Q & A - Navigating the Complexities of International Taxation
11th of October 2024
Antoinette Scerri and Benjamin Zammit McKeon
Author:
11th of October 2024
Navigating the complexities of international taxation is a challenging task, especially for individuals and businesses facing cross-border concerns between jurisdictions like the UK and Malta. With the UK recently shifting from a remittance-based to a residence-based taxation model, many high-net-worth individuals and expatriates are evaluating alternative options to safeguard their wealth and minimise tax exposure. Malta, with its remittance-based tax regime, offers a compelling alternative for those seeking stability and flexibility. In this Q&A session, we spoke with Radixโs tax specialists, Antoinette Scerri and Benjamin Zammit McKeon, who shared their expert insights on the differences between these two systems, the process of establishing Maltese tax residency, and how Radix supports clients in achieving financial efficiency through strategic relocation.
๐. ๐๐ก๐ฒ ๐ข๐ฌ ๐๐๐ฅ๐ญ๐ ๐๐ง ๐๐ญ๐ญ๐ซ๐๐๐ญ๐ข๐ฏ๐ ๐๐๐ฌ๐ญ๐ข๐ง๐๐ญ๐ข๐จ๐ง ๐๐จ๐ซ ๐๐จ๐ซ๐๐ข๐ ๐ง๐๐ซ๐ฌ?
Malta has become a highly sought-after destination for foreigners looking for a high quality of life, a favourable tax regime, and a safe, stable environment to raise their families. With its scenic landscapes, mild Mediterranean climate, and rich cultural history, Malta offers a distinctive lifestyle that appeals to those seeking a change of pace. Its connections and central geographical location between mainland Europe and North Africa mean itโs also ideal if youโre interested in investing in, starting and/or expanding a business.
๐. ๐๐ก๐๐ญ ๐ฉ๐ซ๐จ๐ฆ๐ฉ๐ญ๐๐ ๐ญ๐ก๐ ๐ฌ๐ก๐ข๐๐ญ ๐๐ซ๐จ๐ฆ ๐ซ๐๐ฆ๐ข๐ญ๐ญ๐๐ง๐๐-๐๐๐ฌ๐๐ ๐ญ๐จ ๐ซ๐๐ฌ๐ข๐๐๐ง๐๐-๐๐๐ฌ๐๐ ๐ญ๐๐ฑ๐๐ญ๐ข๐จ๐ง ๐ข๐ง ๐ญ๐ก๐ ๐๐?
Based on the information issued by the HM Treasury, the UK Government has committed to addressing unfairness in the tax system, so that every long-term UK resident pays their taxes in the country. In order to tackle this deemed unfairness, the current Government (process had already been initiated by the previous Government) will remove the concept of domicile status from the tax system and implement a new residence-based regime. The aim of such a move is for the UK to be internationally competitive and focused on attracting the best talent and investment to the country โ whether this will be met is another matter.
๐. ๐๐จ๐ฐ ๐๐จ๐๐ฌ ๐ญ๐ก๐ ๐ซ๐๐ฆ๐ข๐ญ๐ญ๐๐ง๐๐ ๐๐๐ฌ๐ข๐ฌ ๐จ๐ ๐ญ๐๐ฑ๐๐ญ๐ข๐จ๐ง ๐ข๐ง ๐๐๐ฅ๐ญ๐ ๐จ๐๐๐๐ซ ๐๐๐ฏ๐๐ง๐ญ๐๐ ๐๐ฌ ๐จ๐ฏ๐๐ซ ๐ญ๐ก๐ ๐ง๐๐ฐ ๐๐ ๐ญ๐๐ฑ ๐ซ๐๐ ๐ข๐ฆ๐?
In comparison to the UK's tightened tax regime for non-domiciled individuals, Maltaโs remittance basis of taxation offers significant benefits with the main ones in practice being that only taxing foreign income when they are remitted to Malta, Malta having lower tax rates than in the UK, and exempting foreign capital gains even if received in Malta. Malta does not have inheritance or gift taxes, whilst only imposing a stamp duty upon the inheritance of shares in Malta companies or immovable property situated in Malta.
Additionally, the remittance basis has a proven track record of providing greater flexibility and stability for long-term residents since it does not have a termination date, and it only provides for a yearly minimum tax to be paid of โฌ5,000, and the option of several residency programs tailored to different categories of individuals coupled with a robust and stable financial, legal, regulatory, and fiscal framework, prove to be the go-to jurisdiction for those exiting the UK.
