Malta’s ACT XVI of 2011[1] heralded the new Malta HNWI tax residence scheme:. This new legislation amended, inter alia, the Income Tax Act and replaced the old Permanent Residence Scheme. Article 56(23) is a new article added to the Income Tax Act and prescribes that the Minister can grant special tax status to persons who meet a number of criteria. This has introduced an array of schemes, specifically five different ones, facilitating the take-up of residence in Malta for High Net Worth Individuals according to their specialist industry profile, qualifications and financial topology.
The 2011 High Net Worth Individual Residence Rules regulate the issue of Malta residence permits to EU-EEA-Swiss nationals and to non-EU nationals. Persons eligible under this scheme will be subject to Malta tax at a flat rate of 15% on a remittance basis, that is, only on foreign source income if remitted to Malta. This scheme replaces the former Malta Residents Scheme Regulations.
The new Malta HNWI tax residence scheme addresses two categories of applicants, namely nationals of:
- the European Union (EU), the European Economic Area (EEA) including Norway, Iceland, Liechtenstein, and Switzerland, and
- Third countries.
Revision of Permanent Residence Scheme
The new HNWIs Residence Schemes have pruned and moulded their precursor, the Permanent Residence Scheme, to do away with a number of deficiencies present in its predecessor. The previous scheme, last amended in 2003, imposed a relatively low annual minimum tax and required no minimum stay for personal tax residence purposes. Also, the property investment thresholds and qualifying capital thresholds remained disproportionately low, resulting in insignificant financial injection in our economy.
Eligibility for HNWI Tax Residence Status
No minimum wealth qualifications, minimum annual income or minimum annual remittance requirements exist under the new scheme as under the previous Malta Permanent Residence Scheme. The following conditions apply under the HNWI tax scheme:
Qualifying Property Holding
HNWI applicants must hold under title of ownership or lease property located in the Maltese Islands prior to the date of the application. Whether the applicant chooses to purchase or enter into a lease agreement, the scheme provides for a minimum value of the property involved. In the event of a deed of sale the value and purchase price of the property must be not less than €400,000; whilst in the event of a contract of lease, it is required that the property is rented for a value of not less than €20,000 annually.
In either case, the applicant and his dependants must habitually reside under the said property’s address and have such address as their principal place of residence.
Health Insurance
The individual wishing to form part of the Scheme together with their dependants are required to be in possession of a Health and Sickness Insurance Policy covering and indemnifying all possible risk and hazards across the whole of the EU; nevertheless the nature of the Insurance is not expected to extend beyond what is considered to be a policy of standard cover to Maltese nationals. The Health Insurance Policy may either be issued by a licensed Maltese company or by a reputable international health insurance company, provided that documents in relation to and giving evidence of the insurance policy are submitted to the relevant department at the time of application.
Fit and Proper Test
Following standard practice in relation to due diligence procedures especially when coming into contact with other nationals as laid down by the law, the Commissioner of Inland Revenue is obliged to conduct a Fit and Proper Test which the applicant is obliged to succeed. A Fit and Proper Test would include diverse criteria as to the investigation on the individual’s reputation particularly to criminal offences such as any offences connected to terrorism, money laundering, crimes against humanity, child abuse and any other inspections deemed necessary such as police conduct checks.
Fiscal Residence
In order to refine the scheme, certain requirements have been imposed so as to elevate the standard of fiscal residence which the HNWIs Residence Scheme is associated with. There is no minimum stay requirement for those individuals wishing to fall under and benefit from the new scheme. The individual possessing the special HNWI tax status is expected limit his presence in any other jurisdiction to 183 days. In the event that the individual is present in any other jurisdiction in excess of the time limit imposed, he shall be considered to be a tax resident in the alternate jurisdiction, thus forfeiting his rights under the HNWI scheme..
Non-Domiciled Status
Tax residents under the HNWI Special Tax Scheme are precluded from shifting their domicile to Malta.
Benefits of the HNWI Residence
Special Tax Status
Foreign source income remitted to Malta is subject to tax at a special flat rate of 15%. A HNWI's personal tax liability is subject to a minimum tax liability of EUR 25,000 for the main permit holder and a further EUR 5,000 for each additional dependent included in the residence permit. HNWIs are eligible for Malta double taxation treaty relief under Malta's wide network of double tax treaties.
Remittance Tax Basis
As non-domiciled residents of Malta, residence permit holders are taxable on a remittance basis. Resident non-doms are not subject to tax on foreign sourced income that is not remitted to Malta. Capital gains derived from outside of Malta are equally outside the scope of Malta tax regardless of whether these are remitted to Malta. Moreover, permit holders may take up employment or conduct business in Malta, subject to a personal tax rate of 35% on local source income.
Taking up Employment, Business, Office in Malta
HNWI tax resident status permit holders may take up employment and office in Malta and to conduct business in Malta without the restrictions previously imposed by the Permanent Residence Scheme.
Citizenship
An applicant who qualifies as a HNWI and resides in Malta for 5 years continuously is given the opportunity together with the right to apply for Maltese citizenship. One must bear in mind that regardless of the fact that it is a right, the outcome of the application for citizenship is entirely and solely at the discretion of the Minister responsible for such matters together with the department in charge. To this regard there exists no guarantee that citizenship is granted and we strongly believe that in such cases, is it is unlikely for citizenship to be awarded. Notwithstanding this, HNWI residents do enjoy a range of benefits which assimilate to citizens’ advantages including those of freedom of movement whether entering to or exiting from Malta, together with the possession of a Maltese Identity Card.
See also: Malta Citizenship by Investment
Access to the Schengen Area
Upon the approval and issuance of a HNWI Residence Permit, the applicant and his dependants may in turn submit an application in order to obtain a Residence Permit. This permit is valid for one year from its date of issue together and entitles the holder to travel freely into and within the Schengen Area.
Long Term Residence
In contrast to the afore-mentioned resident permit, holders of a HNWI permit who intend to become Maltese long-term residents or in the event that they already are long-term residents must enter into what is known as a qualifying contract with the Government of Malta. In such instance the applicant would be required to anticipate a financial bond amounting to €500,000 and an additional €150,000 for each dependant in order to cover potential social costs which might be incurred throughout his residence in Malta. These guarantees are released upon surrendering the residence permit or forfeited in order to continue enjoy long term residence rights for more than the first five years of LTR.
Other Benefits
The current scheme is available for an indefinite period of time and brings with it advantages such as access to social security benefits and the implementation of a flat rate of 15% tax on a remittance basis (which will be eligible for double taxation relief) with further a tax cap set at €25,000 per year. Persons eligible for this scheme are not taxable on income and capital gains derived from outside of Malta, regardless of whether these are remitted to Malta. Additionally, dependants of the individual qualifying under this scheme shall benefit from an annual tax cap of €5,000. Moreover, permit holders may take up employment or conduct business in Malta, subject to a personal tax rate of 35% on local source income.
Existing Malta Permanent Residents
Malta Permanent Residence Permit holders under the former Permanent Residence Scheme will continue enjoying their former status. However, those who sell the property to which their permit refers or terminates their existing lease must acquire a Qualifying Property Holding or lease according to the thresholds of the new HNWI Residence Scheme.
Summary of European High Net Worth Individuals Rules
The following is a summary of the applicable requirements for the Malta High Net Worth Residence Schemes:
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