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Relocating to Malta
By Gerorge Farrugia
Updated: 25 October 2007

With its beautiful Mediterranean climate, its abundance of historic and cultural sites and the ever-present blue and inviting sea, Malta is a most attractive location for the establishment of residence to thousands of expatriates. This attraction is enhanced trough the island’s proximity to the European mainland, most of which can be reached by air travel of 3 hours duration or less. The proficiency of the Maltese at foreign languages, especially English (which is our second national language) Italian and French, go a long way in making these foreign residents feel wanted and welcome. Malta is also a very safe environment wherein to live and raise one’s family.

As a result of the constant enquiries our office receives from foreigners considering Malta as their new residence, we are herewith listing the major points which we feel would be of interest to anyone considering such a major move.

Permanent Residence Scheme

Malta offers a special scheme for foreigners wanting to shift their residence to Malta. The scheme does not impose any restrictions on the reasons why foreigners may want to become resident in Malta. The scheme is mostly attractive to retired individuals deriving substantial streams of income who might consider to relocate themselves to a warm country with high standards of living and yet minimise their overall tax burden. However, any foreigner may apply for a permanent resident certificate provided that no employment activity is carried out in Malta. Combining Malta’s wide treaty network with the fiscal incentives of the scheme, various tax planning techniques may be developed to decrease the tax liability of the foreigner. Warm climate, attractive property prices, Mediterranean culture, good infrastructure and the welcoming Maltese citizens make Malta one of the most attractive countries to reside in.

Income Tax

Residents holding a permanent resident certificate are taxed on a remittance basis. This means that they are subject to tax on:
• Income deemed to be arising in Malta
• Capital gains deemed to be arising in Malta
• Income arising outside Malta only if remitted to Malta.

Income Tax Rate

As a permanent resident in possession of a valid permit issued in terms of the Immigration Act, the applicable tax rate shall be 15% flat rate with a minimum tax payable per annum of € 4,200.

Transfers of Capital

Transfers to Malta out of capital are not taxable. For tax purposes, any income, which is not transferred to Malta in the year, it is earned, becomes part of the capital sum invested overseas. Any subsequent transfer to Malta from such funds would be considered a transfer of capital. To prove this one needs to present some sort of statement (example – bank statement) showing that the funds transferred formed part of the invested sum at the beginning of the year.

It is recommended for the permanent resident in Malta to open two bank accounts and transfer all income into the first account and all capital withdrawals into the second. This will facilitate the preparation and support of his Income Tax Return, as well as to prove the minimum income received in Malta as stipulated in his Permanent Resident Permit.

Double Tax Relief and Tax Planning

Whenever the income received in Malta has already been taxed by another tax jurisdiction, a credit may be claimed on the tax paid at source. However, in no instance can such a claim reduce the local tax payable to below the stipulated minimum of € 4,200.

From the above it becomes clear that whenever the income has already been taxed overseas at a rate which is higher than the local applicable rate of 15%, it will not matter what amounts of income the permanent resident brings to Malta since the credit for the higher overseas tax will always cancel the tax payable on that income in Malta. In other words, no tax liability arises in Malta for any income arising outside Malta which has suffered tax at the rate of 15% or more and has been remitted to Malta.

An element of tax planning arises whenever the income is derived in a jurisdiction where it is not subject to tax at source. In such case the permanent resident may either opt to remit the income to Malta and be subject to tax at a rate of 15%. Alternatively, the permanent resident may opt retain this income abroad. In such case, where the income is not needed in Malta, it will be advantageous to retain the income abroad and thus suffer to no tax in Malta. Furthermore, if additional funds are required locally, then repatriation from the capital sums would be more appropriate since, as stated above, this will not give rise to income tax.

It has to be noted also, that Investment Income arising in Malta is also taxed at the above rate (i.e. 15%) Therefore it may be in the taxpayer’s interest to transfer all bank accounts to a Maltese bank instead of leaving them overseas if they are attracting a higher rate of tax. Such investment in Malta is totally safe, whether one chooses one of the three local major banks or Government Stocks.

Another option is to transfer these savings to a tax-free jurisdiction. However unless the income from such savings exceeds € 20,000 per annum, this will not give rise to any tax savings in Malta, as anything below this level would still attract the minimum tax payable of € 3,500.

Customs Duty

Permanent residents are permitted to import into Malta all their used (as opposed to brand new) personal belongings, free from any customs duty or import licenses as long as they are imported within 6 months of one’s arrival in Malta.

Also, one private vehicle may be imported free of customs duty and Value Added Tax provided that such a vehicle has been owned for a continuous period of at least six months immediately before the issue of the said permit.

