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 in Malta
Types of Residence in Malta There are two types of residence in Malta and in both cases Malta Income Tax is chargeable only on the income brought into Malta from world-wide sources and on income arising in Malta itself. Therefore in both cases no income tax is charged on world-wide income which is not remitted (brought in) to Malta. Capital sums remitted to Malta are also not taxed. There is no difference in the legal concept of residence in both cases. The distinction between Ordinary and Permanent Residence is merely one of tax rates but the legal effect is the same. Ordinary Residence and Permanent Residence: a comparison Ordinary Residence is restricted to nationals of a member state of the European Union whereas Permanent Residence is applicable to all persons, irrespective of nationality. Tax rates for Ordinary Residents are different from those for Permanent Residents. The tax rates for Ordinary Residents are as follows:
The tax rate for Permanent Residents is a flat rate 15% but Permanent Residents are however liable to a minimum tax payment of Eur 4,200 even if no income or little income is remitted.
It is evident from the above that an Ordinarily Resident married couple will reach the same level of taxation as a Permanently Resident married couple's minimum tax liability on a remitted income of Eur 28,500. If the Ordinarily Resident married couple remits less income than Eur 28,500, the tax liability will be less than it would be for a Permanently Resident couple remitting the same amount of income. Conversely, if the Ordinarily Resident married couple remits more income than Eur 28,500, the tax liability will be more than it would be for a Permanently Resident couple remitting the same amount of income. In the case of single persons, an Ordinarily Resident single person will reach the same level of taxation as a Permanently Resident single person's minimum tax liability on a remitted income of Eur 23,500. If the Ordinarily Resident single person remits less income than Eur 23,500, the tax liability will be less than it would be for a Permanently Resident couple remitting the same amount of income. If the Ordinarily Resident single person remits more income than Eur 23,500, the tax liability will be more than it would be for a Permanently Resident couple remitting the same amount of income. Application process It is far more simple to become an Ordinary Resident than it is to become a Permanent Resident. There is less documentation required and becoming an Ordinary Resident is immediate whereas becoming a Permanent Resident can take between three and six months. The more suitable type of residence will depend on the particular circumstances of each case but in general the following will apply: a) nationals of an EU member state who do not intend staying in Malta for any length of time and are therefore using residence in Malta for the purposes of establishing their fiscal (tax) residence in Malta will find Ordinary Residence more suitable. The tax liability of such persons opting for ordinary residence would be less than if they opted for permanent residence and it is easier and faster to become Ordinarily Resident rather than Permanently Resident. This is based on the assumption that such applicants would not be remitting more income than Eur 28,500 (if married) or Eur 23,500 (if single). b) nationals of an EU member state who intend actually living in Malta for long periods of time and who will therefore necessitate the remittance of high incomes to cover their local expenditure might find that a Permanent Residence is more suited to them because it allows them to remit income and cap the tax rate at 15% whereas as Ordinary Residents the tax rate would be capped at 35%. Using the tables above, a married couple who remits Eur 50,000 to Malta as a Permanent Resident would pay Eur 7,500 in tax whereas as an Ordinary Resident the same couple would pay Eur 13,510 in tax. The "break point" is on a remittance of Euro 28,500. In fact independently of the type of residence, a remittance of Eur 28,500 will attract a tax of approximately Eur 4,200. In the case of single persons, the remittance break-even point is Eur 23,500. Therefore where the applicant is projecting a remittances of over Eur 28,500 (for couples) or Eur 23,500 (for single persons) it may be advisable for EU nationals to seek Permanent Residence as against Ordinary Residence or to take on Ordinary Residence and eventually convert it to Permanent Residence (see (d) below). c) nationals of non-EU states can only seek Permanent Residence. d) conversion of permits: it is possible for EU nationals to convert from one permit to the other type of permit; therefore in some cases it may be suitable for EU nationals who need to take up residence with urgency, to take up ordinary residence in the first instance and eventually convert their residence to permanent residence. Property and address requirements In the case of Ordinary Residents, the applicant must have a Maltese address prior to the application. The applicant will therefore need to buy or rent a property prior to the application being filed. There is no minimum or maximum value on the property being rented or bought though in practice the same minimums as for Permanent Residents will apply. Permanent Residents, within twelve months from the issue of the permit must either purchase an apartment for not less than Euro 75,000 or lease/rent property for not less than Euro 4,500 per year. Minimum remittances of income per year The ordinary resident is not restricted in any way as to the extent of income that must be remitted to Malta each year and there is no minimum remittance requirement. On the other hand the Permanent Resident would also have a bank account in Malta into which account, he must annually deposit Euro 15,000 plus Euro 2,500 for his wife and for each dependant. The Permanent Resident can freely use this money for any purpose whatsoever and provided the funds have been remitted to Malta, they need not be kept in the account. Neither is it necessary to keep this sum as a minimum deposit in the Maltese Bank account. All that is required is that over a period of twelve months, the sum of Euro 15,000 is brought into Malta. Other information A Residence Permit has no effect however on the visas the holder might need to enter other countries from Malta; therefore a permit holder who, because of his nationality, might require a visa to enter another country from Malta, will still need to acquire that visa notwithstanding that he holds a Maltese Residence Permit and notwithstanding that a Maltese person might not need a visa to enter that other country. A Residence Permit will never entitle the holder to acquire Maltese