Malta

I. Malta: A World Apart

Malta often feels like a different world, reminiscent of Beirut or Jerusalem. This is perhaps why many films set in the Middle East are actually shot here. A prime example is 'World War Z' with Brad Pitt, where zombies chase him through ancient Valletta, not Jerusalem. Other notable productions include 'Popeye', 'Troy', 'Game of Thrones', 'Captain Phillips', and 'The Da Vinci Code'.

Having spent two periods of eight months each in Malta with my children in 2013/2014 and 2015/2016, my connection to the island is strong. Many of our clients either relocate to Malta or establish corporate structures there. My brother has lived in Malta since 2011 and leads our local office, managing all our Maltese mandates.

Malta, roughly the size of Hamburg, has 340,000 inhabitants sharing the island with 400,000 cars. You can reach any point on the island within 45 minutes by car. It stands apart from Italy or Greece, with a distinct British influence evident (Britain ruled Malta until 1965). In business dealings, the Maltese are factual, direct, and pragmatic, a stark contrast to the often complicated and emotional demeanor of other Southern Europeans.

The legislation is modern and results-oriented, designed to attract as many foreign businesses as possible to Malta. Those living in Malta quickly realize that the Maltese categorize people into three groups: Immigrants (asylum seekers and illegal immigrants), Foreigners (well-situated EU expatriates), and Maltese (locals). Despite violating EU law, many Maltese businesses privilege locals with lower electricity prices, better bank conditions, and until recently, cheaper bus tickets.

During my time in Malta, I left the island at least once a month for Germany or London, which made living there quite manageable. The island is quite small and confined, a factor to consider when planning a move. However, its small size is very convenient for daily life; I could walk almost everywhere or take a taxi, making a personal car unnecessary.

Ultimately, Malta is a large rock rising from the sea, with very few green spaces. While the interior is not heavily developed, the scorching heat turns fields and meadows into a brown, stony desert by May. The charm is entirely absent during the summer months. Overall, I found life very pleasant. There are now fantastic apartments reminiscent of Miami Beach Condos, spacious and modern, though they come at a price. While typical small apartments can be rented for €400, €4000 per month is more realistic for these premium residences.

Such contradictions are common in Malta, as the island navigates the tension between tradition and modernity. It's an interesting, albeit not unproblematic, development. I considered it a privilege to watch traditional fishermen mend their nets with my children in Spinola Bay, before this ancient craft gives way to modernity and fishing boats are permanently dry-docked.

II. What Others Say About Malta

Malta's financial sector has developed rapidly over the last 15 years. The extensive tax exemption on capital gains for foreigners has helped. From four locally active financial institutions, the number has grown to 27 mostly internationally active banks and 24 financial service providers, according to the industry association Finance Malta.

Valletta: The old lady stretches. Still a little sleepy, but the blood is already tingling in her old limbs. It twitches in her feet, and soon… she will jump up again and push into the spotlight. She will mix with her young rivals in pumps, fur coat, and updo, take a deep drag from her long cigarette holder, and contemptuously blow smoke in their faces. The comeback of a Grande Dame.

Malta is the Mallorca of the English: There are plenty of English pubs here, yellow English vintage buses that are the pride of their drivers, bilingual street signs (in English and Maltese), and not least language courses ('Learn English without English weather'). Especially in the flashy entertainment mile Paceville, you can spend your nights very British.

III. Tax Benefits: The Remittance Basis Explained

The Non-Dom status is available in three countries: Great Britain, Ireland, and Malta. A Non-Dom is a foreigner who lives in Malta and has their usual residence there. In the Anglo-Saxon tradition, they are considered "resident but not domiciled for tax purposes" in Malta (where "Domicile" refers to the father's place of birth).

All foreign income is not taxed in Malta as long as it is not transferred to Malta (i.e., you keep the income in a foreign account). This allows you to save on income tax, capital gains tax, withholding tax, etc.

Foreign income must not have a source in Malta. If a company in Malta transfers a sum to your foreign account, this is not considered foreign income and must be fully taxed in Malta. Foreign income that is transferred (= "remitted") to Malta is also fully taxable in Malta at the prevailing, often unattractive, high tax rates.

