Malta: Highly Qualified Expatriates
30 October 2013
Posted by: Authors:Zarb, Pace, Portelli, Brockdorff & Fenech
Authors: A. Zarb, D. Pace, P. Portelli, J. Brockdorff & D. Fenech (KPMG Malta)
Highly Qualified Expatriates working in the Financial Services, Aviation and Gaming Sectors may benefit from a 15% flat tax rate.
Notwithstanding the financial crisis, Malta has attracted a steadily increasing number of renowned international players in the financial services sector who have chosen Malta as their place to do business. The ingredients for this resilient and continued growth have been a combination of Malta's sound regulatory framework, competent workforce and favourable corporate tax system. Also, Malta today is at the forefront of the remote gaming industry and home to some of the world's largest and most profitable online gaming companies. The regulatory framework and fiscal environment have made Malta a domicile of choice within the industry and in fact, Malta hosts approximately 10% of the world's online gaming operators. Following on the heels of Malta's successful re-launch of its aircraft registry and the concerted push made to establish and develop Malta as an aviation hub, Malta has repeatedly made the headlines as it has attracted a steady stream of high-profile business aviation operators relocating or establishing a regional hub in Malta.
The highly qualified expatriate special tax status is a targeted special tax status intended to further enhance Malta's attractiveness and competitiveness as a financial services, aviation and gaming jurisdiction, specifically aimed to attract top talent to fill key roles in the Maltese industry. This incentive therefore underpins Malta's strategy in attracting more regulated gaming business to its shores, achieving Government's aim to raise the financial services sector's contribution to the country's GDP from 12% to 25% in 2015 and furthering the push to firmly establish Malta as the Aviation hub in the Mediterranean.
With effect from year of assessment 2011 (that is, calendar year 2010), the 15% flat rate of tax may be availed of by individuals employed in the financial services and gaming sectors. In order to accede to this beneficial tax rate, the individual must be employed by a company licensed and / or recognised by the Malta Financial Services Authority ("MFSA"), the Lotteries and Gaming Authority ("LGA") or the Authority for Transport in Malta ('TM') (with effect from year of assessment 2013, calendar year 2012) in respect of any employment or office with any undertaking holding an air operators' certificate and must hold an eligible office. Companies licensed or recognised by the MFSA include credit institutions, financial institutions, insurance companies, PCCs, insurance intermediaries (including brokers, agents, managers), investment services licence holders (including fund managers and fund administrators), funds, pension schemes (including pensions scheme administrators). Companies licensed and regulated by the LGA include companies engaged in remote gaming, casino gaming and sports betting.
An eligible office is an employment in one of the following posts:
- Chief Executive Officer, Chief Risk Officer (including Fraud and Investigations Officer), Chief Financial Officer, Chief Operations Officer (including Aviation Accountable Manager), Chief Technology Officer, Chief Commercial Officer;
- Portfolio Manager, Chief Investment Officer, Senior Trader or 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) Aviation Continuing Airworthiness Manager, Aviation Flight Operations Manager and Aviation Training Manager & Aviation Ground Operations Manager;
- Head of Marketing (including Head of Distribution Channels), Head of Investor Relations.
The 15% reduced rate of tax is applicable in respect of emoluments payable under a contract of employment if the employment activity contemplated therein is an eligible office. The minimum annual amount which may be taxable at 15% is the amount of €75,000 (2010) subject to an annual adjustment in line with the Retail Price Index (€80,100 for 2013). Furthermore any qualifying income above €5,000,000 is not subject to tax in Malta.
Any non-qualifying income is taxable at 35%.
The 15% rate of tax is a final tax and cannot be reduced by means of relief for double taxation, credit or set-off of any kind.
In order to be eligible for the reduced rate of 15% an expatriate must satisfy the following conditions:
1. Minimum employment income of €75,000 (excluding the value of fringe benefits) in respect of the holding of an eligible office.
2. The employment contract must be in terms of Maltese law and must relate to the exercise of genuine and effective work for the employer to the satisfaction of the MFSA/LGA/TM.
3. Possession of professional qualifications proven to the satisfaction of the MFSA/LGA/TM.
4. MFSA/LGA/TM must be satisfied that the individual performs activities of an eligible office.
5. Furthermore, MFSA/LGA/TM must be satisfied that the expatriate:
a. Is in receipt of stable and regular resources which are sufficient to maintain themselves and their family without recourse to the social assistance system in Malta;
b. Resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
c. Is in possession of a valid travel document;
d. Is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for themselves and their family;
e. Is not domiciled in Malta.
6. Neither the employer nor any related entity has received any form of benefit provided in terms of the Malta Enterprise Act and the Business Promotion Act.
7. The expatriate has not benefited from the Investment Services or Insurance Expatriate benefits in terms of Article 6 of the ITA.
Furthermore, in order to be eligible to this benefit, besides declaring for tax purposes all income received from the employer in respect of the eligible office, an applicant is required to declare as chargeable to tax in Malta, all income received from a party related to his employer even where such income is not subject to Maltese tax in accordance with the ITA.
Period of application
The benefit is available as from year of assessment 2011 (which taxes income earned in 2010) for a period of five years in the case of EEA and Swiss Nationals and four years in case of third country nationals. In both cases, the year commences from the year in which the expatriate takes up residence in Malta and derives income which is subject to tax in Malta. However the rules provide that:
- Expatriates who were employed in Malta for a period of between one and two years immediately prior to 1st January 2010, can only benefit from the reduced tax rate for a maximum period of three years if European Economic Area (EEA) or Swiss nationals, or two years for third-country nationals;
- Expatriates who were employed in Malta for of period of not more than one year prior to 1st January 2010, can only benefit from the reduced rate of tax for a period of four years if EEA or Swiss nationals, or three years for third country nationals.
Therefore, the full five- / four-year period can only be availed of by those who commence employment in Malta in 2010 and subsequent years.
Furthermore, expatriates who have been employed to work in Malta for more than two years preceding 1st January 2010, cannot benefit from these rules, whilst persons employed with undertakings holding an air operators' certificate issued by the TM cannot benefit from these rules if they were employed prior to 1st January 2012.
Rules for the claw-back of the benefit
The Rules provide for the withdrawal of the benefit in various cases i.e. in the case of third country nationals, the benefit is deemed to be automatically relinquished with retrospective effect if the expatriate physically stays in Malta in the aggregate for more than 1,460 days (4 years) or if he directly or indirectly acquires real rights (thereby excluding personal rights such as leasing rights) over immovable property situated in Malta or directly or indirectly holds a beneficial interest therein.
The Rules lay down that the 15% option to tax shall be exercised by means of a declaration signed by the expatriate and endorsed by the MFSA/LGA/TM. The said declaration must be submitted together with the tax return for the relative year of assessment by not later than the relative tax return date, that is 30th June following the calendar year in which the income was earned. Late filings of declarations are deemed not to constitute a valid exercise of the option to be taxed at 15%, unless the CIR is satisfied that the delay was due to a reasonable excuse.
As regards the conditions for eligibility required to be proved to the satisfaction of the MFSA/LGA/TM, an application may be made to the applicable authority for a formal determination that the relevant conditions are satisfied.
This article first appeared in Mondaq.com