Alternatively, the Permanent Resident may choose to acquire his vehicle in Malta, in which case it will be exempt from Customs duty (but not Value Added Tax).

If such a vehicle is disposed of in Malta the vehicle is re-valued by the Customs Department and Value Added Tax and customs duty have to be paid thereon. VAT is payable at 15% on all vehicles so sold, whilst vehicles of non EU origin also attract a 12% customs duty. These rules do not apply if the vehicle is sold to another Permanent Resident.

Repatriation of Capital

On the abandonment of his Maltese residence, the ex permanent resident is entitled to repatriate all his capital held in Malta to any foreign jurisdiction of his choice.

Conditions to obtain a Permanent Residence Certificate

• Provides documentary proof that he/she can bring into Malta an annual income of not less than Lm 6,000 (€ 13,980) in his respect and a further Lm 1,000 (€ 2,330) in respect of each dependent

• Provides documentary proof that from the date of application, onwards he has either an annual income of not less than Lm 10,000 (€ 23,300) arising outside Malta or has in his possession a capital of not less than Lm 150,000 (€ 349,410

• The individual is required to take up residence in Malta within 12 months from the date the certificate is issued

• Produces evidence that within 12 months of taking up residence in Malta, he/she has acquired a flat at a cost of not less than Lm 30,000 ( € 69,880) or a house of not less than Lm 50,000 (€ 116,470) or leased immovable property at not less than Lm 1,800 (€ 4,192) per annum.

Permanent Resident Application

Our office is well equipped to handle the application procedures on our client’s behalf. Each application is treated on its own merit and normally takes between three to four months to process. It is very rare for an application to be refused.

The documents required for obtaining a Permanent Residence Permit are the following. Please note that missing or incomplete documents will hinder the issue of the permit.

a) Photocopy of passport for applicant and for his wife and children if any – no need for verification or authentication

b) Three passport photographs for applicant and for his wife and children if any – preferably in colour

c) Birth certificate for applicant and for his wife and children if any – originals or copies issued by a state authority; where the document is not in English, an official translations should be supplied

d) Marriage certificate (if applicable) – originals or copies issued by a state authority; where the document is not in English, an official translations should be supplied

e) Banker’s statement that applicant has an income in excess of € 35,000 or capital assets in excess of € 350,000 – original

f) Police conduct certificate for applicant and for his wife and children over 14 years if any – originals or copies issued by a state authority;

g) A declaration by applicant, spouse and children over 14 that they have no previous convictions or ongoing criminal proceedings; this must be signed before a Commissioner for Oaths or Justice of the Peace; (we will send a draft this by fax or e-mail)

h) A client details form (which we will send by fax or e-mail)

i) An application form signed by the applicant (we will send this by fax or e-mail) and which should be left blank for us to fill in with the required details

Please note also the following:

• If the applicant is living with a woman but they are not married, two separate applications must be filed and both parties must satisfy the income requirements

• If any one of the applicants has been divorced, a marriage certificate and a divorce certificate should be sent – originals or copies issued by a state authority

• British citizens, instead of a Police conduct certificate, should obtain a Personal Access Enquiry Form from the police station of their place of residence

Where police authorities do not issue conduct certificates, the applicant must send three character references from his bank, lawyer, accountant, employer or ex-employer or similar and the reference should state that the applicant has a sound financial position and where possible, that he has an income of more than € 23,000.

Temporary Residents

Many overseas buyers of property in Malta do so in order to acquire a second home wherein to spend a substantial part (but not all) of the year. This has become very popular with our northern European neighbours since Malta is considered as a very safe and inexpensive location wherein to escape the cold winter months.

Period of Stay in Malta

Temporary residents normally are permitted to remain in Malta for periods not exceeding 3 months. However, extensions should be easily obtained, with each case treated on its own particular merits. Foreigners are considered to be temporary residents for tax purposes if the period of their stay in Malta does not exceed an aggregate of 6 months (183 days) in a calendar year.

Income Tax

Temporary resident are taxed in Malta on a source basis. This means that they are only subject to tax on any income and capital gains which are deemed to arise in Malta. Temporary residents are not subject to tax on any income and capital gains arising outside Malta, even if remitted to Malta.

Rates of Tax – Non-Residents and Temporary Residents

Resident Individuals

The status of a temporary resident for tax purposes is lost once the foreigner remains in Malta for a period exceeding 6 months. In such case, the exposure to tax graduates from a source basis to a remittance basis. This effectively means that in addition to being subject to tax on any income which is deemed to arise in Malta, the individual is subject to tax on any income which arises outside Malta and is remitted to Malta. Capital gains arising outside Malta which are remitted to Malta are not subject to tax in Malta.