Existing assets acquired before your move to Malta can be transferred to Malta at any time after the move without negative tax implications. In 2018, an annual minimum tax of €5,000 was introduced for "Residents without Domicile." This minimum tax applies to all "Non-Doms" who earn at least €35,000 outside Malta. Any tax paid in Malta, whether withholding tax or other taxes like corporate tax, should be considered when calculating the minimum tax. If a non-resident's income in a single tax year results in a tax liability of less than €5,000, the minimum tax of €5,000 is due.

IV. Who is the Remittance Basis For (and Who It's Not For)

The Non-Dom status in Malta is attractive for individuals who consistently generate high income with no connection to Malta. This includes all types of income such as dividends, interest, capital gains, severance payments, etc. The Non-Dom status is not only interesting for clients with high-value portfolios that generate significant annual returns.

The status is highly beneficial if you can achieve high revenues and profits by establishing a strategically designed foreign company, which you can then receive tax-free. For example, if you live in Malta and establish a tax-free LLC in the USA that generates $500,000 annually in commissions with Asian partners, you can legally receive the entire $500,000 tax-free while living in Malta (provided it is not deposited into a Maltese account).

The Non-Dom status is only conditionally interesting for investments in Germany and Switzerland, as income from these investments is always taxed in Germany or Switzerland if Malta rejects taxation. In such cases, you would first need to transfer the investment to a holding company in a tax-favorable country, which can entail significant one-time negative tax implications. Income sourced in Malta must be fully taxed in Malta (with one important exception, see below). If you only earn employment income performed in Malta, the Non-Dom status does not provide any tax relief.

V. Specifics of Maltese Non-Dom Status

Malta boasts the most favorable Non-Dom system among the countries discussed. It is the only one of the three states that does not require you to declare your Non-Dom status on your tax return. You only need to declare foreign income transferred to Malta. If no income is remitted to Malta, the state is not even informed that you are a Non-Dom taxpayer.

You can even transfer foreign capital gains to Malta tax-free (though tax may be due in the country of origin). Similar to Ireland and unlike the UK, there are no time limits on Non-Dom status in Malta, nor are there flat-rate taxes.

Using a Maltese Company as a Non-Dom

Under normal circumstances, Non-Dom status can only be applied to foreign income, suggesting that a Maltese company might not be suitable for a Non-Dom. However, due to its low effective corporate tax rate of 5%, a Maltese company is highly attractive and a welcome combination with Non-Dom status. Indeed, with proper structuring and in combination with an offshore holding company, a Maltese company can be utilized by Non-Dom taxpayers. Dividends distributed to the holding company are then tax-free. This represents an exception to the fundamental rules of the Remittance Basis in Malta.

VI. Malta Tax Rates Overview

As a Non-Dom in Malta, you will pay both income tax and capital gains tax, depending on your setup. Foreign capital gains transferred to Malta are subject to capital gains tax. Other income, including employment income earned in Malta, is subject to income tax. The following table shows the income tax rates and capital gains tax rates in Malta. All tax rates apply to single individuals. Note that tax rates are applied progressively, meaning there isn't a single overall tax rate for all income; instead, different rates apply based on income brackets.

Income Tax

Capital Gains Tax

Capital gains tax in Malta is generally 0% for Non-Doms, as long as the profits are not transferred to Malta. If they are transferred, they are subject to normal income tax rates.

Corporate Tax

The standard corporate tax rate in Malta is 35%. However, through a system of tax refunds, this can be reduced to an effective rate of 5%.

Wealth/Inheritance Tax

Malta does not levy wealth or inheritance tax.

VII. Avoiding the Boris Becker Sham Relocation Trap

A "sham relocation" occurs when you officially move your residence to Malta but continue to spend most of your time and maintain economic interests in your country of origin. This can lead to severe tax consequences, as famously demonstrated by Boris Becker's case. To avoid this, you must genuinely shift your center of vital interests to Malta. This means:

• Spend more than 183 days per year in Malta.
• Have a permanent residence in Malta.
• Relocate your family (spouse, children) to Malta.
• Shift your economic activities and business relationships to Malta.
• Build social and cultural ties in Malta.

