Taking up residence - Residence and retirement options in Malta
Malta’s strategic Mediterranean location, at the crossroads of Europe, North Africa and the Middle East, has ensured that the Island has an enviable role in history as an international trading and shipping centre. Even today, this strategic location grants an otherwise inconsequential island a high-profile Euro-Mediterranean lifestyle. As a result, Malta continues to top international living indexes, with high ratings mainly attributable to the Island’s quality of life, climate, value for money, safety and stability.
Maltese islanders have succeeded in finding a balance between enjoying a tranquil Mediterranean lifestyle and meeting the hectic demands of the international finance and business community that has grown to rely on the Maltese for sophisticated, outward-looking services.
Malta offers significant advantages to foreign entrepreneurs, high-net-worth individuals and investors seeking a safe yet attractive business environment. A full member of the EU, Malta acts as a gateway to Europe, providing visa-free access to the European Schengen Area to non-EU nationals taking up residence.
The soundness of its banking system and the resilience of Malta in the face of a prolonged international financial storm have positioned this European financial centre favourably as a top destination for retirees seeking a safe home for their hard-earned pension. Malta’s extensive network of double tax treaties, a remittance basis of taxation, the UK HMRC’s approval of Malta as a qualifying recognised overseas pension scheme (QROPS) jurisdiction and the ability to elect for a 15 per cent flat personal income tax rate have also strengthened Malta’s place as a preferred choice of retirement location.
Malta’s property market provides many options to the discerning foreign property investor or second-home buyer. A foreigner can buy an apartment, converted farm house, terraced house or villa for personal use as a primary residence, or even as a second home. Certain developments are located in special designated areas (SDAs), which are free from any restrictions on the number of properties acquired or on the right to let such properties. Land availability for development is limited. Likewise, there is a finite number of properties enjoying an exceptional location including 360-degree island and sea views, bastion views, grand harbour views, or a combination of these sought-after highlights. Competition for ownership of such properties is both local and international, and this promises a ready-market for any investor seeking to liquidate their property investment. As a result, careful buyers are likely to enjoy an exceptional property while sitting on an appreciating asset, even in these unsettled financial times.
Remittance basis of taxation
A welcome legacy of Malta’s British colonial past is the remittance-based tax system. Non- domiciled persons resident in Malta, whether individuals or legal persons, are taxable in Malta on Maltese-source income and capital gains. Foreign-source income is subject to tax only to the extent that it is remitted to Malta, while foreign-source capital gains are outside the scope of Maltese taxation altogether.
Accordingly, income arising outside Malta that is not remitted to a Maltese bank account is not subject to Maltese taxation, nor are any funds of a capital nature that may be remitted to Malta. The latter category includes savings and capital gains arising from the assignment of assets outside Malta, which are not subject to tax in Malta, regardless of their remittance to Malta or otherwise.
Non-Malta-domiciled persons may take up residence in Malta by several routes.
High-net-worth individuals scheme
The most common route to residence in Malta is permanent residence, a scheme designed to accommodate affluent expatriates wanting to make Malta their residence base. In 2011, the scheme was revised and restyled as a high-net-worth individuals (HNWI) scheme. The current scheme has retained the original flat personal income tax rate of 15 per cent, which, together with Malta’s remittance-based tax system, remains an attractive tax planning tool. The HNWI scheme bestows this special tax status to EU and non-EU nationals satisfying the following revised eligibility criteria:
- Applicants must have a stable and regular income. No asset disclosures or wealth declarations are required.
- Applicants must either acquire property with a minimum market value of EUR400,000 or conclude a rental contract worth at least EUR20,000 per year.
- Applicants must take out a health insurance policy with international coverage.
Persons granted this special tax status enjoy a flat tax rate of 15 per cent on remitted foreign-source income, subject to a minimum annual tax of EUR20,000 and an additional EUR2,000 for each dependant. For non-EU, non-European Economic Area nationals, the minimum taxes are EUR25,000 and EUR5,000 respectively. On local-source income, the applicable tax rate is 35 per cent.
The new retirement programme
The recent introduction of a new retirement programme offers further possibilities for EU citizens to reside in Malta while benefiting from a flat rate of tax of 15 per cent on their gross pension income. A lower minimum tax applies under this scheme, at EUR7,500 for the main permit holder and an additional EUR850 per dependant. The requirements for eligibility are:
- The purchase of property with a minimum value of EUR275,000 for property located in Malta or EUR250,000 for property on the island of Gozo. Should the applicant opt for a lease contract, the minimum annual rent must amount to EUR9,600 for property in Malta and EUR8,750 for property in Gozo.
- The applicant must reside in Malta for at least 90 days per year, averaged over any five-year period, and may not reside in any other jurisdiction for longer than 183 days in a calendar year.
- Any pension received must be remitted and taxed in Malta.
- 75 per cent of the income chargeable to tax in Malta should arise from a pension scheme.
Ordinary residence tax status is open to financially independent EU citizens who are ordinarily resident in Malta. The applicant must show their financial independence without being subjected to complex means testing. The applicant must conclude a contract of purchase or a contract of lease of property located in Malta or Gozo. A health insurance policy must also cover the applicant. Persons who hold an ordinary residence permit are taxable on a remittance basis. Such persons will be subject to a progressive tax rate starting at 0 per cent, with a maximum of 35 per cent.
Highly qualified persons rules
Recent tax incentives have been introduced to attract high-end foreign executives and specialised human capital in key sectors. The intent is to bolster foreign contributions of know-how and the locals’ exposure to international best practices.
Malta’s success in the gaming and financial services industry has shown the necessity for the creation of incentives to draw individuals with a high level of expertise to work in companies locally licenced and/or recognised by the Malta Financial Services Authority or the Lotteries and Gaming Authority. The requirements for eligibility include:
- Applicants must fulfil an ‘eligible office’ in accordance with the list provided by the rules.
- Applicants must receive an annual income of at least EUR78,207, which needs to be adjusted on application according to the Retail Price Index.
- Employment income is subject to income tax in Malta.
- The relative contract of employment must be regulated by the laws of Malta and is subject to approval by the relevant authorities.
- Applicants must possess professional qualifications and have at least five years’ professional experience.
- Applicants must not have benefited from deductions available to investment services expatriates with respect to relocation costs and other deductions.
- Applicants must fully disclose their income.
- Applicants must prove to the satisfaction of the relevant authorities that they perform activities of an eligible office.
Wealth and succession taxation
Malta does not apply any wealth taxes. In the absence of an inheritance tax, which was repealed under Maltese law in 1992, the portion of an immovable property transferred by declaration, causa mortis, on the death of one of the co-owners is subject only to a stamp duty of 5 per cent.
In more ways than one, the residence options available to expatriates seeking to make Malta their home complements Malta’s new role as a maturing international financial centre.
Malta’s success is a tribute to the political consensus maintained by the two larger political parties over the years, and a pat on the back goes to the Maltese people, who contribute in larger or smaller ways to making Malta a pleasant expatriate destination.
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