citizenship. Once the permit is issued and the permit holder has registered with the Inland Revenue Department in Malta , the Maltese tax authorities will certify that for Maltese taxation purposes, the permit holder is resident in Malta . On the basis of this certificate, most countries will consider the permit holder to be resident in Malta for tax purposes; the consequence of this varies from country to country. Some countries will not tax their citizens at all if they are resident in Malta; others will tax them at a much lower rate; others still will require their citizens who move their residence to Malta to sever all connections with their home country; other countries will require their citizens not to be present in their home country for more than a certain number of days in one calendar year. It is impossible to list the conditions, which each and every country imposes on its citizens who are resident outside of their country, because each country has its own taxation rules. However, in general, moving one's residence to Malta is always highly tax advantageous, particularly for high net worth individuals. Permit holders who are citizens of the European Union may bring their personal effects into Malta without payment of any customs duty or VAT. Non EU members who import personal effects into Malta will be subject to the payment of 18% VAT (and additional duty depending on the nature of the importation). Once a resident decides to abandon his Maltese residence, accumulated capital and income may be taken back out of Malta with no restrictions. No death duty (succession tax) is payable in Malta but on a person's death there is a 5% charge on immovable property situated in Malta . As regards the inheritance of immovable property, Malta has no probate of will procedures and succession is dependent on the last will of the deceased, or failing that, on the dictates of the law. Unless the deceased has disposed otherwise, his estate passes to his children (or to his nearest of kin if there are no children). The spouse does not inherit anything according to law. To avoid these complicated and sometimes unpleasant situations, residents who buy property in Malta are well advised to execute a will. This is done at the office of a Notary Public and each will is registered in the Maltese Public Registry. The date of registration (as officially certified by the Public Registry) is proof that the will is the last will of the deceased. A resident is entitled to re-sell any immovable property and take the capital out of Malta at any time. Capital Gains Tax is potentially payable on every gain made from the sale of immovable property, unless the taxpayer can satisfy the Inland Revenue that the house has been the "only or main" residence of the seller for the past three years. The test for this would appear to be the period of time that the seller has spent in Malta and usually, if the taxpayer has spent more than 183 days in Malta, then he is considered to have used the house as his "only or main" residence and no Capital Gains Tax is paid. If the tax is payable the rate for Capital Gains Tax is 35% at the present moment. No minimum stay or residence in Malta is required after the Permit has been issued; however in the case of applications for Ordinary Residence Permits the applicant must be in Malta at the time the application is filed; on the other hand Permanent Residences must come to Malta at least once within the first twelve months from when the Permit is issued to have his passport stamped and to register with the Inland Revenue Department. Both ordinary and permanent residents, on their first visit to Malta will also apply for a Maltese Identity Card which must be collected personally by the holder when it has been printed, approximately fifteen days after the application. Ordinary residents can work in Malta but the income arising in Malta will be added on to the income remitted from abroad (if any) and taxed at the rates shown above. Permanent Residents cannot work in Malta but this general statement however is subject to the following clarification: the resident cannot be employed by a Maltese person or Maltese registered company and cannot offer freelance services to Maltese persons or Maltese registered companies. However a resident may use Malta as a base to work from, provided that he does not offer his services on the local market. A resident may also be employed by or offer his freelance services to persons or companies outside Malta. After Malta joined the European Union in 2004, it has opted to form part of the Schengen Area Agreement and therefore any person resident in Malta, whatever his nationality, will have the added benefit of being able to travel within the Schengen Area without a visa. This is therefore particularly attractive to persons who normally require a visa for travel within the Schengen Area of the European Union. However, the adoption of the Schengen Area Treaty by Malta will not take immediate effect and it is currently thought that membership in the Schengen Area will take place in 2007. The Services of Henley & Partners We advise on all aspects of moving your personal residence to Malta. This not only involves immigration law, but also international private law, taxation, and more. We specialise in the world's top locations for private residence in view of personal taxation, the business environment, and the overall quality of life. Like our clients, we place emphasis on a practical approach, high-quality work and reliable, efficient service.
To establish yourself or your business in Malta will require securing relationships with key partners such as government officials, bankers and corporate professionals. You need experienced consultants to build a network of contacts and to help you to become established in your new environment. Henley & Partners works with the two leading real estate agents in Malta and will be pleased to personally introduce its clients, making sure they receive a personal and efficient service. The specialised services of Henley & Partners are a resource and complement to other law and consulting firms. We can help other firms and their clients with the unique and specific details required by the immigration and business relocation process and tax planning involving Malta and other key jurisdictions worldwide. Further Information Through its offices in Malta, Henley & Partners assist foreign individuals in obtaining residence status, and advise corporations and investors about all aspects of investing and doing business in Malta, including efficient company incorporation and management. Please contact us for more information or to arrange for an initial personal consultation.
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Square in Gozo