Maltese tax authorities rigorously verify the authenticity of a relocation. A sham relocation can result in you remaining fully taxable in your country of origin and facing penalties for tax evasion.

VIII. What Makes Malta an Attractive Place to Live

Malta is an attractive place of residence for entrepreneurs and wealthy individuals for several reasons:

• Tax Advantages: The Remittance Basis system and Non-Dom status allow for a significant reduction in tax burden on foreign income.
• EU Membership: Malta is a member of the European Union, offering stability, legal certainty, and access to the EU single market.
• English as an Official Language: The widespread use of English facilitates integration and business operations.
• Pleasant Climate: Mild climate year-round with many hours of sunshine.
• High Quality of Life: A rich history, culture, and a relaxed Mediterranean lifestyle.
• Good Infrastructure: Modern telecommunications, healthcare, and educational facilities.
• Safety: Malta is considered a safe country with low crime rates.

IX. Cost of Living in Malta

The cost of living in Malta is moderate compared to many Western European countries but can vary depending on your lifestyle. Here's an overview:

• Rent: Apartments in popular areas like Sliema or St. Julian's are more expensive. A 1-bedroom apartment costs between €700 and €1,200 per month. Outside these areas, rents are more affordable (from €500).
• Groceries: Similar to Southern Europe. Supermarkets offer a good selection. Monthly costs for one person are approximately €200 - €300.
• Transport: Public transport is inexpensive. A monthly pass costs approximately €26. Taxis are also affordable.
• Utilities (Electricity, Water, Internet): For a 1-bedroom apartment, approximately €80 - €150 per month.
• Leisure: Restaurant visits and leisure activities are often cheaper compared to Germany.

Overall, you can expect monthly expenses of €1,500 to €2,500 for a comfortable lifestyle, depending on your needs and location.

X. Tax Aspects of Leaving Your Home Country

Leaving Germany or Switzerland for Malta requires careful planning to avoid undesirable tax consequences. In particular, exit taxation (Wegzugsbesteuerung) in Germany and the associated deadlines must be observed. Early consultation with a tax expert is essential.

XI. Proper Preparation

Preparing for a move to Malta should include the following steps:

• Tax Consultation: Clarification of your individual tax situation and optimization of your structure.
• Visa and Residence Permit: Reviewing requirements and applying for necessary documents.
• Property Search: Early search for suitable property (rent or buy).
• Bank Account: Opening a local bank account.
• Insurance: Obtaining necessary health and other insurance.
• Deregistration: Deregistering in your home country and registering in Malta.

Our team provides a detailed checklist and personal support.

XII. Automatic Information Exchange (OECD CRS) & Non-Dom Status

The OECD's Common Reporting Standard (CRS) facilitates automatic information exchange between participating countries. This means financial institutions report information about accounts held by foreign taxpayers to the tax authorities of their respective countries of residence. For Non-Doms in Malta, this is particularly relevant:

• Untransferred Foreign Income: This income is not taxed in Malta and is not reported under CRS, as long as it remains in foreign accounts.
• Income Transferred to Malta: This income is subject to Maltese taxation and is reported accordingly.

It is crucial to understand and adhere to the rules of the Remittance Basis system to fully leverage the benefits of Non-Dom status and avoid unintended reporting.

XIII. Relocation Formalities

Relocation formalities for Malta typically include:

• Registration with Authorities: Registering as a resident with Identity Malta.
• Tax Identification Number: Applying for a Maltese TIN.
• Social Security Number: Applying for a social security number.
• Vehicle Import (if applicable): Registering your vehicle in Malta.
• Driver's License Exchange: Exchanging your foreign driver's license.

Our team supports you with all necessary steps and communication with authorities.

XIV. How Our Firm Can Help You Move to Malta

Our firm offers comprehensive support for your move to Malta, including:

• Individual tax consulting
• Legal advice
• Application for visas and residence permits
• Property search
• Bank account opening
• Comprehensive network
• Company formation
• Relocation support

We accompany you step-by-step on your journey to a tax-efficient life in Malta.