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LN 228 of 2017 – Voluntary Occupational Pension Scheme Rules, 2017

In a bid to encourage both employers and employees to set up occupational pension, the Government introduced, through LN 228 of 2017, the Voluntary Occupational Pension Scheme Rules 2017. These rules shall be deemed to have come into force on the 1st of January 2017.

An 'occupational retirement scheme' is defined as 'a retirement scheme established on a voluntary basis for, or by, an employer or a number of employers, or an association of employers (also including self-occupied persons), jointly or separately for the benefit of qualifying employees.

A 'personal retirement scheme', on the other hand, is defined as a retirement scheme which does not fall within the definition of an occupation retirement scheme and to which contributions are made for the benefit of the individual.

What are the tax incentives available under these Rules?

There are essentially three incentives under these Rules:

1. A qualifying employer who makes contributions to a qualifying scheme for the benefit of his employees shall be entitled per year, with respect to such employee on whose behalf he/she is making the contribution to the qualifying scheme, to a tax credit amounting to the lower of 15% of the amount of qualifying contribution during the year and €150 OR such other amount as may be prescribed by the Minister of Finance;

- This tax credit is available either as a deduction from the amount of income tax which is due on the qualifying employer's chargeable income during the year in which the contributions are made.

- Any amount which is not utilized shall be added to the tax credit for the following year and be deemed to be part of the tax credit, or if there is no tax credit for the year, be deemed to be the tax credit for that year and so on for subsequent years.

2. A qualifying contribution made to a qualifying scheme which is reported to the Commissioner for Revenue can be claimed as deductible from the qualifying employer's taxable income for that year of assessment in terms of Article 14(1)(e) of the Income Tax Act .

It must be noted that the total deductions that can be claimed by an employer with respect to the qualifying contributions in respect of each qualifying employee amount to the lower of the contribution actually paid to the qualifying scheme and €2000;

3. A qualifying employee who also makes contributions to the qualifying scheme shall be eligible for a tax credit amounting to 15% of the aggregate amount of the qualifying contributions made during the year up to a maximum of €150 or such other amount as may be prescribed by the Minister of Finance.

Such tax credit is only available as a deduction from the amount of income tax which is due on the total income of the qualifying employee for the year during which the qualifying contribution to the qualifying scheme is made.

Other important points to be underlined

• The contributions made by the qualifying employer on behalf of the qualifying employee are not considered as a fringe benefit given to the employee by the employer by reason of employment or office and therefore do not fall under the Fringe Benefits Rules;

• If the qualifying employee is married and is charged to tax jointly with his/her spouse, the tax credit specified in point 3 above may be availed of against the income tax due on the total income of the married couple.

What is considered as a qualifying scheme?

A qualifying scheme is defined as a 'retirement scheme or a long-term contract of insurance that fulfils the requirements of the Rules and is approved by the Commissioner for Revenue and in accordance with Rule 7 must satisfy the following conditions:

a) If it is an occupational retirement scheme, it must be registered under the Retirement Pensions Act (Chapter 514 of the Laws of Malta) or any other law substituting this Act;

b) If is a long-term insurance contract issued by a licence holder:

        a. It provides for the commencement of the payment of benefits to a qualifying individual at an age not earlier than 50 or not later than the date when the individual attains the age of 70 or any other age specified in pension             rules applicable to occupational retirement schemes in terms of the Retirement Pensions Act, except in those cases where the long-term contract of insurance provides that the payment is made by reason of permanent                   disability or death of the beneficiary and;

        b. It provides for programmed withdrawal arrangements as provided for in pension rules issued under the same Retirement Pensions Act.

The qualifying contributions made to the qualifying scheme must be made by or on behalf of a person, defined as the qualifying employee, who:

a) Derives chargeable income in terms of the Income Tax Act and is duly registered for income tax purposes;

b) Is employed by a qualifying employer;

c) Does not benefit under the Highly Qualified Persons Rules.

A qualifying employer is defined as 'any person, whether corporate or unincorporated, and whether vested with legal personality or not, which employs individuals to carry out the economic activity for which it is established and which is registered as a payer for the purposes of the FSS Rules'.