Offshore Resident: Malta

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.

Capital gains are included in taxable income; but the capital gains tax on real estate has been replaced by a withholding tax of 12% on the proceeds of disposal.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

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).

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.

Until 2005, Maltese trusts, having by definition non-resident settlors and beneficiaries, were exempt from income tax, except that they paid an annual amount of Lm 200 to the Government. Under The Trusts and Trustees Act 2004, Maltese residents can also form trusts, and income distributed to a beneficiary is free of tax; but the trust is a taxable entity in respect of undistributed income, unless both the beneficiaries and the income are foreign, in which case the trust remains exempt from tax.

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.

Malta does not have a wealth tax, CFC rules or transfer pricing rules, although the tax law does contain general anti-avoidance rules. It is clear that a resident but not domiciled individual in Malta is in a good position to acquire and maintain offshore assets.

American citizens, and nationals of the very few other countries that tax world-wide income on the basis of citizenship, won't be able to take advantage of the low-tax environment in Malta, but for all other nationals, it is available.

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.