On December 7th 2023, the Malta's Finance Minister has issued the Nomad Residence Permits (Income Tax) Rules, 2023. The new Rules concern digital nomads residing and working in Malta as well as applicants currently in the processing stage as well as future digital nomads. An individual who is in possession of a valid nomad residence permit issued by the Residency Malta Agency will be subject to income tax at a rate of 10% on income derived from "authorised work". This is substantial reduction from the progressive rate of taxation which can go up to 35%.

"Authorised work" is defined by the Rules as services provided by an eligible main applicant in accordance with a contract of employment with an employer who is not resident in Malta and who does not carry on business in Malta through a fixed place of business, or services performed by an eligible main applicant in a self-employed capacity for clients who do not reside in Malta and who do not carry on business in Malta through a fixed place of business, which services, in either case, are provided remotely by means of telecommunications technology as may be approved by Residency Malta Agency.

The individual will also be able to benefit from the double taxation relief as per Malta's tax treaties (provided that he is eligible to benefit from such treaties by being tax resident in one of the contracting states of the tax treaty).

The Rules also provide in Rule 3(2) that the income from the authorised work is considered to form the initial portion of the individual's total chargeable income for a specific assessment year. This implies that the income derived from authorised work, subject to the 10% income tax rate mentioned in sub-rule (1), will be treated as the starting component when calculating the person's overall taxable income for the relevant assessment year.

Rule 3(3) introduces an "exemption" period during which an eligible main applicant is not obligated to pay income tax derived from authorised work. This exemption applies for a period of 12 months, starting from the issuance date of the nomad residence permit.
This exemption also removes ambiguity regarding the tax status of those who have already held a residence permit for more than a year. They will not be taxed on income received before 1 January 2024.

To benefit from this exemption, the eligible applicant must file a written declaration with the Residency Malta Agency stating that their residence in Malta during this twelve-month period is not merely of a casual nature. This provision aims to provide a tax relief period for individuals newly granted nomad residence permits, allowing them time to establish a more settled presence in Malta before becoming subject to income tax on their authorised work income.

This exemption is not available however to persons who are not in possession of a valid nomad visa (e.g. it has expired), but who were granted a nomad visa within 2 years from the date of when they ceased to hold the original nomad visa. This means that while they will be able to benefit from the reduced 10% income tax rate, they will have to compound their total income derived from the authorised work and pay on that gross amount the 10% income tax rate. For those persons who were granted the new nomad visa after 2 years from the date of when they ceased to hold the original nomad visa, they are eligible for the exemption mentioned above.

Any other income not derived from the authorised work will be subject to the general taxation rules as per Malta's Income Tax Act. Thus, the general rules in relation to progressive rate of taxation, dividends, interest and so on apply.

The Rules also prescribe reporting obligations. The Rules prescribe that the nomad visa applicant must file income tax returns. Eligible main applicants, whose income is taxable in Malta, must register for income tax and submit a return of income, following the rules outlined. The applicants need to register for income tax purposes, even for activities done before the completion of the initial twelve-month period.

For the first twelve months, they do not have to report income from authorised work unless they submit a written declaration to Residency Malta Agency regarding the presence in the country.

If their income only comes from authorised work and other income not requiring reporting, and the period covered does not go beyond the first twelve months, they are exempt from filing a return of income.

Regarding foreign taxes, if an eligible main applicant is subject to tax on income from authorised work for any part of the year, provides proof of paying taxes outside Malta at a rate of at least 10% it will mean that they do not have to report that income for Maltese tax purposes. This is because the tax due is considered settled through double taxation relief provisions.

The responsibility of forwarding the proof of foreign tax payment lies with Residency Malta Agency, submitting it to the Commissioner for Revenue of 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.