Malta: Personal Taxation

Malta Residence and Liability for Taxation

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.

'Returned migrants' are offered a special tax regime: a person born in Malta who returns can elect to pay 15% income tax on local income only; there are various conditions.

Highly qualified expatriate employees working in the financial services or i-gaming industry are subject to a flat tax of 15%.

The 15% flat tax incentive was extended in the 2012 budget to include highly skilled and qualified expatriates who are required for certain industrial sectors; individuals who carry out research or market an invention or technology in Malta; and digital gaming professionals, such as game directors and game designers.

Holders of Permanent Residence Permits issued under the Immigration Act 1970 can pay tax at a reduced rate on income arising in Malta plus remittances of foreign income. Such individuals are considered to be non-resident as regards investments in offshore and non-resident companies.

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Malta Social Security Taxes

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Companies licensed under the Investment Services Act 1994 (ie investment funds) are exempt from stamp duty on share transfers and issues. Maltese companies with predominantly foreign income can also obtain exemption.

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Malta Value Added Tax

VAT was reintroduced into Malta as from 1st January 1999, as required by the EU accession process. The current rate is 18%, with a reduced rate of 7% applicable to tourist accommodation or the letting of sites for artistic or cultural activities and 5% for certain supplies, including electricity, confectionery, medical accessories and printed matter.

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Malta Property Tax

A Final Withholding Tax of 12% of the sale value was introduced on 1 November 2005. The government's rationale for switching to a withholding tax from a 35% capital gains tax was to cut down on under-declarations of selling price and to boost the housing supply by encouraging those who had held on to property for long periods to sell.

"We expect more honest declarations: Under capital gains you paid 35 per cent on each lira declared, now you would only pay 12 per cent, so there is less incentive to cheat," Parliamentary Secretary Tonio Fenech said.

"We also believe that there are a number of people who were hoarding property because the value would have gone up considerably over the years. They would have been reluctant to sell because they would have had to pay so much under the capital gains regime," he added.

In February, 2006, Malta's Parliamentary Secretary, Tonio Fenech, unveiled a number of amendments to the property tax in an attempt to head off criticism. The measures included provisions for taxpayers being allowed to elect to have the sale taxed at the applicable marginal rates on the gain or at the rate of 12%. No tax is payable if the property was owned and occupied for at least three years immediately following the purchase and if it is sold within one year of vacating the premises.

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