Malta
and its islands
The
Republic of Malta consists of three islands, Malta , Gozo and Comino.
They are situated in the center of the Mediterranean Sea , just
80 kilometers off the southern coast of Sicily , Italy . The
climate is typically Mediterranean with mild winters, pleasant spring
and autumn seasons and hot summers.
Malta is the more heavily populated island; Gozo is quieter and
more rural whereas Comino is uninhabited.
The
population is just under 400,000 and the official languages are English
and Maltese. In practice
everybody in Malta can speak English.
The mainstay of the economy is tourism; the secondary pillars of
the economy are the financial services sector, manufacturing, the
semi-conductor industry and the Freeport .
Malta
became independent from Britain in 1964 after being a colony for more
than 200 years. It is a
Republic since 1973. It is a fully-fledged democratic country with
respect for the rule of law. Malta is a member of the major
international organizations including the United Nations and the Council
of Europe, the International Monetary Fund and since May 1st, 2004
Malta is a full member of the European Union. Since January 2008,
Malta has also adopted the Euro as its currency and has been admitted as
a member of the Schengen Area Agreement from March 2008.
Malta
has a sound infrastructure, both financial and geographical.
Telecommunications, postal links, courier services, banking and all
other services are generally speaking very efficient and of a very high
standard. The national
airline, AirMalta, operates 35 flight routes mostly within Europe and
the Mediterranean regions and most major European airlines have frequent
flights to Malta. There is
a frequent sea link with Italy.
The Advantages
There
are four main advantages to persons wishing to establish their residence
in the islands.
Firstly,
the English speaking population makes integration and communication
easy; all official documentation is written in English; laws are written
in English and Maltese; commercial and business relationships are
generally speaking carried out in English.
There are also private English-speaking schools, which offer a
high level of education; the University is open to children of
residents. There are also a
number of private hospitals offering a very high quality medical
service; Malta has been ranked 5th in the world by the World
Health Organization for medical services and facilities.
Secondly
the standard of living is high, comparable to other European countries
of the Mediterranean region whereas the cost of living is generally
cheaper than in Europe. It
is therefore possible to live a better life with a lesser expenditure.
Life is more laid back than in Europe and particularly in Gozo
the pace of life is slow and relaxed and the charm of this little island
is difficult to get away from. There
is a very low crime rate and foreigners are very rarely targeted,
provided common sense is used, as in all situations. While drug abuse is on the increase, it is very limited still
and confined to one or two areas, but in general this is not a problem.
Children
can be very safely brought up and there is a general care and awareness
given by the people to children and elderly persons, particularly where
foreigners are concerned. Most
foreigners who come to live in Malta are surprised at the help and
attention they are given by the local population.
Third,
the climate is a particular attraction to persons coming from the colder
regions of the world.
Fourth,
the taxation level imposed on non-Maltese nationals taking up residence
in Malta is very advantageous. The
low taxation rates, coupled with a long list of double taxation treaties
that Malta has negotiated with other countries, makes residence in Malta
a very attractive solution for high net worth individuals who are in a
position to move their fiscal residence to Malta.
Tax is only levied on income brought into Malta and global income
is not taxed in any way. Further, residence in Malta requires no minimum stay in Malta
and therefore you are not restricted to having to spend time in Malta.
Types
of Residence in Malta
There
are two types of residence in Malta and the one which is more suitable
for you will depend on your circumstances.
In both cases, since you would be resident in Malta but not
domiciled in Malta, Malta Income Tax is chargeable on the income you
bring 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. It is very difficult for a non-Maltese
person to acquire a Maltese domicile for various legal reasons and this
is therefore not an issue which should not concern you and therefore the
position is that world wide income not remitted to Malta is not taxable
in 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 in that you are
deemed to be resident for tax purposes in Malta.
Ordinary
Residence and Permanent Residence: a comparison
A.
Who can apply:
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.
B.
Tax rates:
Tax
rates for Ordinary Residents are different from those for Permanent
Residents.
