Tax Guidelines on Highly Qualified Persons Rules
Since joining the EU in 2004, Malta has been modernising its economy. and is becoming recognized as a highly functional, low cost, well regulated jurisdiction with the underlying theme being availability of trained staff through investment in education and training.. However, the expansion of the financial services and the gaming services since joining the EU and the aviation services in recent years, is showing a significant need for additional highly qualified workers. Therefore, the need is being felt for the importation of knowledge particularly in those areas of the financial services sector, the gaming sector and the aviation sector where local expertise is lacking.
The objective of the Highly Qualified Persons Rules (SL 123.126), is the creation of a scheme to attract highly qualified persons to occupy “eligible office” with companies licensed and/or recognized by the Competent Authority, companies licensed by the Lotteries and Gaming Authority and undertakings holding an Air Operators’ Certificate or an Aerodrome Licence issued by the Authority for Transport in Malta.
"Eligible office" comprises employment in one of the following positions:
- Actuarial Professional
- Aviation Continuing Airworthiness Manager
- Aviation Flight Operations Manager
- Aviation Ground Operations Manager
- Aviation Training Manager
- Chief Executive Officer
- Chief Financial Officer
- Chief Commercial Officer
- Chief Insurance Technical Officer
- Chief Investment Officer
- Chief Operations Officer (including Aviation Accountable Manager)
- Chief Risk Officer (including Fraud and Investigations Officer)
- Chief Technology Officer
- Chief Underwriting Officer
- Head of Investor Relations
- Head of Marketing (including Head of Distribution Channels)
- Head of Research and Development; (including Search Engine Optimisation and Systems Architecture)
- Portfolio Manager
- Senior Analyst (including Structuring Professional)
- Senior Trader/Trader
- Odds Compiler Specialist
"Eligible office" in an aerodrome licensed undertaking refers to employment in the following position:
The rules for the scheme came into force with effect from 1 January 2010 and apply to income which is brought to charge in year of assessment 2011 (basis year 2010) and apply to individuals not domiciled in Malta, with the exception to the positions associated with the aviation sector where the rules are effective from 1st January 2012 i.e. year of assessment 2013.
The scheme’s termination date is 31/12/2025. No determinations shall be issued by the respective Competent Authorities after 31/12/2020.
a) Employment Income
Individual income from a qualifying contract of employment in an “eligible office” is subject to tax at a flat rate of 15% provided that the income amounts to at least €75,000 (seventy five thousand euro) adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of €5,000,000 (five million euro), the excess is exempt from tax.
In practice this means that the minimum income (based on the Retail Price Index published by the National Statistics Office) must exceed the following thresholds:
- €75,000 for basis year 2010
- €76,136 for basis year 2011
- €78,207 for basis year 2012
- €80,100 for basis year 2013
- €81,205 for basis year 2014
- €81,457 for basis year 2015
- €82,353 for basis year 2016
- €82,881 for basis year 2017
The 15% tax rate applies for a consecutive period of five years for European Economic Area (ie EU countries plus Norway, Iceland and Liechtenstein) and Swiss nationals and for a consecutive period of four years for third country nationals. Individuals who already have a qualifying contract of employment in an "eligible office" two years before the entry into force of the scheme may benefit from the 15% tax rate for the remaining years of the scheme. This means that a national of the EEA and Switzerland who has a qualifying contract of employment in an "eligible office" starting in 2008 (basis year) will benefit for three years from the scheme, i.e. basis years 2010, 2011 and 2012, while a third country national will benefit from one less. This "grandfathering" only applies for eligible offices in the financial services and gaming sectors.
The four or five year period, as the case may be, commences from the year when the individual concerned first becomes taxable in Malta. In cases where the individual was taxable in Malta but not benefiting under this Scheme and subsequently comes to Malta and becomes eligible under the Scheme, he can benefit only if the four or five year period has not elapsed; the benefit is for the years remaining from the date of eligibility under the Scheme until the said four or five year period from the date of first being subject to tax in Malta elapses.
