Malta beneficial taxation of investment and insurance professionals

Chetcuti Cauchi | 30 May 2012

Malta beneficial tax investment and insurance professionals

Employees working for in the investment services companies and insurance industries stand to receive tax benefits on employment income received in Malta.

Ten-year tax holiday

Eligibility

An investment services expatriate is an individual who is:

  • An employee of, or provides services to, an investment services company, and
  • The investment services company’s activities include the provision of management, administration, safekeeping or investment advice to collective investment schemes.

An insurance expatriate is an individual who is:

  • An employee of, or provides services to an, a company (Insurance Business Act) or a company carrying on the business of (Insurance Intermediaries Act), and is either
  • not ordinarily resident and not domiciled in Malta, or
  • was not resident in Malta for a minimum period of three years immediately preceding the year in which he commenced such employment, during which period he maintained a similar position abroad.

Tax benefit

Tax holiday

An Investment Services or Insurance Expatriate is entitled to a 10-year tax holiday from the year in which he is first liable to tax under the ITA on income relating to the following expenditure when incurred for his benefit or that of his immediate family, when the expenditure is borne by the company.

The expenditure includes:

  • removal costs for relocation to or from Malta;
  • accommodation expenses incurred in Malta;
  • travel costs in respect of visits;
  • provision of a car for use in Malta;
  • a subvention of not more than €600 per calendar month;
  • medical expenses and medical insurance; and
  • school fees in respect of his children

Exemption from income tax

An investment services or insurance expatriate is treated as not resident in Malta for the purposes of the exemption from tax on income derived by non-residents under Art 12 (1) (c) ITA.

Such tax-exempt income relates to:

  • interests, discounts, premiums or royalties,
  • income derived upon a transfer of:
  • any units in a collective investment scheme,
  • any units relating to linked long-term business of insurance, including the surrender or maturity of linked long-term policies of insurance,
  • any shares in a company which is not a property company (that is, a company which owns immovable property situated in Malta or any real rights thereon, including through direct or indirect shareholding where at least 5% of the total value of the shares is attributable to such immovable property or rights thereon).

 

As of 2012, the exemption has become an option which an eligible individual may choose to take and is no longer applicable automatically. However, should the tax holiday be opted for, this would render them ineligible for the 15% tax scheme below. 

Flat 15% Tax Scheme

Under the Highly Qualified Persons Rules, an individual who derives employment income pursuant to an eligible office held with a company licensed with the Malta Financial Services Authority, may benefit from a reduced tax rate of 15% on such income derived from the employment contract.

 

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:

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

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.

Eligible Individuals

Furthermore, MFSA must be satisfied that the individual:

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

15% Tax Rate

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.

1.6      Ineligibility for the Scheme

On the other hand the scheme does not apply where:

  1. an individual is domiciled in Malta,
  2. an individual has been employed in Malta for more than two years preceding the 1st January 2010,
  3. the employment income is paid by an employer who receives any business incentive benefit,
  4. a claim is made for any relief of any kind except for any income tax deducted at source,
  5. 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.

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.

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 rigor.

 

Expatriate Services

At Chetcuti Cauchi Advocates 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.


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Mr Steve Muscat Azzopardi

Senior Manager, Corporate & Fintech

Mr Kenneth Camilleri

Senior Partner, Global Immigration & Tax

+356 22056414

Ms Michelle de Maria

Partner, Tax

+356 22056692

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