The
tax rates for Ordinary Residents are as follows and tax is
chargeable only on income remitted to Malta.
| Ordinary
Residents |
|
Married Couples |
|
Single Persons |
| Income
(in Euro) |
Tax |
Tax
Credit |
|
Income
(in Euro) |
Tax |
Tax
Credit |
| 0
- 11,400 |
0% |
0 |
|
0
- 8,150 |
0% |
0 |
| 11,401
- 20,500 |
15% |
1,710 |
|
8,151
-14,000 |
15% |
1,222.50 |
| 20,501
- 28,000 |
25% |
3,760 |
|
14,001
- 19,000 |
25% |
2,622.50 |
| over
28,001 |
35% |
6,560 |
|
over 19,001 |
35% |
4,522.50 |
Therefore
to take an example, the tax liability of a married couple ordinarily
resident in Malta on a remittance of Euro 20,000 would be 20,000 x 15%
less a credit of 1,710 =
1,290. There are no other
deductions or exemptions allowed.
The
tax rate for Permanent Residents is a flat rate 15% and
tax is chargeable only on income remitted to Malta.
Permanent Residents are however liable to a minimum tax payment
of Eur 4,200 even if no income or little income is remitted.
|
Permanent Residents |
|
Married Couples and Single Persons |
|
Income (in Euro) |
Tax at 15% |
Tax top up |
Total tax |
|
0 |
0 |
4,200 |
4,200 |
|
10,000 |
1,500 |
2,700 |
4,200 |
|
15,000 |
2,250 |
1,950 |
4,200 |
|
20,000 |
3,000 |
1.200 |
4,200 |
|
28,000 |
4,200 |
0 |
4,200 |
| over
28,000 |
15%
flat rate |
|
|
Therefore
to take an example, the tax liability of a single person or married
couple Permanently Resident in Malta on a remittance of Euro 20,00 would
be 20,000 x 15% + 1,200 = 4,200. If the remitted income exceeds Euro 28,500 the tax is a flat rate
15%.
It is
evident from the above tables that an Ordinarily Resident married couple will reach
the same level of taxation as a Permanently Resident married couple’s
minimum tax liability once the Ordinarily Resident couple has remitted an income of Eur
30,750 per annum. In fact the Permanent Resident couple always pays a
minimum of Eur 4,200 whereas the Ordinarily Resident couple pays the same
amount of Eur 4,200 once they have remitted an income of Eur 30,750. If the Ordinarily Resident married couple remits less income
per annum than Eur 30,750, their tax liability would 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 30,750, 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 once the Ordinarily Resident single person has remitted income
per annum of Eur 24,925. In fact, the
Permanently Resident single person always pays a minimum of Eur 4,200
whereas the Ordinarily Resident single person pays the same amount of
Eur 4,200 once he has remitted an income of Eur 24,925. If the
Ordinarily Resident single person remits less income per annum than Eur
24,925, his tax liability would be less than it would be for a Permanently
Resident single person remitting the same amount of income.
Conversely if the Ordinarily Resident single person remits more income than Eur
24,925, the tax liability will be more than it would be for a Permanently
Resident single person remitting the same amount of income.
C.
Application process
It is
far more simple to become an Ordinary Resident than it is to become a
Permanent Resident. The documentation required is virtually the
same for both types of residence but the documents for becoming a permanent
resident require triple certification whereas those for becoming an ordinary
resident do not require this three-tier certification.
D.
Which is better for
you?
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.
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%.
As an example (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 Ordinary Residents, the same couple would pay Eur
10,940 in tax.
The “break even point” is reached on a remittance of Euro
32,725 (approximately) for a
married couple. In fact independently of the type of residence, a remittance of
Eur 32,725 by a married couple will attract a tax of approximately Eur
4,900.
For a single person, the "break even point" would be a
remittance of approximately Eur 25,000. Therefore
EU nationals
who expect to make remittances above these levels may be better
advised 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.
E.
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 115,000 or lease/rent property for not less than Euro 4,200 per
year.
F.
Modes of payment of tax
Ordinary
residents will file their first tax return in the month of June of the
year subsequent to their taking up residence.
Therefore if the residence is taken up in August 2008, the first
tax return is due in June 2009 and tax due is paid concurrently with the
filing of the return.
For subsequent years, ordinary residents make three payments of
provisional tax in April, August and December of each year (based on the
previous year’s tax declaration) and will file a return in June of
every year when any balance of tax is also payable.
Permanent
residents are treated slightly differently.
The minimum tax for the first year of residence (Eur 4,200) must
be deposited with the Inland Revenue Department within thirty days from
when the application for the permit has been approved.