Nationals of the EEA and Switzerland who have availed themselves of the benefit under this scheme may apply for a one-time extension of five years to the qualifying period. Third country nationals of who have availed themselves of the benefit under this scheme may apply for a one-time extension of four years to the qualifying period.
b) Qualifying Contract of Employment
An individual may benefit from the 15% tax rate if he satisfies all of the following employment conditions:
- derives employment income subject to income tax in Malta
- has an employment contract subject to the laws of Malta and proves to the satisfaction of the Competent Authority that the contract is drawn up for exercising genuine and effective work in Malta
(Note: where an individual receives salaries from different companies in the same group and the group relationship of such companies is of 100% ownership, he will still be eligible if the aggregate salaries (excluding fringe benefits) are higher than the minimum thresholds as specified above).
- proves to the satisfaction of the Competent Authority that he is in possession of professional qualifications and has at least five years professional experience;
- has not benefitted from deductions available to investment services expatriates with respect to relocation costs and other deductions (under article 6 of the Income Tax Act);
- 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;
- proves to the satisfaction of the Competent Authority that he performs activities of an eligible office; and
- proves that:
- he 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;
- he 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;
- he is in possession of a valid travel document;
- he is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and the members of his family.
Exclusions from the Scheme
The individual income derived from employment in an “eligible office” will not qualify for the 15% reduced rate if it is paid by an employer who receives any benefits under business incentive laws or is paid by a person who is related to the employer who received any benefits under any business incentive laws or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by the Malta Financial Services Authority or the Lotteries and Gaming Authority or of a company holding an Air Operators’ Certificate issued by the Authority for Transport in Malta or if the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognised by the Malta Financial Services Authority or the Lotteries and Gaming Authority or not holding an Air Operators’ Certificate issued by the Authority for Transport in Malta (in the case of aviation services) or not holding “eligible office” with a company licensed and/or recognised by the Malta Financial Services Authority or the Lotteries and Gaming Authority or not holding an Air Operators’ Certificate issued by the Authority for Transport in Malta (in the case of aviation services).
The individual income derived from employment in an “eligible office” will not qualify for the scheme if a claim is made for any relief, deduction, reduction, credit or set-off of any kind except for any income tax deducted at source.
Anti-abuse provisions in respect of split contracts have been introduced. An arrangement in terms of which a beneficiary receives a payment from a person related to his employer and such payment is not declared for tax purposes in Malta is considered to be an artificial arrangement.
Any rights are withdrawn with retrospective effect if a beneficiary is a third country national and he either:
- Physically stays in Malta, in the aggregate, for more than four years, unless such stay is in accordance with the one-time extension granted; or
- Directly or indirectly acquires real rights over immovable property situated in Malta or holds a beneficial interest directly or indirectly consisting in, inter alia, of real rights over immovable property situated in Malta.
Any individual who claims a benefit under the scheme when he is not entitled to do so is liable to a penalty equal to the amount of benefit claimed and if the benefit is paid the individual is liable to repay the benefit received plus additional tax of 7% per month or part thereof.
Application to Benefit from the Scheme
An application for a formal determination relating to eligibility under the Highly Qualified Persons Rules must be made to:
- The Chairman, Malta Financial Services Authority using this form (in the case of Financial Services).
Persons who already submitted a personal questionnaire to the Malta Financial Services Authority can apply using this form instead.
- The Chairman, Lotteries and Gaming Authority using this form.
- The Chairman, Authority for Transport in Malta using this form (in case of Aviation Services).
The benefit is exercised for each year of assessment by means of a declaration made on the form RA 17 signed by the beneficiary and endorsed by the Malta Financial Services Authority or the Lotteries and Gaming Authority or the Authority for Transport in Malta as the case may be. This form is to be attached to the income tax return and filed with the Inland Revenue Department by the tax return date.