Malta's: The Remittance Basis of Taxation

Based on factors such as territoriality, residence, domicile, and remittance (i.e., reception in Malta), Malta claims the authority to tax income and capital gains earned by persons. We will attempt to simplify and clarify the general ideas underlying the regulations in this article, even though the applicable rules can be complex.

Taxation for Individuals based on Residential status

Persons who are both ordinarily resident and domiciled in Malta are subject to tax on a worldwide basis, which means that both income and capital gains occurring in Malta and elsewhere are taxed in Malta regardless of where they are paid, received, etc.

Individuals who are married to someone who is ordinarily resident and domiciled in Malta, as well as those who have status as long-term residents in Malta (including holders of permanent residence certificates or cards), are subject to tax in Malta on a worldwide basis.

The Remittance Basis

Those who are neither domiciled nor ordinarily resident in Malta are subject to the remittance basis of taxation (usually a Malta resident but not a Malta-domiciled person). According to the applicable regulations, this means that:

• income arising in Malta is subject to tax in Malta, regardless of where such income is received.
• income arising outside Malta is subject to tax in Malta only if such income is received in Malta.
• capital gains arising outside Malta are not subject to tax in Malta, even if such gains are received in Malta.

Individuals covered by the remittance basis of taxation may be subject to additional regulations that establish a minimum yearly tax obligation. Certain basic terms and ideas, such as domicile, income, capital gains arising in Malta, income received in Malta, residence and ordinary residence are necessary to apply these general principles.

Basic Concepts

When considering the key concepts of Residence, Ordinary Residence, and Domicile, it's important to note that these definitions are not based on nationality or any other civil status but are often determined as matters of fact. Residence can be established in more than one country, leading to potential complexities that may be resolved through double tax treaties to determine the primary residence country.

For tax purposes in Malta, residing in the country for 183 days or more in a calendar year automatically qualifies an individual as a resident, regardless of the purpose of their stay. Additionally, individuals intending to establish permanent residence in Malta are considered residents from their date of arrival, even before the completion of the 183-day requirement.

Ordinary residence in Malta is attributed to those living in the country on a permanent or indefinite basis. Temporary residents may also acquire ordinary residence status after a prolonged period, typically exceeding three years, during which personal and economic ties are established with Malta.

Domicile, on the other hand, is not tied to nationality but is acquired at birth, known as the domicile of origin, usually inherited from one's parents. It encompasses more than mere physical presence and involves an individual's intention to permanently reside in a particular country, considering it their true home.

One can only hold a domicile in one place at a time, but a change of domicile is possible by establishing a new domicile of choice through the intent to make a country one's permanent abode. Intent is crucial in determining domicile, as evident in residency decisions made with the intention to return to one's original domicile eventually.

In terms of taxation, income derived from activities conducted in Malta, such as employment, professions, or businesses, is considered to arise in Malta. Passive income sources like dividends, rents, and interest are typically attributed to the source location of the income, while capital gains are linked to the location of the transferred asset.

Regarding income received in Malta, payments made directly to a recipient in Malta, including those deposited into Maltese bank accounts or subsequently remitted to Malta from overseas, are deemed received in Malta. Remittances for regular expenses are presumed to be income unless proven otherwise, while capital-related remittances, like inheritance or asset sales outside Malta, are not subject to taxation upon receipt in Malta.

Conclusion

The aforementioned should not be interpreted as tax advice on a specific set of circumstances; rather, it is intended to be a brief and easy introduction to the laws that apply in Malta. Since a person's unique circumstances may have a significant impact on the outcome of their tax obligations.

It is always advisable to obtain appropriate guidance before relocating to Malta. Make an appointment for a residence planning consultation with Papilio Services so that they can address any of your questions and go over the details in more depth.