Once the tax has been deposited, the Permit is then issued to the
applicant. The first tax
return is filed in the month of June of the year subsequent to their
taking up residence. Therefore
if the residence is taken up in August 2008, the first tax return is due
in June 2009 and the tax deposited is credited against any tax due and
any balance due must be settled with the filing of the return.
For subsequent years, permanent residents make three payments of
provisional tax in April, August and December of each year (based on the
previous year’s tax declaration but which shall at least make up in
total the minimum tax due of Eur 4,200) and will file a return in June
of every year when any balance of tax is also payable.
G.
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.
H.
Renewal of permits
Ordinary
Residence Permits are reneweable every five years whereas Permanent
Residence Permits are renewable every year.
The renewal is a formality and in practice once granted, a
residence permit will not be revoked unless the resident breaks a
condition of the permit.
I.
Schengen Area travel
for non-EU Citizens
From
January 2008 Malta has become a full member of the Schengen Area Agreement
which allows free travel with no border controls within the Schengen
Area. Non-EU
nationals who hold a Maltese Permanent Residence Permit can therefore travel
to all the member states of the Schengen Agreement. Non-EU nationals
travelling from Malta to another Schengen Area member will need to carry
their passport, their Malta Permanent Residence Permit and their Malta
Identity Card in order to travel within the Schengen Area and in ordinary
circumstances, this should be enough to guarantee entry into the intended
destination. Please note that the UK, Ireland, Cyprus, Romania and
Bulgaria are not yet members of the Schengen Area Agreement. Please also
note that non-EU nationals can only stay in a Schengen member state for a
"short while" (usually three months) but must thereafter return to
Malta, which remains their state of residence.
Other
information
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.
Residents
are 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. In those situations
where Capital Gains Tax is
payable, the seller has an option: if the property is re-sold within five years of acquisition, the
seller can choose to either pay Capital Gains Tax on the profit at
35% or else
pay a flat rate withholding tax of 12% on the sale price. This is
the choice of the seller. If the property is sold more than
five years after the acquisition, the seller has no option but to pay the
12% withholding tax on the sale price.
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 residences, on the 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.
Housing
is still relatively cheap in Malta , compared to the rest of Europe and
the Mediterranean . A
two-bedroom apartment in a good area will cost from Euro 175,000 (but
more if it has sea-views etc) whereas a villa (independent, with three
bedrooms and usually a swimming pool and garage) will cost from Euro
400,000 upwards. The legal
costs and taxes for buying property are also relatively low and usually
will be in the region of 10% of the purchase price.
Once the property is purchased, there are no further payments or
expenses to be made. There
are no rates, contributions or any other sort of payment.
Electricity and water are not cheap (around Euro 300 per month).
The cost of living is quite low and a couple can expect to spend
around Euro 750 per month on food etc. Telephone calls are cheap (local
calls Euro 0.025 per minute / international calls Euro 2 per minute on
average) and Internet is cheap and widely available - a permanent
24-hour connection costs around Euro 50 per month.
Permanent residents cannot work in
Malta. This general statement however is subject to the following
clarification: the permanent 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
permanent resident may use Malta as a base to work from, provided that he
does not offer his services on the local market. A permanent resident may
also be employed by or offer his freelance services to persons or
companies outside Malta .
Ordinary
residents can work in Malta (following the issue of a work permit) and
income arising from working in Malta is added to the
"remitted" income (if any)
and taxed at the appropriate rates for ordinary residence. However,
there will also be social security to pay if the ordinary resident is
working in Malta.
Other
information on the internet
A word of
warning about the many web-sites on the internet relating to Maltese
Residence Permits. The large majority of these web-sites
are either outdated or outright misleading. We make great efforts
to keep our web-pages updated and we can assure you that what you read
on our web-site is correct and current information. We take
responsibility for the information provided. Should you have any
doubt about any conflicting information you might find on other
websites, please
contact
us with details and we shall be happy to provide you with
an up-to-date confirmation of our information.
If you wish to apply for a
Residence Permit, please contact
us
Please
note that the above information is provided free of charge. However more
detailed advice and information can only be sent to you
after a retainer agreement has been signed.
Page last updated on
Copyright 2000: Griscti & Chetcuti, Advocates
Residence