The "Malta Retirement Programme Rules, 2012" were published by virtue of Legal Notice 317 of 2012 dated 28th September 2012 (hereinafter referred to as the ‘MRP Rules’). The MRP Rules apply to retirees of EU, EEA and Swiss nationality who receive a regular pension as their source of income and take up residency in Malta (hereinafter referred to as the ‘Beneficiary’). These individuals as well as their spouses or partners and minor children (hereinafter referred to as the ‘Dependent’) enjoy special tax status in accordance with the MRP Rules on income arising outside Malta but which they receive in Malta.
In order to obtain special tax status, one would have to apply to the Commissioner of Inland Revenue (hereinafter referred to as the ‘CIR’) through an authorized mandatory registered with the Inland Revenue Department who will act as the individual's representative on all applications and correspondence with the Commissioner. In terms of the MRP Rules, authorized registered mandatories include lawyers in possession of a warrant to practise as an advocate under the Maltese Code of Organization and Civil Procedure or other professional individual approved by the CIR.
An authorized registered mandatory acts as a channel of communication between the Commissioner of Inland Revenue and the individual benefitting from special tax status. In particular, the authorized mandatory will act on behalf of the individual in respect of all applications, correspondence, submissions, filings, declarations and notifications contemplated under the MRP Rules.
Upon satisfying certain conditions (see below), an individual who is afforded special tax status would be entitled to benefit from a fifteen per cent (15%) flat rate of tax charged on income remitted to Malta from foreign sources and to claim double taxation relief in terms of the Maltese Income Tax Act. The MRP Rules do, however, establish a minimum amount of tax payable per year of assessment of EUR 7,500 in respect of the Beneficiary and an additional EUR 500 for each Dependent or special carer, if any. The term ‘special carer’ refers to an individual who provides regular health care services to the Beneficiary or Dependent for at least 3 years prior to applying for special tax treatment envisaged by the MRP Rules.
Any other income received by the Beneficiary or Dependent which does not fall within the remit of the MRP Rules will be charged as separate income at the rate of 35%. For the purposes of the MRP Rules, any income which is not in the form of regular payments or income received from a former employer in respect of past employment, lifetime or temporary annuities as well as that emanating from an occupational retirement scheme, a personal overseas retirement plan or insurance policy would not be tantamount to a pension and, hence, would not attract a flat rate of tax.
In any event, a tax computation would need to be submitted annually indicating the tax payable and any credit for relief of double taxation would be likewise indicated.
Special tax status will be awarded to an individual upon proving to the satisfaction of the CIR that all the following conditions have been met: -
- The individual applying for special tax status must either own a property in Malta at a consideration of not less than EUR 275,000 or EUR 250,000 in Gozo, or lease a property in Malta at not less than EUR 9,600 per annum or EUR 8,750 per annum in Gozo (hereinafter collectively referred to as a ‘Qualifying Property’). Such Qualifying Property should be the individual’s principal place of abode and, therefore, the place where the individual habitually resides.
- The applicant must be an EU, EEA or Swiss national and be in possession of a valid passport or identity card suitable for travel. This means that Maltese and third country nationals do not qualify for this programme.
- The applicant receives a pension in Malta which constitutes at least 75% of the Beneficiary’s chargeable income and must provide documentary evidence to this effect. This notwithstanding, a Beneficiary may act as a non-executive director on the board of a Maltese company which necessarily implies that the Beneficiary would not be employed by the company but would still receive remuneration for his services. Similarly, the Beneficiary may get involved in any institution, trust, foundation or any other organization having a public character in terms of charitable, educational and developmental work in Malta.
- The applicant must not be a person who benefits under the Residents Scheme Regulations, the High Net Worth Individuals – EU/EEA/Swiss National Rules, the High Net Worth Individuals – Non-EU/EEA/Swiss Nationals Rules or the Highly Qualified Persons Rules.
- The applicant should have sickness insurance in respect of all risks across the whole of the European Union for himself and his dependents, if any.
- The applicant cannot be domiciled in Malta to qualify for the special tax status envisaged by the MRP Rules and at the time of submission of the application for special tax status must also declare that he does not intend to establish his domicile in Malta within five years from the date of such application.
- The applicant intends to reside in Malta for a minimum of 90 days a year averaged on any five year period. In fact, the applicant must have applied for a Registration Certificate in Malta in terms of the Free Movement of European Union Nationals and their Family Members Order (S.L. 460.17) and a copy of the acknowledgement or Residence Card/Document is to be submitted with the application.
- The applicant does not intend to reside in any other jurisdiction for more than 183 days a year.
- Finally the applicant must prove that he is a fit and proper person to be granted special tax status.
Besides having to satisfy the abovementioned conditions, the applicant would need to settle an application fee of EUR 2,500. This administrative fee is not refundable and needs to be paid by bank draft payable to the CIR and attached to the application form.
Once it is has been established that the individual applying for special tax status qualifies as a beneficiary, the CIR will confirm that the individual so qualifies in writing.
Upon being granted special tax status, the Beneficiary is obliged to continue meeting the conditions imposed by the MRP Rules unless and until he or she ceases to benefit under this programme. Such special tax status will inevitably come to an end in the event that the Beneficiary
- no longer holds a Qualifying Property;
- does not receive a regular pension in Malta, as indicated in the documentary evidence submitted to the CIR;
- is no longer in possession of sickness insurance in respect of all risk normally covered for Maltese nationals for himself and his dependents;
- establishes his domicile in Malta;
- becomes a Maltese national or a third country national or does not remain a citizen of an EU/EEA Member State or Switzerland;
- acquires a permanent residence certificate in terms of Article 7 of the Free Movement of European Union Nationals and their Family Members Order;
- no longer satisfies the public interest requirement justifying his stay in Malta;
- has, for the last five years, been residing in Malta for less than 90 days a year or resides in any other jurisdiction for more than 183 days in a calendar year;
- no longer wishes to remain in possession of special tax status; or is in violation of the provisions of the Income Tax Act or the Income Tax Management Act.
In any such eventuality, the beneficiary must notify the Commissioner of Inland Revenue thereof within four weeks of becoming aware of the event. In default, the person responsible for such event will incur an administrative penalty of EUR 5,000.
Nevertheless, the Minister responsible for Finance may condone any failure to satisfy any one of the prerequisites if such failure was due to unforeseen circumstances which were beyond the control of the individual and on the Minister being notified thereof by the individual, the latter proves that he had exercised his best efforts to remedy the default.
Thus, the MRP Rules are rather limited in scope, in that they may only apply and appeal to particular individuals who may wish to spend half the year in Malta and the other half abroad, provided that in no event can such individuals spend more time abroad than they do in Malta. Needless to say, the MRP Rules are not intended to target retirees who wish to settle in Malta indefinitely and establish their domicile here. On the contrary, EU, EEA or Swiss retirees wishing to maintain strong ties with their country of domicile whilst residing in Malta would be the ideal candidates to qualify for special tax status under the MRP Rules. Whilst benefiting under this programme, such retirees are both entitled and encouraged to take up non-executive directorship posts in Maltese companies, thereby boosting the non-executive directorship market in Malta.
Contributed by Dr. Maxine Balzan Demajo
The information given above is intended as a general introduction for information purposes and should not be construed as legal advice. Should you be interested in taking up residency in Malta, for further information and advice please contact us