Malta has attracted much media attention as an up-and-coming onshore financial centre, particularly since the 2008 economic slowdown. It has become widely acknowledged as an EU jurisdiction where things get done efficiently and with the right balance between prudential supervision and pragmatic regulation, enabling businesses to develop lasting and meaningful relationships with their regulators and better business for the regulated operators, whilst also offering a quality Mediterranean lifestyle with a strong Anglo-Saxon work ethic. This development has most recently been extensively covered by Bloomberg and the Financial Times, both of which have extensively praised Malta's virtues.
The surge in the number of international businesses establishing some or all of their operations in Malta, particularly in the regulated industries of financial services and internet gaming, has created a marked shortage in the supply of certain specialised skills within these industries. These growing pains have been managed by the Maltese government through various initiatives including the incentivising of advancement into tertiary education and on-going training. However besides such incentives, the government has also acknowledged the value of attracting additional human capital possessing the technical knowledge and experience to advance these industries and secure Malta's position as a centre of excellence in the international financial arena.
With this objective in mind, in 2011 the Malta Government introduced specific tax rules targeted at highly qualified persons performing particular functions within Malta-based operators duly licensed by the Malta Financial Services Authority (the "MFSA") or the Lotteries and Gaming Authority (the "LGA"). These rules are contained in the Highly Qualified Persons Rules, 2011, (the "HQP Rules").
The HQP Rules are effective in respect of income earned by qualifying individuals in and from the 1st January, 2010.
In terms of the HQP Rules, a 15% flat rate of tax would be chargeable on employment income derived by duly qualified, experienced and senior personnel holding an "eligible office". This favourable tax rate applies in respect of such income up to a maximum of €5,000,000 per annum. Any income in excess of the €5,000,000 threshold is exempt from Malta tax altogether.
The "eligible offices" enumerated in the HQP Rules are the following:
- Actuarial Professional;
- Chief Executive Officer;
- Chief Financial Officer;
- Chief Commercial Officer;
- Chief Insurance Technical Officer;
- Chief Investment Officer;
- Chief Operations Officer;
- Chief Risk Officer (including Fraud and Investigations Officer);
- Chief Technology Officer;
- Chief Underwriting Officer;
- Head of Investor Relations;
- Head of Marketing (including Head of Distribution Channels);
- Head of Research and Development; (including Search Engine Optimisation and Systems Architecture);
- Portfolio Manager;
- Senior Analyst (including Structuring Professional);
- Senior Trader/Trader;
- Odds Compiler Specialist.
Conditions and Exclusions
In general terms, anyone seeking to benefit from the 15% tax rate must satisfy all of the following conditions:
1. derive employment income of at least €75,000 (exclusive of the annual value of any fringe benefits and adjusted annually in line with the domestic retail price index) which is subject to tax in Malta;
2. be employed by a company licensed by the MFSA or the LGA (as the case may be) to hold an eligible office in terms of an employment contract which is subject to the laws of Malta;
3. satisfy the MFSA or the LGA (as the case may be) that:
i the relevant contract of employment relates to work genuinely and effectively performed in Malta;
ii he/she is in possession of professional qualifications in terms of the HQP Rules; and
iii he/she performs activities of an eligible office.
4. declare and confirm, inter alia andin the prescribed application form, that he/she:
i is not and has not been domiciled in Malta and does not intend to reside in Malta permanently;
ii has not benefitted from the special domestic tax rules applicable in respect of investment services and insurance expatriates with respect to relocation costs and other expenes (under article 6 of the Income Tax Act);
iii is in receipt of stable and regular resources which are sufficient to maintain him/herself and the members of his/her family without recourse to the social assistance system in Malta;
iv resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
v is in possession of a valid travel document; and
vi is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for him/herself and the members of his/her family.
The favourable 15% tax rate prescribed under the HQP Rules would apply for a maximum consecutive period of five fiscal years in favour of EEA (including EU) nationals and for a maximum consecutive period of four fiscal years in favour of third country nationals (i.e nationals of non-EEA countries).
It is important to state that the HQP Rules do not apply in respect of any person employed in Malta prior to the 1st January, 2008. On the other hand, an individual employed in Malta on or subsequent to the 1st January, 2008, would be entitled to benefit from the favourable flat tax rate but the said benefits would nevertheless be limited to five years from the date of commencement of the qualifying employment. Thus, for example, a Swiss Chief Investment Officer employed with a Malta-licensed asset management company and having a qualifying contract of employment in an "eligible office" starting in 2008 (basis year) will be able to benefit from the HQP Rules 15% tax rate for a period of three years, i.e. basis years 2010 (the first year in respect of which the HQP Rules became effective), 2011 and 2012, while a third country national will benefit from one year less.
The Rules also provide for certain circumstances which would effectively exclude the application of the favourable 15% rate, such as where the employer receives any direct or indirect benefits under certain business incentive laws, or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by the relevant Authority, or if the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognised by the respective Authority or not holding an "eligible office" with a company licensed and/or recognised by the relevant Authority.
The Rules provide that any person abusively seeking to claim benefits under the Rules without entitlement may face a penalty equal to the amount of benefit claimed together with additional tax imposed at a rate of 7% per month or part thereof.
Reaching Out for the Future
With the HQP Rules complementing Malta's fiscal, professional and infrastructural framework, international financial operators have been provided with an additional incentive to consider establishing or expanding their Malta operations. Operators already established in Malta have the benefit of being in a position to attract top talent from within the EEA and beyond, providing prospective employees with an attractive net remuneration package. In addition, operators looking for an alternative or complementary base for their operations may benefit from Malta's attractive corporate tax system and also facilitate the relocation of staff falling into the eligible office categories set out in the HQP Rules.
It is expected that the introduction of the HQP Rules will inject new talent, knowledge and skill into the Maltese financial services industry, further contributing to the Government's target to increase the country's GDP derived from financial services from the existing 12% to 20%. And with the continuing efforts being made, both in the public and the private sector, to improve Malta's international service offering, this ambitious objective appears clearly within reach.
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.