In combination with Malta’s wide treaty network, various planning techniques can be developed to reduce the incidence of taxation, thus it may be beneficial to a foreigner to become resident in Malta for tax purposes.

Rates of Tax – Residents

To date, Malta has signed tax treaties with 45 countries, almost all countries in Western Europe, Canada and Australia. These agreements enable residents in Malta to either obtain an exemption from tax on certain income in the country from where that income originates or obtain tax relief in Malta.

This option will not entitle resident to the other benefits associated with permanent residence:

• Exemption from customs duty and vat on the importation of personal effects;

• Exemption from capital gains on sale of residence;

Other Aspects of the Maltese Tax System

Capital Gains

In Malta any gains from the disposal of capital assets, example property, shares, etc is normally added to other income and charged at the normal Income Tax rates applicable to the taxpayer.

In the case of foreign residents in possession of a valid Permanent Resident permit, only capital gains arising in Malta are taxable. All other gains arising from disposal of assets held overseas are exempt from Malta Income Tax.

Under Article 5(5)(b) of the Income Tax Act, all capital gains made on the disposal of a property which was the ordinary residence of the seller for at least three years prior to disposal, is exempted from Income Tax.
Under Section 5(6) of the Income Tax Act, all capital gains made on the disposal of stocks and shares quoted on the Malta Stock Exchange are exempt from Income Tax.

Inheritance Tax

Malta has no inheritance tax. Therefore upon the death of the taxpayer no income or other taxation is imposed on his estate.

Stamp Duty

Immovable Property

Where property in Malta forms part of this estate, the transfer from the deceased to his heirs takes the form of a contract (similar to a contract of sale) and stamp duty at the rate of 5% is chargeable upon the heirs. The valuation of the property for stamp duty purposes is normally taken at its current market price.

Shares

In the case of transfer of shares held in a local private company, stamp duty at 2% is payable. If the company is a property owning company, the stamp duty will be increased to 5%. The value of the shares for stamp duty purposes is normally taken at their current market value.
The transfer of shares and Bonds (example Government Stocks) quoted on the Malta Stock Exchange do not attract any stamp duty.

Other Assets

The transfer upon death of any other kind of asset (example bank accounts) is totally exempt from any kind of taxation or stamp duty. The only formality here is the presentation of proof of inheritance, example the will.

Clarification of Terms

Tax Year

In Malta the Income Tax year is the same as the calendar year i.e. from 1st January to 31st December.

Rates of Exchange

Due Malta’s adoption of the Euro currency on 1st January 2008, the rate of exchange between the Maltese Lira and the Euro as been pegged at €0.4293 to Lm 1

The spot rates are determined on a daily basis by the Central Bank of Malta. The following spot rates have been determined on 17 August 2007
Maltese Lira to US Dollar Lm 1: $ 3.1250
Maltese Lira to UK Sterling Lm 1: £ 1.5807
Maltese Lira to Canadian Dollar Lm 1: $ 3.3668
Maltese Lira to Australian Dollar Lm 1: $ 4.0038
Maltese Lira to Japanese Yen Lm 1: JPY 351.9800
The daily spot rates for the above and other currencies can be viewed at Malta Central Bank

Rates of Local Interest

Interest Rates from local banks can vary from 3% to 6% depending on size of investment, type of account and length of term.

The most solid and profitable investments in Malta are Government Stocks, which are normally issued for a fixed number of years, but can be traded daily on the local Stock Exchange. The rates of interest on such stocks vary depending on bank interest rates on the date of issue. The latest stock issue carried an interest rate of 5.6%. Alternatively, investors may opt to invest into secured bonds. The latest bond issue carried an interest rate of 7%.

Government stocks normally also benefit from a level of capital accretion since they are very much sought after by the local banks themselves.

Property Prices

Property prices are still very competitive when compared to the European mainland. Prices vary greatly depending on:

• Type of property
• Location
• Size

For an idea of the current market pricing, you may wish to contact one of the many local estate agencies, most of which can be found on the Internet or visit: www.riainvestments.com.mt

Disclaimer

The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.

George Farrugia is the founding partner of MGI Malta. He can be reached at

Find out why Malta is the 16th best place in the world (PDF)

Q&A about relocating to Malta:

Can I import my car?

Do I need to apply for a work permit when employing an EU national?

I am a Canadian citizen and wish to retire in Malta. Will I need to pay any tax whilst living there and will my estate be subject to Maltese taxation after I am dead?

I am an EU national and wish to set up a company in Malta for the manufacture and export of, say, computer peripherals. Will I be permitted to reside in Malta?

I am an EU citizen and wish to open a business in Malta. Are there any conditions to my obtaining a trading license?