By George Gregory – Malta’s appeal as a European financial services jurisdiction has been demonstrated over the past few years not only by choice of the island as a fund domicile but also by the number of fund management companies set up in the jurisdiction providing services to both locally-established and foreign funds. That trend can only be further encouraged by Malta’s new tax regime, unveiled earlier this year, aimed at highly qualified expatriates.
The new regime, applicable to income earned from the beginning of 2010, introduces a 15 per cent flat tax rate on employment income derived in Malta by individuals in the financial services sector that are not ordinarily resident or domiciled in the country. The minimum qualifying annual income is EUR75,000 (excluding fringe benefits), implying a minimum tax payable of EUR11,250, and the 15 per cent rate applies up to EUR5m, above which income is tax-free.
Individuals covered by the regime are not eligible for any tax relief, deduction, credit or set-off. The benefit is limited in time, applicable for the first five years of residence in Malta for European Economic Area and Swiss nationals, and four years for nationals of other countries.
Qualifying individuals must have an employment contract with a company licensed or recognised by the Malta Financial Services Authority for a specified high-level position: chief executive, chief risk officer, chief financial officer, chief operations officer or chief technology officer; portfolio manager, chief investment officer, trader/senior trader, senior analyst, actuarial professional, chief underwriting officer or chief insurance technical officer; head of marketing or of investor relations.
They must receive income from duties carried out in Malta, any related activity outside the country or leave. They must be protected as an employee under Maltese law, demonstrate expertise and qualifications, and the performance of duties relating to a qualifying position, to the satisfaction of the MFSA. They must not benefit from tax exemptions on certain fringe benefits, and must make full disclosure of qualifying income for tax purposes. Individuals must demonstrate their and their families’ ability to support themselves without social assistance, live in appropriate accommodation and have suitable health insurance for themselves and their families.
The special tax rate may be withdrawn retrospectively from a non-EEA or Swiss national if they physically stay in Malta for a total of more than 1,460 days, or if they directly or indirectly acquire or obtain a beneficial interest in real estate in Malta. Anyone employed in Malta for more than two years before January 1, 2010 is not eligible for the 15 per cent rate, but a person employed for up to two years prior to 2010 may benefit, with the time already spent in Malta deducted from the eligible period.
Anti-abuse provisions are designed to prevent the use of artificial arrangements to qualify for the 15 per cent rate. Anyone claiming the rate when not entitled to it faces repayment of the benefit they had received, plus an additional tax of 7 per cent per month in question unless they can demonstrate good faith.
The new tax regime is poised to increase the appeal of Malta as a domicile for fund management companies and other financial service providers by making it easier for the country to attract the highly skilled and experienced professionals required to win and handle international business and to share their expertise with other industry members.
George Gregory is a partner and head of tax and corporate services at RSM Malta