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Individual taxation

Residence and domicile

How is residence/domicile determined for tax liability purposes in your jurisdiction?

Regarding individuals, the Income Tax Act defines ‘resident in Malta’ as having residence in Malta, except for such temporary absences as may seem reasonable (ie, to the commissioner for revenue) and not inconsistent with such individual’s claim to be resident in Malta. The act also arguably uses the term ‘ordinarily resident’ to distinguish a person who is resident in Malta purely on a day-count basis (ie, for more than 183 days) from a person who, although absent from Malta for a period of more than six months, is still considered a resident based on facts and circumstances implying an intention to reside in Malta. The act also provides the definition of a ‘temporary resident’, being any person who is in Malta for some temporary purpose only, without any intent to establish a residence there and without having resided in Malta on one or more occasion for a period totalling six months in the year.

However, the Income Tax Act does not specifically define the concept of ‘domicile’. The concept derives from common law and closely follows UK law principles and jurisprudence. As such, an individual can have a domicile of origin, a domicile of choice or a domicile by operation of the law. ‘Domicile’ has been interpreted by the Maltese courts to mean presence in a country as an inhabitant of it; a ‘domicile of choice’ is acquired by a combination of residence and the intention to stay permanently or indefinitely in Malta.

Income

Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

The Maltese tax liability of an individual is determined on the basis of source, residence, domicile and remittance. An individual may be:

  • resident and domiciled in Malta;
  • resident but not domiciled in Malta;
  • domiciled but not resident in Malta; or
  • neither resident nor domiciled in Malta.

Individuals who are both ordinarily resident and domiciled in Malta are taxed on their worldwide income. Individuals who are ordinarily resident but not domiciled in Malta, or who are domiciled in Malta but not ordinarily resident, are taxed only on:

  • income arising in Malta;
  • capital gains arising in Malta; and
  • income arising outside of Malta that is remitted to Malta.

Income arising outside of Malta that is not remitted to Malta and capital gains arising outside of Malta are not subject to tax (regardless of whether the capital gains are remitted to Malta). Income is subject to tax in Malta at progressive rates of up to 35%.

Importantly, resident non-domiciled individuals whose spouses are ordinarily resident and domiciled in Malta are nonetheless taxable on their worldwide income. Individuals who have the status of long-term residents under the Status of Long-term Residents (Third Country Nationals) Regulations (278/2006) or permanent resident status under the Free Movement of European Union Nationals and their Family Members Order (191/2007) also do not benefit from the remittance basis of taxation. Individuals who are neither resident nor domiciled in Malta may still be subject to tax in Malta if they are entitled to income arising in Malta.

The following rates are applicable to individuals for basis year 2018

Tax rates: basis year 2018

Chargeable income

 

From

To

Rate

Subtract

Single rates

€0

€9,100

0%

0

€9,101

€14,500

5%

€1,365

€14,501

€19,500

25%

€2,815

€19,501

€60,000

25%

€2,725

€60,001

 

35%

€8,725

Married rates

€0

€12,700

0%

0

€12,701

€21,200

5%

€1,905

€21,201

€28,700

25%

€4,025

€28,701

€60,000

25%

€3,905

€60,001

 

35%

€9,905

Parent rates

€0

€10,500

0%

0

€10,501

€15,800

5%

€1,575

€15,801

€21,200

25%

€3,155

€21,201

€60,000

25%

€3,050

€60,001

 

35%

€9,050

Non-resident rates

€0

€700

0%

0

€701

€3,100

20%

€140

€3,101

€7,800

30%

€450

€7,801

 

35%

€840

Maltese resident individuals must register with the commissioner for revenue for income tax purposes and submit an annual tax return (even if no tax is due for a particular basis year). The financial year end for individuals is 31 December. Therefore, a reference year (or basis year) begins on 1 January and ends on 31 December. The tax return to be completed by the individual for that basis year must be submitted to the commissioner for revenue (ie, at the Inland Revenue Department) by 30 June of the following year (ie, the year of assessment). As of the third year of residence, individuals may further be required to pay provisional tax based on their tax payments of the previous basis year.

Double taxation relief for individuals is available through Malta’s network of over 70 double taxation treaties or unilateral relief and is generally executed by means of a credit method.

Capital gains

Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

Malta has no separate capital gains tax regime. Income tax is imposed on any gain made on:

  • the transfer of immovable property situated outside Malta (a property transfer tax also applies to the transfer value of immovable property situated in Malta);
  • shares and other securities;
  • business, goodwill and business permits;
  • copyrights, patents, trade names, trademarks and other intellectual property;
  • interests in a partnership; and
  • beneficial interests in a trust.

