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.
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, Air Malta, 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 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.
|
Married Couples |
Single Persons |
||||
|
Income (in Euro) |
Tax |
Credit |
Income (in Euro) |
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 |
|
20,501 – 28,000 |
25% |
3,760 |
14,001 – 19,000 |
25% |
2,622 |
|
Over 28,000 |
35% |
6,560 |
Over 19,000 |
35% |
4,523 |
|
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.
|
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% |
||
|
Therefore to take an example, the tax liability of a single person or married couple permanently resident in Malta on a remittance of Euro 20,000 would be 20,000 x 15% + 1,200 = 4,200, i.e. the minimum tax required. If the remitted income exceeds Euro 28,000 the tax is a flat rate 15%. |
|||
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 31,000. If the Ordinarily Resident married couple remits less income than Eur 31,000, 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 31,000, 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 25,000. If the Ordinarily Resident single person remits less income than Eur 25,000, 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 25,000, the tax liability will be more than it would be for a Permanently Resident couple 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 in that the documents required for Ordinary Resident do not require the various certifications that are required for the Permanent Resident application.
D. Which is better for me?
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 31,000 (if married) or Eur 25,000 (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 10,940 in tax. The "break point" is on a remittance of Euro 31,000. In fact independently of the type of residence, a remittance of Eur 31,000 will attract a tax of approximately Eur 4,200. In the case of single persons, the remittance break-even point is Eur 25,000. Therefore where the applicant is projecting a remittances of over Eur 31,000 (for couples) or Eur 25,000 (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.
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 75,000 or lease/rent property for not less than Euro 4,500 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 2007, the first tax return is due in June 2008 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 2007, the first tax return is due in June 2008 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 14,000 plus Euro 2,400 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 renewable 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.
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.
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.
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 100,000 (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 300,000 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.
After Malta joined the European Union in 2004, it also 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 from Malta to the other member states of 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. The adoption of the Schengen Area Treaty by Malta has now been concluded.
Sea borders have been lifted on the 22nd of December 2007 and air borders were removed on the 31st March 2008. Therefore today borderless travel applies in respect of the 23 states that form or will form part of the Schengen area.
In itself, the acceptance of Malta as a full member of the Schengen Area is ample proof of Malta's highly-reliable and secure external border status as well as its efficient consular services.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
