by André Zarb and John Ellul Sullivan, KPMG, Malta
In international tax planning circles, Malta is often referred to as one of Europe’s best kept secrets, and people are still surprised when they first hear about the benefits of living and doing business there.
Malta offers the lowest effective corporate tax rate in the European Union (EU). While the corporate tax rate is 35%, upon the distribution of dividends to shareholders, the shareholders may apply for a refund of the Malta tax charge of the Malta Company, which will reduce the effective corporate tax burden to between zero and 6.25%.
There is also a favourable residents scheme for foreigners taking up residence, making Malta an ideal location for both businesses and individuals.
A well connected investment location right in the heart of the Mediterranean
With over 7,000 years of history, an average of 300 days of sunshine each year, an average annual rainfall of 550mm (about 21 inches), and no snow, fog or frost, Malta is a popular destination for many people seeking a relaxing destination with great weather and a healthy Mediterranean lifestyle.
Situated in the middle of the Mediterranean Sea, about 100 kilometres south of Sicily and 300 kilometres east of Tunis, the Maltese archipelago consists of five islands, having a total area of 315km², of which the larger ones — Malta, Gozo and Comino — are inhabited. The total population in the Maltese archipelago is about 415,000.
The official languages are Maltese and English, however English is the main medium of official documentation in banking and commerce. For instance, laws are published in English, traffic signs are in English, and the main newspapers are in English. Italian is also widely spoken in Malta.
Some of the different reasons people offer for settling in Malta and setting up a company there are that the country:
- Has excellent communication links and transport networks with Europe and beyond;
- Is an ideal hub for combining business and pleasure;
- Has an enjoyable Mediterranean lifestyle with a diversity of restaurants, a good social life and quality cultural events;
- Has a very attractive tax system for companies and individuals;
- Uses the Euro and has a convenient time zone (Central European Time);
- Is a politically stable country; and,
- A wide variety of properties are available in all price ranges.
Having been a part of the British Empire for over 150 years, Malta inherited features of the British tax system and as a result, Maltese tax law is based on British tax principles. Malta’s tax system brings to charge income and certain capital gains. By virtue of Malta’s full imputation tax system, the double taxation of company profits in the hands of the shareholder is eliminated.
Residency and associated tax advantages
For over 20 years, the Maltese Government has adopted a residents scheme in order to encourage foreigners to take up residence in Malta. This scheme has proven to be very popular with people seeking a place to retire. An individual may take up residence in Malta by declaring his or her intention to do so and submitting the appropriate form within three months of arrival in Malta.
People taking advantage of this scheme benefit from a flat income tax rate of 15% on income received in Malta, with an annual minimum tax liability of €4,192 after double taxation relief. Malta’s wide treaty network currently covers over 50 double tax treaties.
For tax purposes, an individual is generally regarded as being resident in Malta for a particular year if, in that year, his or her stay exceeds 183 days. However, an individual may also be regarded as a resident of Malta when taking up employment in Malta.
Persons resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and certain capital gains.
Persons who are ordinarily resident in Malta but not domiciled in Malta (commonly referred to as “non-doms”) are only taxed on income and certain capital gains sourced in Malta, plus income sourced outside Malta which is received in, or remitted to Malta. Foreign-source capital gains are invariably not taxable in Malta.
Expatriates may import their personal belongings to Malta free of VAT and import duties.
Favourable tax system for expats working in the investment services and insurance sectors
While being subject to the advantageous tax treatment applicable to non-doms as outlined above, expats working in the investment services and insurance industries, subject to certain conditions, may also benefit from a 10-year tax exemption on the following expenses incurred for the benefit of the expatriate, or of his immediate family, by the investment services company or insurance company of which they are an employee, or to which they provide services:
- Removal costs in respect of relocation to and from Malta;
- Accommodation expenses incurred in Malta;
- Travel costs in respect of visits by the expatriate and their family to or from Malta;
- The provision of a company car for the use of the expatriate;
- A subvention of up to €600 per month;
- Medical expenses and medical insurance;
- School fees of the expatriate’s children.
