Taxation of Highly Qualified Persons
Act I of 2010 introduced Article 56 (21) ITA, an article which created a beneficial tax regime for persons who receive emoluments payable under a qualifying contract of employment from an eligible office with a company licensed and/or recognised by the Financial Institutions Act and/or Lotteries and other Games Act.
Beneficial Tax Rate
This Article was further updated through the publication of various legal notices and Act V of 2012. Article 56 (21) contemplates a potentially favourable tax rate of 15% which may be applied at the option of the tax payer with effect from Year of Assessment 2011.
If Article 56 (21) is applied, the individual will not be able to claim any relief, deduction, reduction, credit, or set off of any kind apart from tax paid at source on employment income, self employment and pensions etc.
In addition, when the option of using the beneficial rate of 15% on the qualifying employment income is exercised, the said employment income will constitute the first part of that individual’s total income for the year of assessment in question and the tax on the remaining income shall be calculated at the rate or rates that would have been applicable to the remaining income had the option not been exercised.
Eligible offices licensed and recognised by the Malta Financial Services Authority/ Lotteries & Gaming Authority (as applicable) include:
(a) Chief Executive Officer, Aviation Accountable Manager, Chief Risk Officer, Chief Financial Officer, Chief Operations Officer, Chief Technology Officer,
(b) Portfolio Manager, Chief Investment Officer, Senior Trader/Trader, Senior Analyst (including Structuring Professional), Actuarial Professional, Chief Underwriting Officer, Chief Insurance Technical Officer, Odds Compiler Specialist, Head of Research and Development (including Search Engine Optimisation and Systems Architecture), Aviation Continuing Airworthiness Inspector, Aviation Flight Operations Inspector and Aviation Training Manager;
(c) Head of Marketing, Head of Investor Relations.
The following conditions should be satisfied to be able to benefit from the beneficial tax rate of 15%:
(a) The emolument income must be received with 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.
(b) The individual must receive employment income of a minimum of Euro 75,000 (exclusive of (the annual value of any fringe benefits) from an eligible office. In the case where the income from the qualifying contract exceed Euro 5,000,000 no further tax will be charged on the income in excess of Euro 5,000,000;
(c) The individual should not be domiciled in Malta;
(d) The individual should be protected as an employee under Maltese law, irrespective of the legal relationship, for the purpose of exercising genuine and effective work for, or under the direction of, someone else, is paid, and has the required adequate and specific competence, as prove to the satisfaction of the competent authority;
(e) The individual is in possession of professional qualifications to the satisfaction of the competent authority;
(f) The individual is not a person who has benefited under Article 6 of the ITA (Investment Services and Insurance Expatriate) who has claimed certain fringe benefit exemptions;
(g) The individual fully discloses for tax purposes and declares emoluments received in respect of income from a qualifying contract of employment and all income received from a person related to his employer paying out income from a qualifying contract as chargeable to tax in Malta
(h) The individual is in receipt of stable and regular resources which are sufficient to maintain himself and the members of his family without recourse to the social assistance system in Malta;
(i) The individual resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
(g) The individual is in possession of a valid travel document;
(h)The individual is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and the members of his family.
Rules with respect to the duration of this scheme vary on whether the expatriate is an EEA/Swiss National or a third country national.
Claw back and Penalties
The benefits provided for under this Scheme may be clawed back retrospectively in the case where:
(a) The expatriate’s stay in Malta is not in the public interest; and
(b) In the case of Non EU citizens, where the expatriate physically stays in Malta for more than 1,460 days (i.e. 4 years) or if the expatriate acquires real rights over immovable property situated in Malta.
In addition to penalties incurred, an individual who claims a benefit under the scheme when not entitled to do so is liable to a penalty equal to the amount of benefit claimed and if the benefit claimed had been already paid, the individual is liable to repay the benefit received plus additional tax of 7% per month or part thereof.