Expatriate Executive: Malta

Summary of local taxation situation

It is necessary to consider both domicile and residence to establish the exact tax situation of individuals in Malta. Maltese domicile is established on the basis of UK case law principles. Broadly speaking, an individual's domicile of origin (where he was born) can be changed if he establishes a permanent home elsewhere. He can only have one domicile.

Residence is defined as habitual presence in the country; ordinary residence means that an individual is present in Malta in the ordinary or regular course of his life.

Individuals who are domiciled and ordinarily resident in Malta pay income tax on their world-wide income.

Individuals who are domiciled elsewhere, and who are resident but not ordinarily resident in Malta pay tax on their income arising in Malta, or remitted there (but not capital gains, whether remitted or not). The six-month test is likely to be definitive in establishing residence.

Non-resident individuals pay tax on their Malta-source income only; but local interest and royalty income are exempt from tax, as are capital gains on holdings in collective investment schemes or on securities as long as the underlying asset is not Maltese immovable property.

Capital gains are included in taxable income; but the capital gains tax on real estate has been replaced by a withholding tax of 12% on the proceeds of disposal.

The rates of income tax are as follows for residents:

For non-residents, the rates are as follows:

There is a 'final' withholding tax of 15% on income from certain types of investment and income from part-time employment or self-employment, also at 15% (subject to various rules).

Employers and employees pay 10% social security contributions.

Expatriates employed in the fund management and insurance sectors are not liable for tax on benefits and allowances of various kinds; expatriate employees of companies licensed to operate in the Freeport zone pay income tax at a top rate of 30% and do not have to make social security contributions; they are also exempt from stamp duty and customs duties; officers and employees of an Offshore Company are exempt from customs duty on their personal belongings imported into Malta for the first six months of their residence.

There is no tax on wealth, no inheritance tax and no alternative minimum tax.

After the EU finally agreed its Tax Directive in June, 2003, Malta announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Malta by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

NB: Maltese tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is advisable.

Offshore Investment Opportunities

It is clear from the above that an resident expatriate working in or from Malta is in a good position to acquire and maintain offshore assets, including assets in Malta.

In choosing between various types of offshore asset for investment purposes, the main consideration for a Malta-based expatriate will be his or her intended residential plans following departure from Malta. If the expatriate plans to move on to another offshore jurisdiction, then investment choices will not be much constrained, but if the plan is to return to a high-tax jurisdiction, then it is vital to study the anti-avoidance legislation of that jurisdiction before acquiring offshore assets. Some jurisdictions tax offshore assets more severely than domestic assets and 'look through' trust arrangements, while others accept trust assets as being outwith the tax net.

This DIY guide can be used to explore high-tax country tax regimes for residents by specifying 'high-tax country name' and 'high-tax country resident intending to stay put'.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.