This is generally determined using 4 main factors;
1) Territoriality: All income and taxable capital gains arising in Malta is subject to tax in Malta, irrespective of residence, domicile or remittance
2) Residence: generally based on whether one spends more than or less than 183 days per year in Malta. A stronger concept of Residence is Ordinary residence, being the person's habitual place of residence
3) Domicile: the permanent home of the person, the place to which they intend to return one day. The Domicile of origin is the place of birth, whilst the domicile of choice is where the person spends most time and where they intend to live and settle permanently.
Persons that are Malta Resident and domiciled are taxed on their worldwide income (incl. foreign source income and capital gains)
4) Remittance: Persons that are Malta Resident, but not domiciled (or domiciled but not Resident), are taxed on their foreign source income only on a remittance basis
Generally when dividends are received from a company, the profits from which these dividends were distributed would have suffered tax at the company's level, which in Malta is 35%. The shareholder, through the Maltese full imputation system, can claim the tax already suffered by the company as an imputation credit, setting this off against the tax charge on this dividend income.
Also if the shareholder pays tax at a rate lower than that of the company, the difference can be claimed back through the shareholder's tax return.
This therefore means that the dividend income is not taxed further in the hands of the shareholder (therefore corporate profits are only taxed once, avoiding double taxation), and this applies to whether the shareholder is resident or not in Malta.
This is unlike other tax systems in many other countries were the dividend income could be further taxed in the hands of the shareholder.
An attractive programme for Non-EU Nationals to take up residence in Malta, granting the individual a beneficial tax status.
A flat rate of 15% tax on any income arising outside Malta and received in Malta (by the applicant, their spouse and/or their dependents) during the whole year when the special tax status was granted, with the availability of double taxation relief.
The requirements are:
A. Primary residence in Malta, either;
(i) acquired at a minimum value of Eur275,000 (Eur220,000 for property in the South of Malta or in Gozo); or
(ii) rented for not less than Eur9,600 each year (Eur8,750 for property in the South of Malta or in Gozo);
B. applicant has sufficient financial resources and a regular income stream;
C. valid travel documents;
D. health insurance for the applicant and any dependents;
E. fluent in either English or Maltese.
The minimum amount of tax in Malta under this scheme is of Eur15,000 per year. There is no additional tax for dependents and there is no need for a government bond contract. Any Malta source income would be taxed separately at the rate of 35%. A non refundable administration fee of Eur6,000 (Eur5,500 for property in the South of Malta or in Gozo) is payable to the commissioner.
Employment in Malta
When an individual is exercising employment in Malta; that is the source of the employment income is Malta; the income is subject to tax in Malta. Employment income in Malta is taxed under the final settlement system (FSS).
SSC is calculated on the basic salary. Within the EU, a person is insured in the country where the gainful employment or self employment is exercised.
Malta employment income attracts Class 1 Social Security Contributions, whereas other economic activities (non employment related) attract Class 2 Social Security Contributions (for income over Eur910); these are in turn split in two categories; self occupied individuals and self employed individuals.
These are taxable statutory bonuses calculated on a six month period paid by the Employer directly to the employee. These are calculated pro rata for part time employee or employees that have left their employment.
The Government Bonus is made up of the Weekly Allowance and the Statutory Bonus. The Weekly Allowance is paid every March and September, currently Eur121.13. The Statutory Bonus is paid every June and December, currently Eur135.10.
The Final Settlement System is a tax deduction system for Malta employment income, in which tax is deducted at source from the gross employment income. The Employment income includes the value of any fringe benefits.
The Employer is responsible to make the correct deductions and to pay these to the Inland Revenue on time.
A final tax of 15% is available on eligible part time income. This does not need to be declared in the personal tax return of the individual; being a final tax; this income is not subject to further tax. Currently the 15% final tax is capped to part time income from employment of up to Eur10,000 each year (Eur12,000 for part time self-employment). The surplus income would be taxed at the individual's normal rates of tax.
The part time income could be derived from both employment (with a different employer) or self employment (must be duly VAT registered if required and currently cannot have any employees in this part time self employed activity). Pensioners or full time students can benefit from this part time rate without requiring full time employment with another employer.
For a married person, if either of the couple has a full time employment (or is a pensioner or full time student), the other person can also benefit from the part time rate. Part time employment is capped to a maximum of 30 hours per week on average (or less if a wage regulation order applies).
This part time rate is not applicable to part time company director fees.
Rental Income can be either passive or active in nature. Passive rental income is generally derived from long term rental contracts, whereas active rental income from a series of short term letting.
For passive rental income (the following applies for both companies and individuals receiving passive rental income), the following is a list of tax allowable deductions;
(i) any ground rents payable on the said property;
(ii) license fees;
(iii) bank interest on a loan directly related to the property;
(iii) 20% maintenance allowance (rental income less license fees and grounds rents)
For active rental income, which would be taxed as trading income, the tax allowable deductions would be those costs that are incurred in the production of rental income.
As from 1st January 2014, there is an option for rental income derived from eligible property, to opt for a 15% final tax rate calculated on the gross rental income. Non resident persons and resident Malta companies can also benefit from this. This option can be exercised (and changed) each year, but the tax treatment would apply on all rental income from eligible residential properties.