Preparing for the Next Big Leap

Malta recently updated its framework for taxation of highly qualified persons but this is just one example of many other refinements underway in the background which will help to ensure that this jurisdiction achieves its aim to become a centre of excellence.

The country has spent many years evolving before it got to its current stage. There is no doubt that the main attractions it offers are economic and political stability, an accessible regulator, and innovative legislation. However, there are other competitive advantages that are bringing more and more individuals and companies to Malta, with attention coming from the four corners of the world.

Thanks to a focussed approach by the private sector in tandem with government agencies and the regulator, Malta is now on the map for those seeking a safe ‘jurisdiction’, with the first consideration being the country’s varied options for residency or citizenship, backed by its need for robust taxation and regulatory frameworks.

“We are talking to people who want a ‘plan B’, in case of instability, changes in political direction, and of course war,” Dr Ramona Cassar, Partner Head of Tax and Private Client at WH Partners, said. “Many of those who come here are seeking insurance in case the unexpected happens and they need to move.”

There are many other reasons why individuals want to seek a foothold in Malta, beyond the fact that it is a stepping stone to the EU. Individuals are, for example, taking note of the country’s top-ranking rights for LGBTQ, including the same-sex marriage legislation that was enacted in 2017. This has put the jurisdiction on the map not only for couples but also for their offspring. In addition, its Equality for Men and Women Act, first introduced in 2003, encompasses various rights to guard against discrimination as well as to ensure equality.

The jurisdiction is well aware of the limitations imposed by its size and limited resources, and it is not trying to be ‘everything to everyone’. Certainly, one thing the country is anxious to avoid is the idea that the jurisdiction is interested in aggressive tax planning, which as Dr Cassar stressed, does not reflect today’s truth: most of the new generation put tax on the back burner. Although tax is very important it is not the be all and end all.

“They are aware that the concept of aggressive tax planning has many negative connotations with which they do not want to be associated,” she said.

This approach has many implications. For example, Malta offers a remittance basis for taxation – meaning that no tax has to be paid if no money is brought into the country. But this is far from sustainable for a country that wants to offer investors residency or citizenship, and for them to move to Malta and put down roots here. In fact, it is far more common for individuals to come to Malta and remit and pay tax at progressive rates or – if their income is primarily sourced from outside of Malta – they apply for one of the tax programmes that may reduce the tax on income remitted to Malta to a flat rate of 15%.

“Tax experts are able to structure assets in such a way that the taxation will be effective. But the more global citizens there are, the more the concept of worldwide income expands, and with it the realisation that they are ultimately liable to tax on their income in one country or another. It has become much more complex especially with the use of technology and assets stored in the cloud,” she said.

What is meant by ‘the new generation’? Certainly, the people now coming to Malta are not limited to established families: they are just as likely to be YouTubers and crypto investors. Malta was the first jurisdiction to issue the guidelines on cryptocurrencies, but these were aimed at companies setting up here, rather than the individuals making their money from this sphere. To keep up with the technological changes, the Malta Institute of Taxation is working with the local tax authority, the Malta Tax and Customs Administration, on frequently asked questions about crypto, for example to keep up with technology.

“That is an important issue as general tax concepts need to be applied to new technology. So we need to break down the technology, understand how to classify it, and determine how to apply tax,” Dr Cassar explained.

Apart from technology, the country is also assessing its risk appetite, treading carefully to ensure that there are no unintended consequences. For example, its focus on single-family offices is also pushing at its self-imposed boundaries with regard to the minimum assets for example.

“Malta is realising that it can and should be aiming itself at family offices that have at least €1 billion under management,” she said.

With so many programmes and frameworks to choose between, one of the most important aspects of any move is to get the right advice beforehand. She stressed that although Company Service Providers offer ‘products’, the reality is that the country’s strength comes from the ability to tailor each solution to meet the company’s or individual’s needs.

Apart from selecting the right residency path there are other aspects that must be taken into consideration such as succession planning and matrimonial regimes.

Succession planning falls under EU regulations, meaning that those who come from outside its borders need to take into account that there are specific succession rules regulating this area, such as the ‘reserved portion’ earmarked for the spouse or children. These concepts may be alien to their country of origin.

The second, matrimonial regime, is also important, especially for those who are familiar with a pre-nuptial agreement but not the concept of a ‘community of acquest’ which splits the assets between the spouses. There is the option to separate the estate, for example, but this needs to be explained at the outset, with the applicant able to choose under which law they wish their assets to be handled.

Tax advisers are able to structure solutions thanks to Malta’s fiduciary laws, with a foundation or a trust being the most common vehicles. The country’s legislative and regulatory framework allows ‘segregated cells’ in foundations which ring-fence assets for whatever situation may arise, e.g. from multiple marriages and their offspring to assets such as art and company shares for particular children.

Tax advice would also cover different aspects prior to the company or individual coming to Malta. For example, Malta does not levy tax on capital gains arising outside its borders, which could be of particular interest for those who are planning a year or two in advance of their move here from a high-tax jurisdiction.

There are other matters that the jurisdiction is keeping an eye on: “Post-COVID people were moving to Malta under the ‘Nomad Visa’. Some taxation issues are not yet clear cut, however, such as the definition of working from a ‘home office’ for digital nomads. The OECD recently issued new guidelines on what constitutes ‘a home office’ which has major implications for many people who could previously work from overseas. It remains to be seen how the tax authorities in various countries will deal with this going forward. Digital nomads may want to invoice clients outside Malta in their personal names, for example, to ensure that they do not create a ‘permanent establishment’ that would change the onus of the taxation,” she explained.

As the jurisdiction evolves, the ecosystem also needs to expand. Malta is well aware of future opportunities and realises that its move into ultra-high net worth circles will bring with it higher expectations that it must be able to cater for, from property to professional services.

The Highly Qualified Persons Rules, for example, has tax benefits capped at €7 million, which – she pointed out – individuals in this category might get as their annual bonus. “It’s a ripple effect. Once family offices come to Malta, private banks will follow,” she said.

Dr Cassar is optimistic that the momentum will pick up steadily, and that each success will entice others to consider the island. “High net worth individuals are a very tightly knit group of people and they do take note of where their friends are going. They will consider whether there is a good infrastructure, top-end shops, and educational institutions for their children, for example.”

Understanding the Programmes

Malta offers various residency programmes, with the Malta Permanent Residence Programme (MPRP) offering the ability to reside in Malta for as long as they want, as long as they meet the conditions for eligibility.

There is also a residence programme aimed at Start-Ups as well as for Nomads.

The Global Residence Programme is aimed at individuals who do not come from the EU, EEA or Switzerland, the latter categories having their own programme.

The country is at an important crossroads: it has come so far and has much to offer. Looking forward, the direction is clear and is well within reach as long as everyone pulls on the same rope.

“There are lines of communication stretching across Malta as all the stakeholders are aware of the need to make Malta the best that we can be,” she said.