The High Net Worth Individuals Rules (the Rules) have recently been introduced to attract high net worth foreign individuals to take up residence in Malta and take advantage of the beneficial rate of tax. The Rules apply to both EU and third country nationals and will run in parallel to the current Residents Scheme Regulations. In fact, current holders of a valid permanent residence certificate will continue to fall under the old regulations, unless they wish to relinquish the certificate and apply under the new Rules.
Nature of Incentive
Any foreign national may benefit from the special tax status, however, the Rules distinguish between EU/EEA/Swiss nationals and third country nationals.
Such individuals need to satisfy the Commissioner of Inland Revenue (CIR) that they meet all of the following:
- Individual acquires immovable property in Malta for not less than €400,000, or rents an immovable property in Malta for not less than €20,000 annually, and such individual and his family members have their habitual residence in such property as their principal place of residence. Furthermore, no other person may reside in such property and moreover it cannot be let or sub-let.
- Individual must not have applied for special tax benefits under the Residents Scheme Regulations or the Highly Qualified Persons Rules.
- Individual must be in receipt of stable and regular resources that are sufficient to maintain him/herself and dependents without recourse to the social assistance system in Malta.
- Individual is in possession of (a) a valid travel document, and (b) sickness insurance covering him/herself and dependents in respect of all risks across the EU normally covered by Maltese nationals.
- Individual must not be domiciled in Malta and does not intend to establish his domicile in Malta within five years from the date of application.
- Individual is not a long-term resident, i.e. he is not holding long-term residence status in terms of the Status of Long-Term Residents (Third Country Nationals) Regulations, 2006.
- Individual is a fit and proper person. CIR will consider the individual’s conduct and morals, reputation and character, and will take into consideration any criminal record, convictions for fraud or other dishonesty, disqualification by any professional or regulatory body, whether he/she was adjudged bankrupt or is the subject of any current investigations, proceedings or litigation, any offences connected to terrorism, money laundering, crimes against humanity, and whether in the past the individual had been candid and truthful in his dealings with the Maltese public administration.
EU/EEA/Swiss nationals who satisfy the above conditions can qualify for a flat tax rate of 15% on income received in Malta from foreign sources, provided that the minimum amount of tax payable (after any relief of double taxation) in any year is €20,000 and an additional €2,500 for every dependent. Other income subject to tax in Malta of the individual or his/her spouse will be subject to tax at the rate of 35%.
Third Country Nationals
Third country nationals have two options in relation to their entry requirements and stay in Malta:
- Option 1 – under this option the individual will not obtain any special rights to enter and reside freely in Malta, but would need to obtain a visa to enter and stay in Malta.
- Option 2 – under this option the individual will be able to obtain special rights to enter and reside in Malta, but would need to enter into a qualifying contract with the Government of Malta, whereby the individual would need to deliver €500,000 and an additional €150,000 (“the Bond”) for every dependent to the latter, and the Government of Malta will hold such sums by title of gratuitous voluntary deposit.
The bond will be restored to the individual if the latter renounces the special tax status within four years from the date of signing of the qualifying contract. Moreover, any individual who becomes a long-term resident, or is already a long-term resident, he/she would be required to forfeit all the rights over the Bond. A long-term resident is defined as a person holding long-term residence status in terms of the Status Long-Term Residents (Third Country Nationals) Regulations, 2006, or if he/she is a third country national who has resided legally and continuously in Malta for five years. Moreover, the Bond is also considered forfeited in the event of a serious crime being committed by the individual, or if the special tax status was obtained on the basis of fraud or omission on the part of the individual.
Any third country national must, in addition to satisfying the conditions mentioned in (a) to (g) above (under EU/EEA/Swiss nationals section), also prove that they are fluent in Maltese or English.
Third country nationals who satisfy the conditions should benefit from a flat tax rate of 15% on income received in Malta from foreign sources, provided that the minimum amount of tax payable (after any relief of double taxation) in any year is €25,000 and an additional €5,000 for every dependent. Other income subject to tax in Malta of the individual or his/her spouse will be subject to tax at the rate of 35%.
Cessation of Special Tax Status
A beneficiary may opt to cease to possess the special tax status by informing the CIR accordingly. There are situations where the special tax status will cease in the case of default by the beneficiary of these tax compliance obligations and failure to reply to the CIR’s requests. Moreover, if the following conditions are no longer met the beneficiary will also lose their special tax status:
- Does not hold a qualifying property holding at any time after acquiring the special tax status; or
- Is not in receipt of stable and regular resources that are sufficient to maintain him/herself and dependents without recourse to the social assistance system in Malta; or
- Is not in possession of sickness insurance covering him/herself and dependents in respect of all risks across the EU normally covered by Maltese nationals; or
- Becomes a citizen of Malta or establishes his domicile in Malta; or
- In the case of an EU/EEA/Swiss citizen, if he does not remain an EU/EEA/Swiss citizen, and in the case of a third country national, if he becomes an EU/EEA/Swiss national; or
- Resides in Malta for less than 90 days in a calendar year; or
- The beneficiary’s stay is deemed not to be in the public interest by the Minister of Justice. This includes instances where the beneficiary’s stay affects the interests of public safety, the protection of public order, national security, territorial public health or morals; or
- Stays in any one other jurisdiction for more than 183 days in a calendar year.
An application may only be submitted to the CIR through an Authorised Registered Mandatory accompanied by a non-refundable fee of €6,000.
Current Holders of a Permanent Residents Scheme Certificate
No new certificates are to be issued under the Permanent Residents Scheme Regulations. Current holders may continue to benefit from the rights granted under those regulations, however, they have to satisfy the following additional conditions:
- Individual must be in receipt of stable and regular resources which are sufficient to maintain him/herself and dependents without recourse to the social assistance system in Malta;
- The holder must be in possession of sickness insurance coverage for him/herself and the members of their family in respect of all risks normally covered for Maltese nationals;
- The holder’s place of residence in Malta cannot be occupied by any person other than the holder of the certificate and their family members.
If such individual sells their current property or terminates their current lease agreement, they must acquire a property for not less than €400,000, or rent an immovable property in Malta for not less than €20,000 annually (the same qualifying property requirements as per the new Rules).