The Malta Tax and Customs Administration (MTCA) issued Guidelines concerning the application of Article 6 of the Maltese Income Tax Act (ITA). The Guidelines do not set out any changes to the qualifying conditions or the tax benefits granted under this Article but set out reporting obligations to be followed by the employer and the qualifying employee when availing of the exemption concerning personal expenses paid by the employer on behalf of the qualifying employee and/or one’s family members.
Qualifying Expatriates
Broadly speaking, qualifying expatriates are individuals who are employees or service providers for licensed investment services or insurance companies recognised by the relevant competent Authority. Additionally, qualifying expatriates should meet one of the following criteria:
- Are not ordinary residents and not domiciled in Malta; or
- Was not resident in Malta for a minimum period of three years immediately preceding the commencement of employment with or provision of services to any investment services or insurance company, provided that during those three years, the individual has been engaged on a full-time basis in a similar position outside Malta.
Qualifying expatriates under this Article may not qualify as a beneficiary under the Highly Qualified Persons Rules.
Tax Exemptions
1. Personal Expenses
A qualifying expatriate may opt for an exemption from income tax concerning personal expenses paid by the investment service or insurance company on behalf of the expatriate and/or one’s family members. These expenses, which would otherwise be considered a fringe benefit and subject to Maltese income tax, include:
- Removal costs in respect of relocation to or from Malta;
- Accommodation expenses incurred in Malta;
- Travel costs in respect of visits by the qualifying expatriate and one’s immediate family to or from Malta;
- Provision of a car for the use of the qualifying expatriate in Malta;
- A subvention of not more than €600 per calendar month;
- Medical expenses and medical insurance; and
- School fees in respect of the children of the qualifying expatriate in Malta
Duration:
The exemption from income tax regarding the specified personal expenditure is available for ten years of assessment starting from the first year of assessment the qualifying expatriate was first liable to tax in Malta.
Reporting obligations:
The Guidelines clarify that irrespective of whether the qualifying expatriate avails of the income tax exemption concerning the expenses paid by the employer on behalf of the employee or otherwise, such expenses should be declared through the FSS and included on one’s FS3 as fringe benefits.
In addition, the Guidelines specify that where the qualifying expatriate opts to avail of the exemption, the employer is not obliged to withhold income tax on such income.
The qualifying expatriate should then report such income as exempt income in his/her income tax return and submit an endorsed RA32 Form with his/her income tax return.
2. Other exempt income/capital gains
Qualifying expatriates are also considered as non-Maltese resident individuals under Article 12(1)(c) of the ITA and thus may benefit from the income tax exemption on certain types of income/capital gains being:
- Interest, discount, premium or royalties;
Gains or profits from the transfer of, or on a transfer of any rights over;
Any units in a collective investment scheme (as defined);
Any units and other such like instruments relating to linked long-term insurance business including the surrender or maturity of linked long-term policies of insurance;
Any interest in a partnership which is not a property partnership; and
Any shares or securities in a company which is not a property company.
Duration:
Qualifying expatriates may benefit from the exemption under Article 12(1)(c) of ITA for the whole duration of their period in Malta.
Reporting obligations:
Exempt income/capital gains falling under Article 12(1)(c) of the ITA are not required to be reported in one’s income tax return.
How we can help
Our in-house tax and payroll experts may help you with:
Identifying qualifying expatriates who may benefit under this Article;
Consider other tax programmes which may be beneficial to the respective individual;
Advising on the required process to benefit under this Article or other tax programmes;
Discuss how the changes in the Guidelines may impact the employer and/or the employee;
Advice on the reporting obligations by the employer and the employee;
Assistance in connection with payroll matters;
Assistance with the preparation of the employee’s Maltese income tax return;
Providing employment and payroll health checks.
The above is not intended to be exhaustive and other considerations may arise according to the specific circumstances. Contact us if you wish to discuss this in more detail.
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