Tax Guidelines on Highly Qualified Persons Rules

Introduction

Since joining the EU in 2004, Malta has been developing as an onshore domicile and is recognized as a highly functional, low cost, well regulated jurisdiction with the underlying theme being availability of trained staff. However, the expansion of the financial services and gaming industries 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 and gaming sectors where local expertise is lacking.

The objective of Legal Notice 106 Highly Qualified Persons Rules, 2011 is the creation of a scheme to attract highly qualified persons to occupy “eligible office” with companies licensed and/or recognized by the relevant Competent Authority (Malta Financial Services Authority, Lotteries and Gaming Authority). “Eligible office” comprises employment in one of the following positions:

• Actuarial Professional,
• Chief Executive Officer;
• Chief Financial Officer;
• Chief Commercial Officer
• Chief Insurance Technical Officer;
• Chief Investment Officer;
• Chief Operations Officer;
• 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

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.

Scheme Rules

Individual income from a qualifying contract of employment in an “eligible office” with a company licensed and/or recognised by the Competent Authority 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 RPI published by the NSO) must exceed the following thresholds:

• €75,000 for basis year 2010
• €76,136 for basis year 2011
• €78,207 for basis year 2012

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, ie basis years 2010, 2011 and 2012, while a third country national will benefit from one less.

An individual may benefit from the 15% tax rate if he satisfies all of the following employment conditions:

1. derives employment income subject to income tax in Malta;
2. employment contract is subject to the laws of Malta and proves to the satisfaction of the Malta Financial Services Authority (in the case of Financial Services) and the Lottries and Gaming Authority (in the case of Gaming Services) that the contract is drawn up for exercising genuine and effective work in Malta;
3. proves to the satisfaction of the Malta Financial Services Authority (in the case of Financial Services) or the Lotteries and Gaming Authority (in the case of Gaming Services) that he is in possession of professional qualifications and has at least five years professional experience;
4. 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);
5. 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;
6. proves to the satisfaction of the Malta Financial Services Authority (in the case of Financial Services) or the Lotteries and Gaming Authority (in the case of Gaming Services) that he performs activities of an eligible office; and
7. proves that:
   1. 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;
   2. 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;
   3. he is in possession of a valid travel document;
   4. 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 Competent Authority 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 Competent Authority or not holding “eligible office” with a company licensed and/or recognised by the Competent Authority.

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.

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; 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.