Malta Permanent Residency scheme replaced by the High net worth individuals scheme

Malta’s Finance Minister Tonio Fenech has launched a high net worth individuals scheme to replace the permanent residence scheme, that was suspended at the beginning of the year.

This scheme aims to target high net worth individuals and aims to attract the highest-paid executives in the world with a 15% fixed tax rate for chief executives who earn not less than €75,000 in a year, or up to €5 million over the course of their employment in Malta. Additionally, there will be a zero-rate tax on any additional income above the taxable €5 million received over the duration of their contracts.

Eligible offices for the 15% tax rate will be foreign-domiciled chief executives, investment traders and analysts, actuarial professionals, and marketing and investor relations heads.

This new scheme facilitates the entry and indefinite stay of foreigners to Malta who must first fulfill eligibility rules on their good standing, minimum income, and wealth requirements - while attracting affluent, high net worth individuals.

An attempt to address the weaknesses of the previous scheme, the new scheme addresses previous problems with the scheme that previously imposed no periods of stay and thus meant that applicants did not necessarily spend money in Malta, exploiting the benefits extended to Maltese citizens.

The new scheme addresses such cases of exploitation and abuse by increasing significantly the minimum value of property applicants have to purchase to be eligible. This among other conditions. Applicants must now purchase a property worth at least €400,000 – or pay €20,000 a year in rent – to qualify. The threshold previously was just €60,000 or €4,100 in annual rent.

Scheme applicants are also required to possess – and retain – health insurance and pay an application fee of €6,000 to cover the cost of a “fit and proper” test which determines whether they are desirable. In addition, the application forms can only be submitted by Maltese warrant holders registered with the inland revenue department as authorised people. They also had to live in Malta for at least 90 days a year, and not stay in any other jurisdiction for more than 183 days to avoid becoming tax residents therein.

Special tax status carries the right for the beneficiary to pay tax at a beneficial rate of tax of 15% on foreign source income (subject to a minimum tax payment) and normal tax on any local income? They would also have to pay a minimum of €20,000 in tax annually, with an additional minimum tax of €2,500 per dependant.

The rules for applicants from outside the EU or EFTA are stricter. Those with the intention of becoming long-term residents – or are already so – must renew their visa every 3 months and enter into a qualifying contract with the government that contemplates €500,000 financial bond – plus €150,000 per dependent to cover potential social costs.

The money becomes the government’s when permanent residency is obtained after 5 years. There will be two sets of rules - one for EU nationals and one for third country nationals. The latter must also be fluent in English or Maltese and pay a minimum annual tax of €25,000 plus €5,000 per dependent.

What is to be come of those who obtained permanent residency under the previous scheme? These will not lose their status but must nevertheless prove that they have stable resources, as well as health insurance. Existing permanent residents, the minister said, will not lose their status unless they sold their property.

The law includes a vague ‘safety clause’ that allows the government to withdraw the tax rate if the beneficiary’s stay in Malta is “not in the public interest” – which apart from public safety and national security also includes ‘morals’.

Application Procedure:

An application for special tax status under the High Net Worth Individuals Rules may only be submitted to the Commissioner of Inland Revenue through the services of a person that qualifies as an Authorised Registered Mandatory. The applicant needs to authorise such services by completing Part 5 of the Application form. It is important to note that an application for special tax status will only be valid if signed and submitted by the Authorised

Registered Mandatory.

Amendments to the Residents Scheme Regulations

The schemes available in terms of the High Net Worth Individuals – EU/EEA/Swiss

Nationals Rules, 2011 and the High Net Worth Individuals – Non-EU/Non-EEA/Non-Swiss

Nationals Rules, 2011 (hereinafter collectively referred to as “the HNWI Rules”) are

replacing the Permanent Resident Scheme (hereinafter referred to as “the PR Scheme”) under

the Residents Scheme Regulations (hereinafter referred to as “the PRS Regulations”).

Consequently the PRS Regulations have been amended and certain provisions have been repealed.

One of the results of these amendments is that no certificates in terms of the PRS Regulations will be issued with a date subsequent to 31 December 2010.

Current Holders of a PR Scheme Certificate

An individual who had acquired rights under the Regulations before 1 January 2011 shall continue to benefit from such rights as long as the conditions of the scheme are adhered to.

The following conditions for eligibility have been added by the amendments to the PRS Regulations:

• the holder of the certificate must be in receipt of stable and regular resources which are sufficient to maintain himself and his dependents without recourse to the social assistance system in Malta;
• the holder of the certificate must be in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and the members of his family; the property being declared as the holder’s place of residence cannot be occupied by any person other than the holder of the certificate and his family members.
• If such individual sells his house or his flat or terminates his current lease agreement he must acquire a Qualifying Property Holding in order to maintain his eligibility for the Scheme.
• “Qualifying Property Holding” is adequately defined in the amended PRS Regulations. Such definition is in line with that found in the HNWI Rules.
• The holder of the certificate is required to submit an annual declaration accompanied by documentary evidence and/or professional attestation as proof that he has satisfied all the conditions required by the PRS Regulations.

Pending Applications

Any individuals who applied for the PR Scheme before 14 September 2011 but were not issued with a certificate in terms of the PRS Regulations before 1 January 2011 may now apply for the scheme available under the HNWI Rules if such individuals satisfy the eligibility criteria of such rules. Property purchased before 14 September 2011 for a consideration of not less than €116,000 shall still be considered as a “Qualifying Owned

Property” for the purposes of the HNWI Rules.

Any such individual who has, prior to 14 September 2011, entered into a contractual commitment to buy a property for a consideration of not less than €116,000 may validly apply, but the certificate of special tax status will be granted to him when he submits evidence that he actually purchased the property to which the contractual commitment refers by not later than 31 March 2012. A contractual commitment shall be considered to be such if the Commissioner of Inland Revenue is satisfied that this comprises bona fide legally binding terms and conditions entered into at arm’s length in terms of prevailing market conditions and which comprise penalty clauses for failures.

CSB Group is an Authorised Registered Mandatory and can assist you with initiating your application process. 

For more information about the high net worth individual scheme and for all other relocation services, including Managed Office Space, Real Estate Services and Residency Permits, kindly forward your query to relocation@csbgroup.com