In order to benefit from this exemption, the investment services expatriate must be employed or provide services to a company which is licensed as an investment services company in Malta, or is recognised as such, and the activities of which consist solely of the provision of management, administration, safekeeping or investment advice to collective investment schemes. The insurance expatriate must be employed or provide services to a company which is licensed to act as an insurance company, insurance manager or insurance broker.
Furthermore, the expatriate must not have been resident in Malta for a minimum of 3 years immediately preceding the year in which they started working or providing services to the company, and during these 3 years the expatriate should have been engaged in a similar position outside Malta.
Inheritance and capital transfer tax
There is no general inheritance tax system in Malta. However, upon the transfer or transmission (upon death) of:
- Real estate situated in Malta or shares in a company owning mainly real estate situated in Malta, a duty of 5% is due;
- Marketable securities (mainly shares) in Maltese companies, a duty of 2 per cent is due. Some exemptions apply.
Malta is subject to the EU regulation on the co-ordination of social security systems (EC Regulation 883/2004) and its social security charges are amongst the lowest within the EU.
Employed individuals contribute 10% of their weekly salary, with the employer contributing the same amount, subject to a maximum weekly contribution of €35.39. The maximum annual contribution is €1,840.28.
Self-employed and self-occupied individuals must contribute 15% of their weekly earnings, subject to a maximum weekly contribution of €49.37. The maximum annual contribution is therefore €2,567.24.
The Maltese property market
The Maltese property market has coped remarkably well during the global recession and a number of luxury developments are currently being built in sought-after locations, often with breath-taking views. Property within these special designated areas may be acquired by EU citizens and other non-residents, without restrictions or permits.
EU citizens who are resident in Malta for over 5 years may freely acquire the property they desire, even if this is situated outside the special designated areas. In the case of an EU citizen who does not satisfy this requirement, there is the possibility of purchasing such a property which is to serve as the primary residence.
Registering your yacht in Malta
Centuries-old Maritime tradition, its strategic location at the heart of the Mediterranean Sea, its natural harbours, and the entrepreneurial and maritime skills of its people have all contributed to establishing Malta as an international maritime service centre.
Malta prides itself in an attractive system for yacht owners and yacht leasing companies. There are currently 6 yacht marinas in Malta, with a further 13 planned. Malta is the port of call for a number of super yachts, including the Octopus, Pelorus, Indian Empress, Elena, Anastasia, Galaxy, GiVi and the Linda Lou. In addition, Malta offers an attractive tax system for yacht leasing companies that can reduce the VAT cost on the importation of a yacht into the EU to as low as 5.4%, based on the size and means of propulsion of the vessel.
Advantages of registering a yacht under the Maltese Flag include:
- No restrictions on the nationality of the ship owner;
- Low company formation and ship registration costs;
- No restrictions on the nationality of the master, officers and crew;
- No restrictions or taxation on the sale or transfer of shares of a company owning Maltese registered ships;
- No restrictions or taxation on the sale and mortgaging of Maltese registered ships
The Malta flag also has the 2nd largest commercial fleet in Europe and the 8th largest worldwide. Malta is a flag of choice and quality, with no restrictions as to nationality or corporate owners. There are no restrictions in relation to the nationality of shareholders and directors of Maltese shipping companies.
Malta makes business sense
In today’s increasingly competitive global marketplace, Malta is striving, with considerable success according to some observers, in establishing itself as an EU business and financial centre of repute. In addition to Malta’s corporate tax system – with not more than a 5% effective tax rate — and the attractive tax system applicable to expatriates, Malta offers an enviable Mediterranean lifestyle with a Western European business climate, where English is the commercial lingua franca. The modern infrastructure and the “can do” attitude of the authorities and regulators, which provide industry with real-time efficient service and feedback, make doing business in Malta easy, efficient, and cost effective. As one of the many fund managers who has moved to Malta aptly put it, “Here, we do and achieve all that we used to in the City, at half the cost, 1/10th the tax, enjoying the sun, sea, sailing, the food, and the open air cafés.”
KPMG in Malta provides audit, tax and advisory services. Established in 1969, the company is one of the largest professional services firms in Malta today. With a balanced mix of international and local clients, their goal is to turn knowledge into value for the benefit of their clients, their people, and the capital markets.