The initiative to introduce a tax incentive for highly qualified personnel was introduced in 2012, when the Malta Enterprise,the University of Malta and the Malta Council for Science and Technology in collaboration with the Ministry of Finance, the Economy and Investment launched the Digital Gaming Strategy . Malta has identified growth potential in the digital gaming arena particularly in view of the strong ICT industry on the island and the possibility of transferring skills and technology not only from other existing sectors such as software development or iGaming, but also from other industries such as film and audiovisual.
This measure facilitates employment of non-residents in roles which are currently not addressed by the local labour market by temporarily easing the tax expenses incurred by such individuals through a fiscal incentive.
Legal Basis for the Reduced Tax Status of Company Executives in Malta
Legal Notice 106 of 2013 laid the foundation for various regulatory frameworks, addressing key areas such as employment and tax compliance. Over the years, a series of amendments have refined its scope,ensuring alignment with evolving standards and industry practices. A reduced flat rate of Maltese personal tax is granted under the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules, 2013., rules issued under the Income Tax Act, chapter 123 of the Laws of Malta. Through the Qualifying Employment in Innovation and Creativity Rules expatriates working in eligible senior positions in the development of innovative and creativity will benefit of a reduced personal tax rate of 15% on their employment income arising in Malta.
Eligibility Criteria
Under these Rules, that cover employees working in the developmentof innovative and creative products, for such employee to benefit, he/she must:
- Hold a qualifying contract of employment.
- Hold an eligible office.
- Is subject to paying income tax on such income in Malta.
- Hold a qualifying contract of employment under which contract one’s employment income is of a minimum of €52,000 per annum exclusive of any fringe benefits.
- Does not control directly or indirectly, more than 25% of the ordinary shares of the undertaking inn whichs/he is employed.
It is crucial to consider that prior approval in writing is required by the Competent Authority in Malta, which must be satisfied that the employer or a person elated to the employer has not benefitted from any business incentive laws and/or any arrangement in terms of the business incentive laws. Very important to note that prior approval in writing is required by ME, which must be satisfied that the employer or a person related to the employer has not benefitted from any business incentive laws and/or any arrangement in terms of the business incentive laws.
Eligible Roles
The Authorities shall consider an Eligible Office any roles engaged in the management or execution of research, development, design, analysis, or innovation activities.
The Authorities shall consider an Eligible Office any role which is focused on:
- Industrial Research: Conducting planned research or critical investigations to acquire new knowledge and skills for developing or improving products, processes, or services. This includes prototype creation and technology validation.
- Experimental Development: Utilizing scientific, technological, and business knowledge to develop or enhance products, processes, or services, including conceptual planning and documentation.
- Product Development: Specifying and developing new tangible products, including electronic and software products.
- Product & Process Innovation: Implementing significant improvements to products and industrial processes, enhancing capabilities through customization and localization.
- Data Analysis & Research: Systematic investigation using qualitative and quantitative techniques to generate new knowledge and improve products and services.
- Mathematical Synthesis & Modelling: Developing models and simulations for innovation and development.
Additionally, Senior Management roles qualify if the individual:
- Directly manages a team of at least three professionals involved in the activities above.
- Reports to the Board of Directors or the head of the organization.
Qualifying criteria for tax incentives in Malta
The tax incentive for company executives in the innovation and creative sector sets a number of qualifying criteria:
A company executive or senior professional must:
- derive employment income in respect of work or duties carried out in Malta, or in respect of any period spent outside Malta in connection with such work or duties, or on leave during the carrying out of such work or duties;
- be in possession of the requisite qualifications and experience to be able to hold the eligible office;
- be protected as an employee under Maltese law for the purpose of exercising genuine and effective work for or under the direction of someone else and has the requisite adequate and specific competence as approved by the Competent Authority;
- prove to the satisfaction of the Authorities that he performs the activities of an eligible office;
- declare for Maltese income tax purposes all his income received under the qualifying contract of employment and all income received from a person related to his employer;
- prove to the satisfaction of the Authorities that he is in receipt of stable and regular resources which are sufficient to maintain himself and his family.
- have a sickness insurance policy in place which covers him and his family in respects of all risks while in Malta;
- reside in a suitable accommodation;
- not domiciled in Malta;
- be in possession of a valid travel document.
Malta Tax Treatment
If all the above conditions are met, income derived from a qualifying contract of employment will be deemed to be the individual’s first part of his income and will be subject to a flat rate of tax of 15% without the possibility to claim any deductions, relief, set-offs or credits, whether under a relevant double tax treaty or otherwise. Any income from a qualifying contract of employment which exceeds €5,000,000 will not be subject to tax in Malta.
The incentive applies for a consecutive period of up to four years for EEA, Swiss and third country nationals. The four consecutive years will commence from the year in which the person was first subject to tax in Malta.
The benefit may be extended for any additional periods as approved by the Competent Authority, but such extensions shall not exceed five (5) consecutive years. The total duration of the benefit, including any extensions, cannot extend beyond the 9th year following the year immediately preceding the year of assessment in which the individual first becomes liable to tax in Malta.
Duration of the Measure
In accordance with SL.123.141 Qualifying Employment in Innovation and Creativity (Personal Tax ) Rules, the Authorities may not issue any further determination after the 31st December 2025 and no further benefits may be availed after year of assessment 2030.
Our Personal Tax Practice
Led by Dr Jean-Philippe Chetcuti, Dr Priscilla Mifsud Parker, and Magdalena Velkovska, our Malta personal tax lawyers have extensive experience advising private clients, high net worth individuals, senior corporate executives, investors and entrepreneurs on personal tax matters. Contact us for more information about the Malta Highligh Qualified Persons rules and how HQP special tax status may apply to you.
