The Qualifying Employment in Innovation and Creativity (Personal Tax) Rules (‘the Rules’), provide for a beneficial tax treatment for individuals holding an eligible office who earn income from a qualifying contract of employment as defined within the legislation. Individuals eligible under these Rules will benefit from a 15% flat tax rate on their employment income derived in respect of work or duties carried out in Malta.

Legal Notice 282 of 2019 was published on the 5th November 2019 and amends the Rules with such amendments applying retrospectively as from 1st January 2019.

By virtue of these amendments the definition of “eligible office” was widened to include employment in a role directly engaged in carrying out or management of research, development, design, analytical or innovation activities as may be further specified in guidelines published by the Malta Enterprise Corporation. The definition of “qualification” was also amended to specify that the relevant qualification must be any diploma, certificate, degree or other formal educational achievement in a subject area relevant to an eligible office.

The minimum income threshold for a qualifying contract in the Rules was raised from €45,000 to €52,000 and the conditions for an individual to be considered a beneficiary under the Rules were also modified. These conditions include:

  • That the beneficiary must be an individual who derives income in terms of a qualifying contract of employment;
  • Such income must be received in respect of work or duties carried out in Malta in fulfilling the role required by the eligible office or in respect of any period spent outside Malta in connection with such work or duties, or on leave during the carrying out of such work or duties;
  • That in order for the individual to be eligible, such individual may not be considered to be Investment Services and Insurance Expatriate in terms of Article 6 of the Income Tax Act.

Following the amendments, income in excess of €5,000,000 from a qualifying employment contract will be charged to tax.

Furthermore, the option available to have income charged to tax at the rate of 15%, will apply for a consecutive period of up to four years commencing from the year immediately preceding the year of assessment in which the individual is first liable to tax. To be eligible the individual must derive income which is:

  • Employment income;
  • From a qualifying contract of employment;
  • Where such income is received in respect of work or duties carried out in Malta, or in respect of any period spent outside Malta in connection with such work or duties, or on leave during the carrying out of such work or duties.

This tax rate may, by application, also be made applicable to an additional period of up to five consecutive years. Also, a rule stating that this option, shall not be available to any person who had previously benefited from a preferential tax rate through any other rules or regulations made under the Income Tax Act, has been deleted from the Rules.

In addition, further to the deletion of a clause, this option may now be exercised in respect of income gained in any year preceding the year in which the option was approved by Malta Enterprise Corporation.

A new rule was introduced into the Rules which states that subject to the continued adherence to the rules, the rights acquired may continue to apply if the individual enters into a new contract of employment which is also considered to be an eligible office and there is no more than 30 days between the termination of one contract and the commencement of the other. Rights acquired under these Regulations will however be withdrawn if a beneficiary acquires immovable property situated in Malta.

The applicability of the Rules was extended wherein Malta Enterprise Corporation may not process any further applications after 31st December 2025 and no further benefit from such Rules may be availed of after year of assessment 2030.

Article by GVZH Advocates