Ann Bugeja of CSB Advocates looks at business, investments and residency opportunities in Malta
Taxlinked.net interviews Dr. Ann Bugeja about Malta business and residency opportunities.
TL:What are the main considerations and advantages for doing business in Malta?
AB: Malta’s positive approach to business promotion, development and standard of living within the EU makes the island a destination of choice for relocation of business purposes. Malta offers noteworthy benefits to individuals and investors who are seeking an attractive yet safe business environment.
Malta’s strong geographic position, its security of membership to the European Union and its strong growth of GDP amidst a time of global recession have made Malta a cost effective jurisdiction to conduct business affairs.
To conduct business in Malta means operating within a full member of the European Union, which signifies that Malta is a gateway into the European, African and Middle Eastern markets. Since Malta’s membership with the European Union, the island has developed business ties and made a number of fiscal agreements with other EU member states.
TL: What are the criteria for investments in Malta?
AB: As a member of the European Union, Malta has harmonized its laws to the European Acquis and offers protection of the European system to all its settlers. In addition to the free movement for EU members, Malta is also part to the Schengen Agreement, which allows free movement of persons to its members.
Malta offers an advantageous corporate tax rate which is at a very competitive 35% of worldwide income, and shareholders may claim a refund of six-sevenths of the tax the company paid to Malta, making this one of the main reasons to set up business in Malta.
The Business Promotion Regulations further provides sector specific tax incentives for businesses in pharmaceuticals, plastics, biotechnology, electronic and electrical equipment including reductions in income tax, which are staggered based on duration of operation, starting at 5% for the first 7 years and can increase up to 15%. Expanding companies can also benefit from the Business Promotions Act with a 50% tax deduction on the purchase of certain machinery and a further 20% of qualifying buildings and premises.
It is also noteworthy that Malta is also a party to over 60 Double Taxation Agreements worldwide.
Numerous types of company set-ups are permitted to do business in Malta. The legal system permits the definition of a company to include overseas branches of a foreign set-up in Malta and also companies that are neither incorporated nor resident in Malta if they register with local tax authorities. Most imports are unrestricted and companies that require raw materials are free to access. There are not many volume based quotas, however clearance is required for certain products such as pharmaceuticals and livestock, as similarly found in other European Countries.
Where goods are imported from non-EU countries a duty may be levied and is based on the transaction value, transport cost, handling charge, and insurance to the place of importation. However goods that enter through the Malta Freeport or goods under custom control are not subject to additional duty.
TL: What are the benefits of applying for residency in Malta, and what does the process entail
AB: Malta provides for two main methods of relocation, these are namely the Ordinary Residence, which is not a status which one applies for but an intent developed, and the Special Tax Status. Individuals may decide to relocate to Malta for various reasons, which include international business travel, tax efficiency or for retirement.
Ordinary Residence is currently available to all nationals. Individuals invoking ordinary residence status would need to demonstrate financial independence, and evidence a local residential address by purchasing or letting a property in Malta. Ordinary residents may live and enter into any business or employment in Malta. An ordinary resident individual qualifies as a resident in Malta for income tax purposes, and is subject to the normal income tax rates applicable for every Maltese resident, meaning that the individual must submit a tax return annually.
On the other hand, with regard to the Special Tax Statuses, these were designed to attract high net worth individuals. The Special Tax Statuses encompass mainly 4 different programs, The Malta Retirement Programme, The Residence Programme (TRP), The Global Residence Programme (GRP) and the Highly Qualified Persons Rules (HQP).
These Special Tax Statuses are attractive to those individuals who wish to establish an alternative residence that suits their lifestyle and tax profile. In order to qualify for the status such as that of GRP or TRP, candidates need not benefit from any other special tax status, hold a qualifying property of not less than €275,000 or €9,600 per year if the applicant decides to lease, be in receipt of stable and regular resources which are sufficient to maintain himself, be in possession of a valid travel document, and be in possession of a private health insurance amongst other.
TL: Could you explain what the main differences are between the Global Residence Programme (GRP) and The Residence Programme (TRP)?
AB: The GRP is a programme, which is designed to attract individuals who are not nationals of the EU, EEA or Switzerland and who are not long-term residents in Malta, while the TRP programme is designed to attract the EU, EEA and Switzerland nationals who are not permanent residents in Malta. Individuals benefitting from both Programmes are not precluded from working in Malta, provided that they satisfy the requisite conditions for obtaining the relevant work permit.
For an individual to be to be eligible to apply for the either the GRP or the TRP, he must satisfy the following requisites:
The individual, at the time of applying for either programme:
• Must not be a beneficiary of another tax related programme;
• Must have a stable regular income which is sufficient to maintain himself and his dependants;
• Must have a valid travel document;
• Must possess a health insurance cover in respect of all risks across the whole of the EU;
• Must own or rent a qualifying property within the Maltese islands; and
• Must adequately communicate in either Maltese or English;
Above all, the individual must be a fit and proper person in order to be entitled to apply for either the GRP or TRP.
TL: There have recently been some changes to Malta’s tax residence programmes. What are your thoughts on the amendments?
AB: In late June of 2013, the government launched the Global Residence Programme to replace the High Net Worth Individual (HNWI) Rules with regard to individuals who are not EU, EEA or Swiss nationals. The latter had been launched in 2012 as a replacement for its predecessor, the Permanent Residence status. The GRP lowers the minimum thresholds for the purchase or rental of immovable property by the applicants and has also lowered the minimum annual tax liability from the previous €25,000 to €15,000. The GRP has also completely removed the bond amount of €500,000 which was previously required by the HNWI Rules.
HNWI Rules for EU, EEA and Swiss nationals have also been recently replaced by The Residence Programme in 2014. The conditions advanced by the TRP reflect the GRP with regard to tax and property thresholds.
Applicants who are interested in these Special Tax Statuses may take advantage of the 15% flat tax rate. In fact, the minimum amount of tax payable is fixed at €15,000, and income arising outside of Malta and remitted into Malta is calculated at the advantageous flat rate of 15%. This is a significant decrease from the €20,000 which was the minimum threshold for HNWI. It is also important to note that there is no additional tax which need to be paid with regard to dependants of the main applicant.
TL: Finally, what do you think about the recently announced 2015 government budget for Malta, and how do you think it might affect your areas of expertise?
AB: The 2015 Government Budget has affected us mostly in two main areas. Firstly, we find the topic of Capital Gains and secondly, the subject of Duty on Documents and Transfers for First Time Buyers.
As announced in the Budget for 2015, the system of taxing income derived from capital gains upon a transfer of immovable property will be significantly revised. Depending on certain conditions, under the current system a tax payer may opt to tax capital gains at the applicable rates. As from 1st January 2015 this option is longer be available, and transfers of immovable property will only be taxed under the property transfer tax regime. Nevertheless, it is understood that certain transfers which were previously exempt from Income Tax, such as the transfer of a property which was the transferor’s primary residence for at least three years preceding the sale of such property, will still be exempt under the revised system.
As for the First Time Buyers, this arrangement was announced in the Budget of 2014 and provided for the exemption available for first time buyers of immovable property from the rate of 3.5% duty on documents on the first €150,000 of the transfer value of the property, making that a maximum saving of €5,250. This arrangement was available only until the 31st of December 2014. However, the 2015 Budget has extended this arrangement until the 30th of June 2015.
These incentives that have been put in place by the Government during the Budget, are expected to increase the interest and the demand in the local market for both relocation purposes due to our special tax status programmes and the purchase of property owing to the first time buyers arrangement.
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