Proposed Change to the Remittance Basis of Taxation

One of the changes being proposed in the Budget Bill 2018 relates to the remittance basis of taxation.

Until now, income arising outside Malta to an individual ordinarily resident but not domiciled in Malta (“non-domiciled person”) would only be chargeable to tax in Malta on the amount received in Malta.

As a result of the proposal that has been included in the Budget Bill, with effect from the year of assessment 2019 (basis year 2018), non-domiciled persons will be subject to a minimum tax of €5,000 annually in Malta.

This minimum tax is payable if the non-domiciled person:

  • is not taxable in Malta in accordance with a scheme establishing a minimum amount of tax in Malta, including The Residence Programme, Global Residence Programme, Malta Retirement Programme and the Residents Scheme Regulations; and
  • derives income arising outside Malta amounting to not less than €35,000 or its equivalent in another currency – in the case of a married couple, one would have to look at the income derived by both spouses.

In computing the minimum tax, account shall be taken of any Maltese income tax paid, whether by withholding or otherwise, excluding tax paid on capital gains.

Should the income, excluding capital gains, chargeable to tax in the hands of the non-domiciled person result in a Maltese tax liability amounting to less than the minimum tax, the person shall be deemed to have received additional income arising outside Malta such that the total tax liability on the total income would amount to the minimum tax of €5,000. By way of example, if a non-domiciled person would be liable to €2,000 of tax in Malta on income arising or received in Malta, he would have to top up that tax by another €3,000.

As regards capital gains arising outside Malta, the rules should not change, that is, no tax would be payable on capital gains arising outside Malta irrespective of whether these are brought into Malta or not.

It is important to note that this is a proposed change and it would need to be approved by Parliament before it is implemented in the Maltese Income Tax Act. Based on the timing in previous years, the Act to implement the Budget Measures is expected to be approved by the Maltese Parliament towards March or April 2018, however the change would be effective as from 1 January 2018.

Source: ARQ Group