Malta Income Tax – Extensive Information and Facts
The Income Tax Act and the Income Tax Management Act contemplate three (3) distinct taxes:
- All Income;
- Capital Gains; and
- Transfer value of Immovable Property situated in Malta
When a gain or profit is of an income nature, it is classified into six (6) distinct categories, which classification is not only important for reporting purposes, but also for computation of income and possible deductions.
The six (6) categories of Income Tax are as follows:
1. Trading Income
Any gain derived in the course of any trade, business, profession or vocation is taxable;
2. Employment Income
Any gain or profit derived from any employment or office (e.g. directorship or company secretarial posts);
3. Dividends, Premiums, interest or discounts
Any dividends, premiums, interest (which includes any gains from any sum of money in whatever currency deposited with a person carrying on the business of Banking) and discounts (gains derived from discounting bills of exchange) is taxable;
4. Pension, Charges, Annuities or Annual Payments
Payments of a recurring nature are by nature taxable. However, it is important to identify precisly the type of recurrent payment, as several exemptions are provided for in the Income Tax Act. Thus, for example, although pensions are in principal taxable, a tax exemption is afforded with regard to Age Pension and Disability Pension and Pension for the Visually Impaired;
5. Income, Rents, Royalties, Premiums and other profits derived from Immovable Property
6. Gains or Profits not falling under any of the foregoing paragraphs
This is an umbrella provision which includes but is not limited to examiner’s fees, radio and TV participation etc.
Income Tax Charge
Income Tax is intrinsically intertwined to the notion of jurisdiction. Income Tax will arise insofar that Malta can assert a jurisdictional claim on the tax-subject, which jurisdiction is asserted on the grounds of territoriality, ordinary residence, domicile and remittance. The Maltese Commissioner of Inland Revenue may tax:
- Unless exempted, all income and capital gains arising in Malta;
- Unless exempted, all income and capital gains, wheresoever arising (in Malta or outside Malta) to persons who are both ordinarily resident and domiciled in Malta;
- Income arising outside Malta remitted to persons who are ordinarily resident in Malta but not domiciled in Malta; and
- Income arising outside Malta remitted to persons who are domiciled in Malta but not ordinarily resident in Malta.
Resident in Malta - In the case of a person who is tax resident (both ordinarily resident and domiciled) in Malta, tax is levied on all income accruing or arising from sources both within and outside Malta, in respect of:-
- Trading Income;
- Employment Income;
- Dividends, Premiums, interest or discounts;
- Pension, Charges, Annuities or Annual Payments;
- Income, Rents, Royalties, Premiums and other profits derived from Immovable Property; and
- Gains or Profits not falling under any of the foregoing
Non-Resident in Malta – In the case of a person who is not tax resident in Malta, (satisfies either but not both the tests of ordinarily resident and domiciled in Malta) tax is levied on the income remitted to Malta or arising from sources in Malta only. Typical examples of taxation arising in Malta chargeable to non-resident would include, but are not limited to:-
- Profits or other benefits from a permanent establishment situated in Malta;
- Profits or other benefits from any office or employment exercised in Malta (including income from services);
- Income, including rent or sale derived from immovable property situated in Malta;
- The gross derived by an individual from the exercise in Malta of any profession or vocation, the remuneration of public entertainers, artists and athletes.
Resident in Malta, when applied to an individual, means an individual who stays in Malta for a period or periods exceeding in aggregate 183 days in the year of assessment.
When applied to a company, residence shall mean the place where the management and control of the company is exercised. All companies incorporated in Malta, are by default, deemed to be resident in Malta.
Ordinary Residence is not defined in the Income Tax Act. The term has been interpreted as denoting a prolonged and continuous stay in a particular jurisdiction and is often implied from a number of factors pertaining to the tax subject, including but not limited to the jurisdiction where the tax subject retains family ties and/or business interests. The regularity of visits to the jurisdiction is also often a criterion to be considered for ordinary residence.
Therefore whilst the notion of residence may be determined on an objective basis by determining the number of days spent in Malta, ordinary residence is implied from a number of subjective factors, which point towards a more long-term tie with the particular jurisdiction.
Similarly to ordinary residence, domicile is a concept which may be inferred subjectively, not objectively, on examination of the tax subject’s decision where to set up his/her sole or main residence coupled with the intention to reside there for an unlimited time.
As a general rule all tax subjects are assigned domicile, and it is not possible to have more than one domicile at any given time. By way of default, every individual acquires the domicile of his/her father at birth. The domicile of origin shall be retained by the individual, even after establishing his/her residence outside his/her country of domicile, unless it is proven that the individual’s intention is to reside permanently in his/her new abode, severing all ties with his/her country of domicile and never showing any intention of returning to his/her domicile of choice.
Permanent Establishment (OECD Model definition) means a fixed place of business through which an enterprise’s business is wholly or partly carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.
Income Tax Exemptions
Tax exemptions are set forth in Article 12 of the Income Tax Act, Chapter 123 of the Laws of Malta, and include the following:
- Income of the University of Malta;
- Allowances and benfits payable under the Social Security Act;
- Any interest, discount, premium or royalties accruing to a person not resident in Malta, provided that such person is not engaged in trade or business in Malta through a permanent establishment;
- Any gains or profits accruing to or derived by any person not resident in Malta on a transfer of units in a Collective Investment Scheme or any units and instruments related to linked long term business of insurance;
- The income of any Retirement Fund registered or otherwise authorised under the Special Funds (Regulation) Act;
- The income of any institution, trust, bequest or foundation of a public character which is engaged in philanthropic activities;
- The income of any political party including the income of clubs adhering to political parties;
- Wound and disability pensions;
- Capital sums received by way of commutation of pension, retiring or death gratuity or received as consolidated compensation for death or injuries;
- The income arising from a scholarship held by a person receiving full time instruction at a university, college or similar education institution;
- The income of trade unions;
- The profits of non-resident ship-owners;
- The income of a club or similar institution operated exclusively for social welfare, civic improvement, pleasure or recreation and for non-profit purposes;
- The income of a philharmonic society which constitutes a band club;
- The income of a club or similar institution that constitutes a sports club;
- Any dividend paid or payable out of gains or profits deriving from the production of petroleum in Malta;
- The income of a co-operative society;
- Any subsidy related to the Common Agricultural Policy;
- The income of a Collective Investment Scheme other than income from immovable property situated in Malta;
- Any financial assistance received by an individual from his estranged spouse in respect of the maintenance of a child;
- Any income or gains derived by a company registered in Malta from a Participating Exemption;
- Royalties and similar income derived from patents in respect of inventions, whether in the course of a trade, business, profession, vocation or otherwise.