Malta’s Residence Non-Domicile Status Explained: Benefits and Requirements

Malta offers a unique and advantageous tax system for individuals who are residents but not domiciled in the country. This system, commonly referred to as the “res non-dom” status, allows qualifying individuals to benefit from a favorable tax regime while residing in Malta. Below, we delve into the key aspects of Malta’s non-domicile tax status, tax residency requirements, and the implications for individuals seeking to take advantage of this framework.

What is Non-Domicile Status?

In Maltese law, the concepts of domicile and residence are distinct. Under the Anglo-Saxon legal traditions that influence Maltese law, domicile refers to the country that a person considers their permanent home.

• Domicile of Origin: Automatically acquired at birth, typically from the father.
• Domicile of Choice: Can be acquired after the age of 18 if an individual decides to establish a permanent home in a different jurisdiction.

In contrast, residence refers to the physical presence of an individual in Malta, either temporarily or permanently, and can be acquired independently of domicile.

Comparison Between Non-Domicile and Residence in Malta

Understanding the differences between non-domicile and residence is essential for individuals planning to leverage Malta’s tax system:

• Non-Domicile: Indicates a tax status where the individual is not permanently tied to Malta for taxation purposes. This status allows foreign income to remain untaxed unless remitted to Malta, and foreign capital gains are exempt entirely.
• Residence: Refers to the physical presence in Malta for a specific duration or based on circumstances suggesting regular living in Malta. Residents are subject to taxation on local income and remitted foreign income.

Both concepts impact tax obligations but are separate legal constructs with unique implications under Maltese law.

Malta Tax Resident Status

Individuals can obtain Maltese residency through various immigration routes, depending on their circumstances:

For EU/EEA Nationals:

1. The Residence Programme: Offers special tax benefits and is ideal for retirees and individuals with passive income.
2. Ordinary Residence: Suitable for those who wish to establish a regular residence in Malta.

For Non-EU/EEA Nationals:

• The Malta Global Residence Programme: Allows non-EU/EEA individuals to acquire residency and benefit from favorable tax conditions.

Malta’s membership in the Schengen Area adds an additional benefit for residents, who can travel freely within the Schengen zone for up to 90 days within any 180-day period.

Tax Residency in Malta

Tax residency in Malta is established based on one of two criteria:

1. Physical Presence: Spending at least 183 days in Malta during a fiscal year.
2. Intention to Reside: Evidenced by circumstances reflecting a genuine commitment to establishing Malta as your primary place of residence.

Absence of Deemed Domicile Rules

Malta is an excellent choice for non-domiciled individuals seeking a favourable tax environment due to its absence of deemed domicile rules. Unlike jurisdictions such as the UK, Malta allows individuals to retain their non-domiciled status indefinitely, regardless of the duration of their residency. This ensures that non-doms are only taxed on foreign income remitted to Malta, while foreign capital gains remain entirely exempt, providing significant long-term tax advantages.

Malta Res Non-Dom Taxation Framework

Under the res non-domicile tax regime, Malta’s taxation system applies as follows:

1. Local Source Income: Fully taxable in Malta, including employment income, rental income, and business profits arising within Malta.
2. Local Source Capital Gains: Gains from the transfer of capital assets situated in Malta are subject to tax.
3. Foreign Source Income: Taxable only to the extent that it is remitted to Malta. This includes dividends, interest, and other income generated abroad.
4. Foreign Source Capital Gains: Exempt from Maltese taxation, even if remitted to Malta.

Minimum Tax Charge

If a non-dom’s foreign income exceeds €35,000 (whether remitted to Malta or not), the minimum tax charge of €5,000 applies.If their foreign income is below €35,000, this minimum charge does not apply.

Origins of the Res Non-Dom Tax System

Malta’s res non-domicile tax system dates back to the 1940s when the country adopted its Income Tax Act under British colonial rule. Unlike the UK’s equivalent system, Malta does not:

• Enforce complex statutory residence rules.
• Apply deemed domicile rules.
• Impose time limits on benefiting from the res non-dom regime.

Additionally, there are no restrictions based on prior tax residency in Malta.

Benefits and Drawbacks of Malta’s Res Non-Dom System

Advantages

• Tax Efficiency: Foreign income not remitted to Malta remains untaxed.
• No Deemed Domicile Rules: Long-term residents can continue enjoying tax benefits without time limitations.
• Low Minimum Tax: The annual charge of €5,000 is significantly lower than similar regimes in other jurisdictions.

Disadvantages

• Local Income Fully Taxed: Income and gains arising in Malta are subject to normal tax rates.
• Foreign Income Must Be Monitored: Individuals need to carefully manage remittances to Malta to optimize their tax position.

Conclusion

Additionally, Malta’s clear and stable tax framework, coupled with its robust legal system, English as an official language, and Mediterranean lifestyle, makes it particularly attractive . With a minimum annual tax of just €5,000 for foreign income exceeding €35,000 and zero tax on foreign capital gains, Malta offers exceptional financial flexibility and tax efficiency, making it a uniquely advantageous jurisdiction for investors and expatriates.

For expert advice and guidance, Expatax offers professional consulting services to help you navigate your tax and residency options effectively.

Sources

Malta Global Residence Programme

Malta Residency & Visa Agency

Inland Revenue Department of Malta