Malta's Remittance Basis of Taxation for Individuals

The Income Tax Act establishes liability for income tax based fundamentally on an individual's residence and domicile status within Malta. Depending on these connecting factors, liability can arise on a worldwide basis, a territorial basis, or the remittance basis of taxation.

The Scope of the Worldwide and Remittance Taxation Basis

The most extensive liability is the worldwide basis of taxation, which applies to persons who are both ordinarily resident and domiciled in Malta. Under this regime, all income and capital gains are subject to Maltese tax, regardless of where they arise or where they are received. This basis also extends to individuals who hold long-term resident status or specific permanent residence certificates/cards, and if one spouse in a married couple living together is ordinarily resident and domiciled, the worldwide basis applies to both spouses' income and capital gains.

In contrast, the remittance basis of taxation applies to individuals who are either not domiciled or not ordinarily resident in Malta, as well as, under specific conditions, to returned migrants. Under this system, all income arising within Malta is taxable, regardless of where it is received. Income that arises outside Malta, however, is subject to Maltese tax only if and to the extent that it is received in Malta. Notably, capital gains arising outside of Malta are not subject to tax, even if the proceeds from the gain are remitted to Malta.

Defining Tax Status: Residence and Domicile

The application of these rules hinges on understanding basic concepts like Residence, Ordinary Residence, and Domicile.

Residence is a question of fact and does not depend on nationality. A person is considered resident if they are present in Malta for more than 183 days in any given year. Alternatively, an individual who comes to Malta to establish residence becomes resident from the date of arrival, regardless of the duration of the initial stay. Ordinary Residence implies living in Malta on a permanent or indefinite basis. It can also apply to individuals who stay in Malta for more than 183 days in each year over a long period (e.g., three consecutive years), or who come regularly over a long period and establish personal and economic ties, even if their stay is less than 183 days annually in any particular year.

Domicile in Malta necessitates that one considers Malta as his permanent home, implying stronger ties than simple residence. Every individual acquires a domicile of origin at birth, usually that of their parents (with the father’s domicile being the determining factor in the domicile of choice, if the parents have different domiciles). An individual may acquire a domicile of choice by taking up residence in a country with the intention of making it a permanent home and having an intention of never returning to the country of the domicile on choice. No individual can be without a domicile, nor can they possess more than one simultaneously. If a domicile of choice is abandoned without establishing a new one, the domicile of origin automatically revives.

Arising vs. Receiving Income

For remittance basis purposes, understanding where income arises and when it is received is critical. Income from employment or self-employment generally arises in Malta if the activities generating it are performed within Malta. Incidental links to Malta, such as occasional visits or merely delivering goods to Maltese customers, are typically insufficient to establish that income arises locally.

Passive income, such as rent from immovable property, arises where the property is located. Dividends usually arise where the paying company is incorporated, and interest arises where the debtor is resident. Capital gains arise in Malta if the transferred asset is situated there.

Income is received in Malta if it is paid directly to the recipient in Malta or if funds paid into an account held abroad are subsequently remitted to Malta, and this includes use of a bank card to pay for living expenses in Malta. Remittances intended for ordinary living expenses are presumed to be remittances of income unless proven otherwise. However, remittances made for a capital purpose (e.g., buying property) that can be shown to originate from foreign capital (like an inheritance or sale of capital assets) are regarded as remittances of capital and are not captured under the remittance basis.

The Minimum Tax Liability

Individuals to whom the remittance basis applies are subject to a minimum tax liability. This minimum tax is set at €5,000 per annum. This amount includes any Maltese tax withheld at source but excludes tax payable on the transfer of immovable property situated in Malta. This minimum is reduced by any double taxation relief due on income actually remitted to Malta upon which tax was paid abroad.

The minimum tax liability does not apply if an individual's foreign income is less than €35,000. For a married couple, the €35,000 threshold and the €5,000 minimum tax apply to the couple’s total income. Individuals may opt to be taxed on a worldwide basis instead of the remittance basis if the tax liability calculated on a worldwide basis is less than the minimum tax. Furthermore, this minimum tax rule does not apply to individuals who are beneficiaries of specific special schemes, such as the Residence Programme or the Global Residence Programme, where a higher minimum tax applies.

Our team at Quazar can guide on ensuring that you apply the correct taxation basis to your circumstances and take advantage of any special programme that can be used to optimise your Maltese tax position.  

Get in Touch:

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Josef Mercieca

jmercieca@quazar.mt / +356 2388 4600