๐. ๐๐จ๐ฎ๐ฅ๐ ๐ฒ๐จ๐ฎ ๐๐๐ญ๐๐ข๐ฅ ๐ญ๐ก๐ ๐ฉ๐ซ๐จ๐๐๐ฌ๐ฌ ๐๐จ๐ซ ๐๐ง ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐ญ๐จ ๐๐ฌ๐ญ๐๐๐ฅ๐ข๐ฌ๐ก ๐ญ๐๐ฑ ๐ซ๐๐ฌ๐ข๐๐๐ง๐๐ฒ ๐ข๐ง ๐๐๐ฅ๐ญ๐?
Establishing tax residency in Malta involves a combination of physical presence, intent, and compliance with specific legal and administrative requirements. Here's a detailed overview of the process:
1. Physical Presence Requirement:
To be considered a tax resident in Malta, an individual typically needs to spend at least 183 days in the country during a calendar year. However, residency can sometimes be established even if the individual spends less than 183 days, provided they have clear evidence of their intention to reside and establish their habitual residence in Malta (meaning Malta becomes the center of their life and business activities).
2. Residency Permit Application:
- EU and EEA Citizens: EU/EEA citizens have the right to reside in Malta and do not need a visa, but they must apply for a Registration Certificate from the Department for Citizenship and Expatriate Affairs if they intend to stay longer than three months.
- Non-EU/EEA Citizens: Non-EU citizens will need a Residence Permit to stay long-term. This can be obtained through various visa schemes, such as the Global Residence Program (โGRPโ) or Malta Permanent Residence Program (โMPRPโ), which offer favorable tax conditions. Non-EU applicants must demonstrate a valid reason for staying in Malta, such as employment, investment, or retirement, and meet specific financial criteria.
3. Declaration or Proof of Ordinary Residence:
Once physically present in Malta for the required time, an individual can declare themselves as ordinarily resident in Malta. To support this, individuals may need to provide evidence of:
- A residential address in Malta (ex. property lease or purchase agreement).
- Local utility bills or proof of regular activity in Malta (ex. employment or business records).
- Bank statements showing financial ties to Malta.
4. Tax Registration and Filing of Annual Tax Returns:
After establishing residency, the individual must register with the Maltese tax authorities (Malta Tax and Customs Administration). A tax identification number (โTINโ) will be issued, and the individual will be required to submit an annual tax return (self-assessment basis) and submitted by the end of June of the following year. The tax return, prepared by a local tax advisor, will report income and any allowable expenses, including foreign income remitted to Malta, and any Malta sourced income, which are taxed using the progressive rates applicable for that fiscal year.
๐. ๐๐จ๐ฐ ๐๐จ๐๐ฌ ๐๐๐๐ข๐ฑ ๐๐ฌ๐ฌ๐ข๐ฌ๐ญ ๐๐ฅ๐ข๐๐ง๐ญ๐ฌ ๐ข๐ง ๐ง๐๐ฏ๐ข๐ ๐๐ญ๐ข๐ง๐ ๐ญ๐ก๐ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ฑ๐ข๐ญ๐ข๐๐ฌ ๐จ๐ ๐๐ซ๐จ๐ฌ๐ฌ-๐๐จ๐ซ๐๐๐ซ ๐ญ๐๐ฑ๐๐ญ๐ข๐จ๐ง ๐๐๐ญ๐ฐ๐๐๐ง ๐ญ๐ก๐ ๐๐ ๐๐ง๐ ๐๐๐ฅ๐ญ๐?
At Radix we have a team of qualified tax specialists, bringing over 16 years of experience in the local and international tax field, advising an array of individuals and businesses whilst addressing their specific concerns. We make it our priority to understand the ultimate objectives of the client in order to provide the most beneficial and reliable solution whilst providing an efficient service and tax plan. Through our international network INAA and our membership with Delphi Alliance we are well positioned to tackle any concerns and intricacies pertinent to the clientโs cross-border tax considerations.
