respect to dependents (as opposed to the HNWI residence scheme). Applicants won’t face any application costs and need to obtain a local residential address by buying or renting a house or apartment that will serve as their residential property in Malta. As opposed to the HNWI residence scheme, there are absolutely no minimum value requirements with regard to the value of the property to be acquired or rented. Ordinary residence permit holders are required to reside in Malta for at least 183 days a year coupled with an intention to reside in Malta.
Critical note
The qualifying criteria of the ordinary residence scheme are less strict than those of the HNWI residence scheme, while the ordinary residence scheme grants exactly the same access to the wonderful remittance-based taxation system. In other words, the ordinary residence scheme is more attractive than the HNWI residence scheme, especially for EU/EEA/Swiss nationals. When qualifying as an ordinary resident, you’re able to take up gainful employment and business activities in Malta. Being a clever individual, you can hold a residence permit under this scheme and pay zero income tax in Malta in a completely legal way. Flexibility all over the place. However, it’s recommended to pay some tax in Malta, it doesn’t have to be a lot.
The Global Residence Programme
As said before, the HNWI residence scheme is relatively unattractive. EU/EEA/Swiss nationals are able to apply for the ordinary residence scheme instead. Non-EU/non-EEA/non-Swiss nationals can also qualify for this ordinary residence scheme but the qualifying criteria vary from those outlined above. Since the first of July 2013, Malta introduced the new Global Residence Programme designed as the solution for non-EU/non-EEA/non-Swiss nationals. It replaces the HNWI residence scheme for non-EU/non-EEA/non-Swiss nationals and it’s expected that it will also replace the HNWI residence scheme for EU/EEA/Swiss nationals in the near future.
In order to qualify for the Global Residence Programme, an individual must purchase property with a minimum value of EUR 275,000 or pay a minimum annual rent of EUR 9,600. However, if the property is located in Gozo or the south of Malta, the minimum value is set at EUR 220,000 and the minimum annual rent at EUR 8,750. The Global Residence Programme is characterised by lower minimum thresholds compared with the HNWI residence scheme (minimum value of EUR 400,000 or a minimum annual rent of EUR 20,000).
The Global Residence Programme offers a special tax status similar to the one of the HNWI residence scheme. A flat tax rate of 15% is charged on foreign income remitted to Malta while income which arises in Malta is taxed at a flat tax rate of 35%. In addition, a minimum annual tax of EUR 15,000 is payable (versus the EUR 25,000 for the main applicant and EUR 5,000 for each dependent under the HNWI residence scheme). Applicants face an application cost of EUR 6,000 payable to the Maltese tax authorities and they’re obliged to be covered by a local or international health insurance policy to prevent that they’ll make use of the Maltese health and social security system.
The Retirement Programme
The retirement programme, only available to EU/EEA/Swiss nationals, was designed to persuade pensioners to choose Malta as their retirement destination. Retirement permit holders benefit from a 15% flat tax rate on foreign sourced income remitted to a Maltese bank account (such as pension income) and are subject to a 35% flat tax rate on income arising in Malta. These flat tax rates contrast with the ordinary residence scheme were progressive income tax rates of up to 35% apply.
Pensioners holding a retirement residence permit have access to the remittance-based tax system. Individuals qualifying for this scheme aren’t subject to income tax in Malta on foreign sourced income not remitted to a Maltese bank account. They’re also not subject to income tax on any foreign sourced capital gains whether remitted to Malta or not.
Qualifying criteria of the retirement programme
Applicants are required to obtain a local residential address by buying or renting a house or apartment that will serve as their residential property in Malta. The applicant must either acquire immovable property in Malta with a minimum value of EUR 275,000 (EUR 250,000 in the case it concerns immovable property on the other island Gozo) or must rent immovable property in Malta for a minimum of EUR 9,600 per year (EUR 8,750 in the case it concerns immovable property on the island Gozo).
Retirement permit holders are required to reside in Malta for more than 183 days a year. In other words, they aren’t allowed to reside more than 183 days in any foreign jurisdiction in any year. Under the retirement programme, a minimum annual pension income of EUR 37,500 should be received in a Maltese bank account. This pension should, in any case, account for at least 75% of the taxable income of the retirement permit holder. When we do the math, this would mean a minimum annual tax payable of EUR 5,625 (15% flat tax on EUR 37,500). However, the Maltese government enforced a minimum requirement with regard to the amount of tax payable. As long as a retirement permit holder remits no more than EUR 50,000 foreign income to Malta annually, there’s a minimum annual tax payable of EUR 7,500. When more than EUR 50,000 of foreign income is remitted to Malta annually, the tax payable is to be computed as a 15% flat tax rate on the taxable income. In any case, the retirement permit holder also needs to pay a minimum annual tax payment of EUR 500 for each dependent (the spouse is also considered a dependent).
Applicants will face an application cost of EUR 2,500 payable to the Maltese tax authorities and they’re obliged to be covered by a local or international health insurance policy to prevent that they’ll make use of the Maltese health and social security system.
Fun fact
Retirement permit holders can benefit from Malta’s Double Taxation Avoidance Agreements. This means that certain pension income remitted to Malta, which already suffered tax abroad, could qualify for tax relief in Malta depending on the country where the pension income originates from.
