Update on the Income Tax Rules for Digital Nomads
The Nomad Residence Permits (Income Tax) Rules were updated on December 7, 2023. These rules allow Third Country Nationals (TCNs) who possess a valid Maltese Nomad Residence Permit to qualify for a reduced income tax rate of 10% on their chargeable income derived from "authorised work". This is a substantial reduction from the previous progressive rate of taxation.
Who Will Benefit the Most?
The most significant change concerns the income tax of the Nomad Residence Permit holders residing in Malta. Previously, Nomad Residence Permit holders were subject to income tax at progressive rates, with the top rate being of 35%. Now, they will be subject to income tax at a rate of 10% on income derived from "authorised work". This low-income tax rate will apply from the basis tax year commencing January 1, 2024.
Authorised Work
Authorised work is described as work rendered on a self-employed basis for clients who do not reside in Malta and who do not conduct business through a fixed place of business, or work with a non-resident employer who does not conduct business in Malta through a fixed place of business.
Any additional income received that is not from employment that is authorised, such as dividends, interest, and the like, shall be governed by general taxation rules as outlined in Malta's Income Tax Acts.
Additionally, the Rules include reporting requirements. Digital nomads must register for income taxes, disclose their income, file an annual income tax return, and make the required tax payments.
The permit issued to the Digital Nomad to reside in Malta may be renewed, and it may also be renewable for an additional two years in terms of income tax.
However, Digital Nomads are still eligible for double taxation relief under Malta's double tax treaties. In these circumstances, individuals would be exempt from the 10% income tax in Malta if they have proof that they paid taxes at a rate of at least 10% on their income outside of Malta.
Are You a Citizen of the World?
The Nomad Residence Permits Rules assume that you would spend a considerable time in Malta, but many of our Digital Nomad clients tend to prefer working from around the world. So, you may rightly ask how one can take advantage of Malta's tax regulations without really living there.
Malta offers numerous digital nomad business concepts that can offer these benefits, like setting up a business that complies with EU regulations such as trading or holding companies, trusts, or foundations that offer exceptional tax efficiency and flexibility. Papilio Services experts can provide the necessary guidance and assistance for digital nomads in order to meet the substantive requirements when registering a company in Malta.
Based on our experience, each firm will have specific requirements, therefore it's critical to understand the actions required to ensure compliance, and it's crucial to define the administration and management of a firm precisely when establishing a company in Malta.
Setting up an office might be challenging, but at Papilio Services, we plan the process to be as straightforward as possible. Our team of experts can assist you with every step of starting and running an international business.
Conclusion
The new tax rules in Malta are a game-changer for digital nomads residing in Malta. With a reduced income tax rate, double tax treaties and various digital nomad business options, the dream of living the real digital nomad life is now more attainable than ever. So, are you ready to embrace the digital nomad lifestyle in Malta?
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.
