Globe-Trotting Sportsman Or Entertainer: Malta

A Maltese citizen with extensive, international, multi-sourced income is not in a particularly good tax situation unless he or she can establish non-residence, since full, world-wide taxation of income will apply, albeit the rates are not very high.

Due to the local-source taxation rules for a non-domiciled Maltese resident, non-Maltese residents of Malta have a favourable tax situation and are free to make investments in other offshore locations with very few adverse tax consequences.

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.

The rates of income tax are as follows for residents:

However, if resident in Malta, the peripatetic professional may well find herself paying withholding tax in a number of countries which cannot in some cases be reclaimed or set off against Maltese taxation because of the absence of a tax treaty.

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.

These rules are unlikely to apply to foreign sportsmen and entertainers. Generally, revenues they receive from professional activity in Malta are subject to a withholding tax of 10% if the stay is for less than 15 days; otherwise, the normal scale of income tax rates would apply.

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 at the level of the trust; 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.

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.

In choosing between various types of offshore asset for investment purposes, the main consideration for a Malta-based individual will be his or her intended residential plans following departure from Malta. If the plan is to move on 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.

Equally, if it is planned to return to a high-tax jurisdiction, almost all of which tax world-wide income, then plans must be made to shelter income insofar as this is possible, by using trusts or other tax-distancing vehicles, if this is practicable within the tax regime of the chosen jurisdiction. The UK offers a special regime which may be helpful (select 'Globe-trotting Sportsman or Entertainer' and 'UK').

If the eventual residential jurisdiction is one of those that has a very restrictive tax regime, then individuals falling under this heading may need to resort to corporate structures to market their skills and manage derivative income flows. It may well be that these can usefully be based in offshore jurisdictions, although complex structures may be necessary if corporate anti-avoidance rules are to be avoided.

www.lowtax.net contains details of the corporate and individual tax regimes for 50 offshore jurisdictions.

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.