๐. ๐๐ก๐๐ญ ๐ฌ๐ญ๐๐ฉ๐ฌ ๐๐จ๐๐ฌ ๐๐๐๐ข๐ฑ ๐ซ๐๐๐จ๐ฆ๐ฆ๐๐ง๐ ๐ญ๐จ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ๐ฌ ๐๐จ๐ง๐ฌ๐ข๐๐๐ซ๐ข๐ง๐ ๐๐๐ฅ๐ญ๐ ๐๐ฌ ๐ ๐ซ๐๐ฅ๐จ๐๐๐ญ๐ข๐จ๐ง ๐๐๐ฌ๐ญ๐ข๐ง๐๐ญ๐ข๐จ๐ง ๐๐ฎ๐ ๐ญ๐จ ๐ญ๐๐ฑ ๐ซ๐๐๐ฌ๐จ๐ง๐ฌ?
It's a good time to begin by focusing on some preliminary tasks, such as reflecting on oneโs long-term life plans and what one wants to achieve for their family and business. Several considerations should be thought of, and these could include evaluating where one wants to be, the assets one intends to keep, and what one aims to build, sell, or pass on. Once the goals and objectives are clear, it will become easier to identify the necessary preparatory steps.
For non-domiciled UK residents, higher tax exposure and instability under the new UK regime are key concerns. However, these risks can be managed by carefully planning your financial affairs in collaboration with trusted advisors, both in the UK and in alternative jurisdictions like Malta. This proactive approach can help safeguard your wealth and provide greater stability amidst changing regulations.
๐ . ๐๐จ๐ฎ๐ฅ๐ ๐ฒ๐จ๐ฎ ๐ฉ๐ซ๐จ๐ฏ๐ข๐๐ ๐๐ฑ๐๐ฆ๐ฉ๐ฅ๐๐ฌ ๐จ๐ ๐ก๐จ๐ฐ ๐๐๐๐ข๐ฑ ๐ก๐๐ฌ ๐ก๐๐ฅ๐ฉ๐๐ ๐ก๐ข๐ ๐ก-๐ง๐๐ญ-๐ฐ๐จ๐ซ๐ญ๐ก ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ๐ฌ ๐ฆ๐๐ฑ๐ข๐ฆ๐ข๐ฌ๐ ๐ญ๐ก๐๐ข๐ซ ๐๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐๐๐๐ข๐๐ข๐๐ง๐๐ฒ ๐ญ๐ก๐ซ๐จ๐ฎ๐ ๐ก ๐๐๐ฅ๐ญ๐๐ฌ๐ ๐ซ๐๐ฌ๐ข๐๐๐ง๐๐ฒ ๐ฉ๐ซ๐จ๐ ๐ซ๐๐ฆ๐ฌ?
Radix has helped high-net-worth individuals (โHNWIsโ) in maximising their financial efficiency through Maltese residency programs and other services. As advisors, we have provided guidance to individuals on the following key areas:
- Radix can provide personalised guidance to HNWIs on suitable residency programs available in Malta, and we ensure the clients choose the most suitable option aligned with their financial and lifestyle goals.
- As tax and corporate advisors, Radix can set-up corporate structures for the client's global assets and income to benefit from Malta's advantageous tax system. We can also help clients open bank accounts and advise on Double Taxation Agreements in Malta to reduce the global tax burden.
- Many Maltese residency programs require a purchase or rental of real estate. Radix can assist HNWIs in identifying suitable properties and navigating the legal process of acquiring property in Malta.
- As part of the residency considerations, individuals need to adhere to several conditions, such as maintaining minimum investment thresholds, fulfilling annual tax obligations, and filing necessary documentation. By ensuring compliance, Radix helps HNWIs avoid penalties and retain the financial benefits of their residency status.
- HNWIs are inherently concerned about succession and inheritance. At Radix we facilitate the structuring of assets through trusts or foundations as legislated in Malta. This ensures that wealth is transferred efficiently to future generations, taking advantage of Malta's favorable legal and tax frameworks.
- Radix can assist HNWIs looking to relocate to Malta by coordinating with legal and immigration specialists to ensure a smooth transition and providing a comprehensive approach to the clientโs needs.
๐ก. ๐๐ก๐ข๐๐ก ๐๐๐ฅ๐ญ๐๐ฌ๐ ๐ซ๐๐ฌ๐ข๐๐๐ง๐๐ฒ ๐ฉ๐ซ๐จ๐ ๐ซ๐๐ฆ๐ฆ๐ ๐ฐ๐จ๐ฎ๐ฅ๐ ๐๐ ๐ญ๐ก๐ ๐ฆ๐จ๐ฌ๐ญ ๐๐๐ง๐๐๐ข๐๐ข๐๐ฅ ๐ญ๐จ ๐ง๐จ๐ง-๐๐/๐๐๐ ๐๐ฑ๐ฉ๐๐ญ๐ซ๐ข๐๐ญ๐๐ฌ?
