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The The Highly Qualified Persons Rules

Contributed by Chetcuti Cauchi Advocates
21 October, 2011


Contributed by Chetcuti Cauchi Advocates. [www.cclex.com]

In a bid to bolster the development of the Maltese financial services and gaming sectors, a favourable tax scheme has been introduced to attract highly qualified individuals. The scheme applies to individuals who enter into employment contracts to occupy eligible offices with companies licensed and/or recognized by the Malta Financial Services Authority (MFSA), in the case of individuals employed in the financial services industry, or the Lotteries and Gaming Authority(LGA), in the cases of gaming professionals.

Eligible Employment Contracts

An employment contract qualifies for the tax scheme where it is regulated by Maltese law and where the MFSA or LGA is satisfied that it is drawn up for the exercise of genuine and effective work in Malta. The individual must prove that he/she:

  • is protected as an employee under Maltese law,
  • derives employment income which is subject to income tax in Malta,
  • discloses and declares all and any income from the employment contract, and
  • has not benefitted from the deductions available to investment services expatriates.

An Eligible Office

The law lists the following eligible offices, however the individual’s roles would be deemed eligible even if the contract does not mention the exact eligible job titles as long as they are equivalent to the duties envisaged by and at the discretion of the MFSA or the LGA respectively:

  • Chief Executive Officer,
  • Chief Risk Officer (including Fraud and Investigations Officer),
  • Chief Financial Officer,
  • Chief Operations Officer,
  • Chief Technology Officer,
  • Chief Commercial Officer,
  • Portfolio Manager,
  • Chief Investment Officer,
  • Senior Trader/Trader,
  • Senior Analyst (including Structuring Professional),
  • Actuarial Professional,
  • Chief Underwriting Officer,
  • Chief Insurance Technical Officer,
  • Odds Compiler Specialist,
  • Head of Research and Development (including Search Engine Optimisation and Systems Architecture),
  • Head of Marketing (including Head of Distribution Channels),
  • Head of Investor Relations.

The 2012 National Budget speech indicated the possible introduction of Game Directors and Game Designers, as well as Academics and Researchers in Research & Development sectors, however these eligible offices have yet to be implemented as law.

Eligible Individuals

Furthermore MFSA must be satisfied that the individual:

  • performs the activities of an eligible office (or its equivalent),
  • is in possession of professional qualifications and/or has at least five years professional experience,
  • is in receipt of stable and regular resources which are sufficient to maintain himself and his family,
  • resides in a property regarded as normal accommodation for a comparable family in Malta,
  • is in possession of a valid travel document, and
  • is in possession of sickness insurance for himself and the members of his family.

Tax Implications

An individual employed under a qualifying employment contract may opt to subject the respective employment income to tax at a flat rate of 15%. In practice, the 15% rate will apply to the annual salary received under the qualifying employment contract for a period of five years from the beginning of the contract. Yet, the scheme only applies as of the income received during 2010, that is, year of assessment 2011.

The minimum amount to which the scheme may apply is €78,203, to be adjusted annually on the basis of the Retail Price Index. Where the employment income exceeds €5,000,000, the excess income is exempt from tax.

Duration of the Scheme

The scheme applies for a consecutive period of five years for all EU member state nationals, including nationals from Norway, Iceland, Liechtenstein and Switzerland. In relation to third country nationals, the scheme only applies for a consecutive period of four years. The consecutive period begins from the year preceding the first year of assessment in which that person is first liable to income tax in Malta. Where an individual satisfied the scheme’s requirements upon its introduction, that individual may benefit from the 15% flat rate for the remaining years up to the five or four year cap, as applicable.

Ineligibility for the Scheme

On the other hand the scheme does not apply where:

  • an individual is domiciled in Malta,
  • an individual has been employed in Malta for more than two years preceding the 1st January, 2010,
  • the employment income is paid by an employer who receives any business incentive benefit,
  • before the introduction of the scheme, the individual:
    • was already in eligible employment with a company which is not licensed and/or recognised by the MFSA or the LGA respectively, or
    • did not hold an eligible office with a company licensed and/or recognised by the MFSA or the LGA respectively.
  • a claim is made for any relief of any kind except for any income tax deducted at source.

Where a third country national:

  • physically stays in Malta for more than four years in aggregate, or
  • acquires real rights or holds a beneficial interest over immovable property situated in Malta,

the rights under this scheme are withdrawn with retrospective effect.

Penalties

Any individual who claims a benefit under the scheme when he is not entitled to do so is liable to a penalty equal to the amount of benefit claimed and if the benefit is paid the individual is liable to repay the benefit received plus additional tax of 7% per month or part thereof.

Concluding remarks

Malta already is a leading jurisdiction in the financial services and internet gambling industries and these rules further sustain the growth that it has managed to achieve so far thanks to its finely tuned balance of business friendliness and regulatory rigour.

Expatriate Services

At Chetcuti Cauchi we specialise in providing sound immigration law advice and cross-border relocation assistance to private clients worldwide. Over the years, we have been providing professional assistance to private clients and high net worth individuals seeking to obtain permanent residence permits in Malta for retirement, offshore living, international business travel or tax reasons. With Malta's growing reputation as a quality living destination and a tax-efficient residence solution in the European Union, we have increasingly advised on tax optimisation opportunities of moving to Malta under the appropriate residence scheme.

We co-operate with a number of overseas law firms, immigration lawyers and tax practitioners to provide professional assistance and advice on relocation and tax residence in Malta.
For more information, refer to our Malta law firm website.



This article is intended to be of a general nature and is not intended to address the specific circumstances of any individual or entity.  The authors shall not be responsible for any damage which may arise from reliance on information contained in this article.  Specialist advice should also be sought before any action is taken on this basis.

Chetcuti Cauchi Advocates is a commercial law firm with key strengths in corporate and trust law, tax and financial services law, property and capital projects, intellectual property and technology law.  Dr Maria Chetcuti Cauchi heads the financial services and technology law departments of the firm while Dr Priscilla Mifsud Parker the partner in charge of the corporate services department.  Both are members of the Society for Trust & Estates Practitioners.  www.ccmalta.com




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