Taxation can often seem confusing, especially when dealing with international matters. However, for individuals considering Malta as their residence, understanding how the remittance basis works is essential. This taxation principle plays a central role in how foreign income is treated, what becomes taxable, and how newcomers can structure their finances before relocating.
To simplify the process before your move, we’re here to help you discover the key concepts and rules applicable to this form of taxation.
Remittance Basis of Taxation Concerns Not Domiciled Residents
The remittance basis of taxation in Malta primarily concerns individuals who are not domiciled or ordinarily resident in the country, typically referred to as Malta residents but not Malta domiciled. This framework governs how income and capital gains are taxed based on their source and where they are received:
- Income generated within Malta is subject to taxation in Malta, regardless of where it’s received.
- Income earned outside Malta is only taxed in Malta if it’s remitted to the country.
- Capital gains from assets located outside Malta are not taxable in Malta, even if remitted to the country.
Residence, Ordinary Residence, and Domicile
Understanding one’s tax status in Malta hinges on concepts like residence, ordinary residence, and domicile:
- Residence: It’s determined by physical presence, with 183 days or more in Malta in a calendar year establishing residency. Those intending to reside permanently are considered residents from the date of arrival.
- Ordinary Residence: Living in Malta permanently or indefinitely signifies ordinary residence. Even temporary residents can become ordinary residents under certain conditions.
- Domicile: It’s not tied to nationality but reflects where an individual considers their permanent home. One can acquire a domicile of choice by intending to reside permanently in a country.
Where Are Income and Capital Gains Taxed
Taxation of income and capital gains in Malta follows these principles:
- Income Arising in Malta: Income from activities conducted within Malta is taxed in Malta. Passive income is taxed where the source is located.
- Capital Gains Arising in Malta: Gains from assets situated in Malta are taxable in Malta.
Income Received in Malta is Subject to Taxation
Income received in Malta, whether directly or indirectly, is subject to taxation. Remittances to Maltese bank accounts or via credit cards are presumed to be income unless proven otherwise. However, remittances of capital nature, like inheritance or asset sale proceeds, aren’t considered taxable income.
Minimum Tax Liability for Non-Domiciled Persons
Non-domiciled individuals who are ordinarily resident in Malta face a minimum tax liability of €5,000 annually if their worldwide income exceeds €35,000. Relief may be claimed for taxes paid elsewhere. Alternatively, individuals can opt for worldwide taxation if it results in a lower tax liability.
Understanding the principles of taxation, especially regarding the remittance basis, is essential for anyone considering residence in Malta. By getting familiar with these concepts and seeking expert guidance if needed, individuals can navigate the tax landscape effectively and make informed decisions regarding their financial affairs.
Seeking Proper Advice
Taxation can be complex, and individual’s different cases influence tax obligations. Seeking professional advice before establishing residency in Malta is important to ensure compliance and optimize tax planning. Do not hesitate to ask for assistance on our Expatax Malta’s website.
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