Flat tax rate for expats of 15% rules clarified by govt in Malta

The government in Malta has clarified the rules for an incentive scheme aimed at attracting highly qualified expats in the financial services to the Mediterranean island with a flat tax rate of 15%.

Under Legal Notice 106, Highly Qualified Persons Rules, 2011, it lists the occupations of those deemed to be qualified to occupy ‘eligible office’ with companies licensed and/or recognized by the Malta Financial Services Authority.

These include chief executive officer, chief financial officer, chief insurance technical officer, chief investment officer, chief operations officer, chief risk officer, chief technology officer, chief underwriting officer, acturial professions, head of investor relations, head of marketing, portfolio manager, senior analyst, and senior trader.

The rules for the scheme came into force with effect from January 1, 2010, and applies to income for assessment in 2011 for individuals not domiciled in Malta and the list has been issued retrospectively.

Those with income from the list will be subject to tax at a flat rate of 15% provided that the income amounts to at least €75,000 adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of €5 million and any excess is exempt from tax.

The 15% tax rate applies for a consecutive period of five years for the European Economic Area, that is the European Union plus Norway, Iceland and Liechtenstein, and Swiss nationals and for a consecutive period of four years for third country nationals.
 
Individuals who already have a qualifying contract of employment in an ‘eligible office’ two years before the scheme started may benefit from the 15% tax rate for the remaining years of the

To qualify for the 15% rate of tax an individual must satisfy a number of employment conditions including’ deriving employment income subject to income tax in Malta; has an employment contract that is subject to the laws of Malta and proves to the satisfaction of the Malta Financial Services Authority that the contract is drawn up for exercising genuine and effective work in Malta; proves to the satisfaction of the Malta Financial Services Authority that he is in possession of professional qualifications and has at least five years' professional experience; and has not benefitted from deductions available to investment services expatriates with respect to relocation costs and other deductions, under article 6 of the Income Tax Act.

They must also fully discloses for tax purposes and declare emoluments received in respect of income from a qualifying contract of employment and all income received from a person related to his employer paying out income from a qualifying contract as chargeable to tax in Malta as well as proving to the satisfaction of the Malta Financial Services Authority that the activities performed are those of an eligible office and that they are in receipt of stable and regular resources which are sufficient to maintain themselves and the members of their family without recourse to the social assistance system in Malta.

The individual must also live in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta, have a valid passport and have sickness insurance in respect of all risks normally covered for Maltese nationals for themselves and the members of their family.
 
People will not qualify for the 15% reduced tax rate if their income is paid by an employer who receives any benefits under business incentive laws or is paid by a person who is related to the employer who received any benefits under any business incentive laws or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by the Malta Financial Services Authority or if the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognised by the Malta Financial Services Authority or not holding 'eligible office' with a company licensed and/or recognised by the Malta Financial Services Authority.