Gains from the transfer of other assets are not subject to income tax unless derived from a trading activity. The rate of tax is the marginal income tax rate applicable to the particular taxpayer.

Inheritance and lifetime gifts

Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

Malta applies no inheritance, estate or gift taxes. Nevertheless, stamp duty may apply in relation to certain transfers, including the transfer inter vivos or causa mortis of immovable property and securities.

Real estate

What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?

Acquisition of immovable property

A stamp duty of €5 for every €100 is generally payable by the buyer on the acquisition of immovable property. If the buyer is an EU citizen declaring on deed that they shall reside in the property being purchased as their sole ordinary residence, a preferential rate of 3.5% applies on the first €150,000 of the purchase price. The remainder is charged at the standard rate of €5 for every €100.

Disposal of immovable property 

Regarding property situated in Malta, the capital gains tax regime applicable to the transfer of immovable property has been replaced by a final withholding tax or property transfer tax (PTT) in all but a few exceptions. As of 1 January 2015, PTT of 8% has applied to the value of the property transferred.

Increased rates may apply in cases where the property being sold was acquired by the seller before 1 January 2004. In this case, the transfer tax payable by the seller is 10%. A lower rate applies to individuals who do not carry on the business of property trading; they will be subject to PTT of 5% if the property is transferred before five years from the date of acquisition. Non-resident persons may opt out of the PTT and still be taxed on their capital gains on the transfer of property situated in Malta. All exemptions applicable under the capital gains regime are applicable to PTT.

Non-real estate assets

Do any taxes apply to the acquisition and disposal of other assets apart from real estate?

Gains from the disposal of capital assets Income tax is imposed on any gain made on:

  • shares and other securities;
  • business, goodwill and business permits;
  • copyrights, patents, trade names, trademarks and other intellectual property;
  • interests in a partnership; and
  • beneficial interests in a trust.

Gains from the transfer of other assets are not subject to income tax unless derived from a trading activity. The rate of tax is the marginal income tax rate applicable to the particular taxpayer.

Duty on documents and transfers Duty is payable by the buyer on the transfer of marketable securities and specific documents, such as insurance policies. Duty is chargeable when such documents are executed in Malta and on the use of foreign documents in Malta, if those foreign documents would have been chargeable under the duty on documents and transfers had they been executed in Malta.

Other applicable tax regimes

Are any other direct or indirect tax regimes relevant to individuals?

Malta offers a number of special residence programmes for individuals looking to become residents of Malta. These programmes typically offer a special tax status and beneficial tax rates in conjunction with the remittance basis of taxation to qualifying individuals. Beneficiaries of the Residence Programme (open to EEA and Swiss nationals) and the Global Residence Programme (open to third-country nationals) benefit from a tax rate of 15% on income received in Malta from foreign sources, with the possibility of claiming double taxation relief. A number of criteria must be satisfied in order for an individual to benefit from this special tax status, including:

  • ownership or rental of a qualifying property; and
  • proof that the beneficiary has sufficient means of economic subsistence and that the beneficiary and all applicants are covered by a comprehensive insurance policy.

Beneficiaries are subject to a minimum amount of tax set at €15,000 per annum. The Malta Retirement Programme and the United Nations Pensions Programme are similar programmes specifically designed for retirees.

Planning considerations

Are there any special tax planning considerations for individuals with a link to your jurisdiction?

Key tax planning considerations for individuals who are establishing a physical presence in Malta revolve mainly around the concepts of residence and domicile, since these are the main connecting factors for establishing tax liability in Malta for individuals.

Given their particular tax status, resident non-domiciled individuals should seek advice on what constitutes income from Maltese sources and what constitutes income remitted to Malta, as taxation in Malta would arise in both instances. The distinction between income and capital is fundamental for organising one’s tax affairs in Malta, given that capital is not taxed. This distinction is also essential for taking fullest advantage of the remittance basis of taxation, as capital remitted to Malta is not subject to tax, whereas income is. Similarly, capital gains arising outside Malta are also not taxable, even if received in Malta by an individual who is resident but not domiciled in Malta.

Individuals who are in business should also consider the potential benefits of incorporating their activities in Malta, as this would open up the possibility of taking advantage of Malta’s tax refund system and forms of double taxation relief available only to companies.

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