The Global Residence Programme (โGRPโ) provides non-EU, non-EEA, and non-Swiss nationals with special tax status in Malta. Through the GRP, beneficiaries can enjoy a reduced flat tax rate of 15% on foreign-sourced income remitted to Malta (subject to a minimum tax of โฌ15,000). The application process is straightforward, allowing eligible individuals, along with their families and household staff, to obtain Maltese residency by meeting certain criteria, and such beneficiaries can enjoy visa-free movement within the Schengen Area.
๐ข. ๐๐ก๐๐ญ ๐๐ซ๐ ๐ญ๐ก๐ ๐๐จ๐ฆ๐ฆ๐จ๐ง ๐ฆ๐ข๐ฌ๐๐จ๐ง๐๐๐ฉ๐ญ๐ข๐จ๐ง๐ฌ ๐๐๐จ๐ฎ๐ญ ๐๐๐ฅ๐ญ๐โ๐ฌ ๐ญ๐๐ฑ ๐ซ๐๐ ๐ข๐ฆ๐ ๐ญ๐ก๐๐ญ ๐ฒ๐จ๐ฎ ๐๐ง๐๐จ๐ฎ๐ง๐ญ๐๐ซ ๐ฐ๐ข๐ญ๐ก ๐ง๐๐ฐ ๐๐ฅ๐ข๐๐ง๐ญ๐ฌ?
One main misconception is that Malta is a tax haven, and thus not a reputable jurisdiction. Our regulations are based on international and EU standards, with a robust framework to cater for various compliance requirements as issued and directed by the EU Directives. The tax system in Malta has been at the forefront of various economic policies in the past decades and coupled with the strong financial services sector it is a jurisdiction of choice for various individuals wanting to set-up shop in Malta and the EU.
๐ฃ. ๐๐จ๐ฐ ๐๐จ๐๐ฌ ๐๐๐ฅ๐ญ๐'๐ฌ ๐ง๐๐ญ๐ฐ๐จ๐ซ๐ค ๐จ๐ ๐๐จ๐ฎ๐๐ฅ๐ ๐ญ๐๐ฑ๐๐ญ๐ข๐จ๐ง ๐ญ๐ซ๐๐๐ญ๐ข๐๐ฌ ๐๐๐ง๐๐๐ข๐ญ ๐ญ๐ก๐จ๐ฌ๐ ๐ฆ๐จ๐ฏ๐ข๐ง๐ ๐๐ซ๐จ๐ฆ ๐ญ๐ก๐ ๐๐?
Malta's extensive network of over 70 double taxation treaties enhances its appeal as a tax jurisdiction for non-domiciled individuals. These treaties ensure that individuals are not subject to double taxation on their income, providing peace of mind for those with cross-border financial interests. Together with the fact that the Maltese legal framework is similar to the UK framework, provides individuals with a more stable and effective system when compared to other jurisdictions, especially on cross-border implications.
๐ข. ๐๐จ๐จ๐ค๐ข๐ง๐ ๐๐ก๐๐๐, ๐ฐ๐ก๐๐ญ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐๐ก๐๐ง๐ ๐๐ฌ ๐ข๐ง ๐๐๐ฅ๐ญ๐๐ฌ๐ ๐จ๐ซ ๐๐ ๐ญ๐๐ฑ ๐ฅ๐๐ฐ๐ฌ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ฉ๐จ๐ญ๐๐ง๐ญ๐ข๐๐ฅ ๐ซ๐๐ฅ๐จ๐๐๐ญ๐จ๐ซ๐ฌ ๐๐ ๐๐ฐ๐๐ซ๐ ๐จ๐?
The main challenges being faced are the ever-increasing compliance requirements, both on the tax advisors and the individual or business taxpayers themselves. With various EU Directives being implemented and put into force or being discussed within international fora, it seems that the matters of cross-border considerations will be more complex and may attract a higher cost of compliance and planning. Staying up to date with such changes is important to make any necessary changes to oneโs structure and status going forward.
Radix remains at the forefront of navigating evolving global tax laws, offering tailored solutions that meet the unique needs of each client. Under the guidance of Antoinette Scerri, Benjamin Zammit McKeon and the rest of the team, we're equipped to address your cross-border taxation challenges and assist in strategic financial planning. For personalised support and to secure your financial future amid regulatory changes, reach out to us at info@radixmalta.com.