Malta 'hearts' tax exiles... and how to pay 15% tax

Welcome to Malta, one of the EU's safest of Member States, 300 days of sunshine, and just about the right location to take back six-sevenths of your company's profits in tax rebates.

If you're looking for retirement, relocation, or are a foreign professional employed with a Malta-based company and earning at least €75,000, you can enjoy a maximum tax rate of 15% on your pension or earnings. And the new global residence programme introduced earlier this week has just made it simpler for property buyers to remit their income to Malta and pay lower tax on income.

Despite not allowing any banking secrecy and being cooperative in exchanging information with other countries, the Maltese government remains at pains to quell the perception of the island a destination for international tax avoiders. Companies like energy giant Npower have dodged paying up to £108 million in UK corporation tax by posting a loss in the UK, and instead shifting its profits to a company in Malta, called Scaris. In 2010, Australia's Commonwealth Bank used a six-person back-office firm in Malta, CommBank Europe, to save €38.9 million in taxes using its Sliema office.

Now, under a new global residence programme that removes an onerous €500,000 bond for property buyers, rich tax exiles will pay 15% on their foreign income at a minimum of €25,000. Supporters like the Malta Developers Association claim the GRP will help revitalise the dampened property market thanks to the low-tax regime.

But such schemes are also viewed with suspicion by EU countries who are fighting the delocalisation of major employers and high-earning entrepreneurs who use financial centres like Malta to evade tax obligations at home.

Finance minister Edward Scicluna defends Malta's reputation: "Malta like all other EU Member States has strong financial rules, with laws since 1989 conforming to the highest of European standards, and institutions like the Financial Intelligence Analysis Unit overseeing suspect money laundering transactions," he commented in one of his weekly video-blogs.

Supporters for Malta's low-tax regime for foreign holding companies will argue that companies have a right to shop around for better taxation regimes. In the words of one financial analyst who spoke to this newspaper, "Malta reaps a small amount of taxation revenue from a corporation, which is however not paying social security contributions or other licence and regulatory fees".

The flipside to this argument is that Malta's regime effectively neutralises the tax that that corporation would be paying in its home country, or the country where it employs people or generates its business and earns its profits from.

No wonder then that the global effort to come down hard on tax havens is from large countries who need to stop the delocalisation of factories and capital outflows, and other taxation leaks: former French president Nicolas Sarkozy was a major supporter of a 'Tobin tax' to levy a tax financial transactions. Malta and the United Kingdom oppose this financial transactions tax, claiming that it undermines their own financial services centres.

Countries like Poland say they have been trying to attract big international companies, but that they want to tax the companies where they make the profits. The UK and France, as well as Italy, Poland, Spain and Germany want to cut down on tax regimes that allow corporations to set up so-called "letterbox companies" to transfer their profits in other countries and get tax rebates.

At the same time, countries like Austria, which draws foreign capital by promising secrecy to account holders, accuses the UK of being a tax haven through the use of offshore financial centres like the Channel Islands, Gibraltar, the Cayman Islands, and Virgin Islands.

But although the image of a tax haven conjures up distant islands in the Caribbean where tiny offices are funnelled with billions in foreign earnings, Europe itself has a lot to offer, as a hit-list of 'evasion' schemes from the Tax Justice Network (TJN) demonstrates.

Countries like Andorra, Austria, the UK's Channel Islands and Gibraltar use banking and tax secrecy for thousands of letterbox companies. But then, so do England, Ireland and Germany employ favourable tax regimes for foreign investors to funnel their profits away and pay low taxes: that is why Ireland is home to such global corporations like Google, Apple or Amazon.

Malta - above-board but tax friendly

Malta's favourable tax regime may be onshore, above-board and part of the eurozone, but it is still criticised for attracting foreign companies who can claim as much as 85% in refunds on its effective 35% maximum tax rate.

For example, a German company opens a subsidiary in Malta which receives €100 million of income generated by the parent company. In Malta, the income is taxed at 35%, leaving €65 million in the hands of the subsidiary. Of the €35 million tax, the parent company as a shareholder takes back 85% or €30 million, leaving €95 million in the hands of the German company.

Also under Maltese law, foreigners who move to the country and draw down pensions only face a 15% tax rate. The same goes for other tax exiles who buy high-end property, or for a host of highly-skilled professionals brought over to Malta to service the growing network of international gaming companies here: they too pay 15% tax.

How to pay 15% tax when you're rich and foreign

Retirement

EU, EEA and Swiss retirees can gain tax status in Malta by declaring their pension here, but it must be at least 75% of the total income chargeable to tax in Malta. Their pension gets taxed at a flat 15% rate, with a minimum liability of €7,500 per annum which is increased by €500 for each dependent. Beneficiaries must not reside in another country for more than 183 days in a year, and must be in Malta for a minimum of 90 days a year averaged over any five-year period. They must also buy property costing at least €275,000 in Malta or €250,000 in Gozo.

Global Residence Programme

Non-EU nationals don't need to pay a bond to live in Malta and pay 15% tax on all income remitted to Malta. Income that arises in Malta is however taxed at a flat rate of 35%. The minimum tax payable is €15,000 and the minimum acquisition price is €270,000 for property in Malta, and €220,000 for property in the south of the island or Gozo. Applicants cannot be resident for more than 183 days in any other country.

Professional Expat Scheme

CEOs and a host of other positions as defined in the law offers a 15% income tax as long as that income amounts to at least €75,000, and up to a maximum €5 million - the excess is exempt from tax. The rate for who derives their income in Malta.