According to Article 2 of the Income Tax Act, an individual is deemed a resident in Malta for tax purposes if they fulfill any of the following conditions:
- An individual is deemed a resident in Malta for tax purposes if they reside in Malta for a period exceeding 183 days in a calendar year.
- The concept of 'ordinary residence' implies a more continuous and permanent presence in Malta, going beyond mere physical presence.
- For non-domiciled individuals, tax is payable on income arising in Malta and on income arising outside Malta but received in Malta. Foreign source income not remitted to Malta, as well as foreign source capital gains (whether remitted or not), are not subject to Maltese tax.
For entities, the Income Tax Act provides criteria based on the entity's incorporation or management and control in Malta.
The rationale behind these criteria is to ensure that individuals and entities with significant ties to Malta, either through physical presence or establishment, are subject to taxation on their worldwide income. By establishing clear criteria for tax residency, the legislation aims to prevent tax evasion and ensure that individuals and entities contribute to Malta's tax revenues in line with their economic activities within the country.
Malta has entered into numerous tax treaties (Double Taxation Treaties or DTTs) with various countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
- Malta's tax treaties with various countries may modify or provide exceptions to these standard criteria. These treaties are designed to prevent double taxation and promote cross-border economic activities.
- For instance, under the Malta-Portugal tax treaty, an individual is considered a resident of Malta if they are liable to tax in Malta because of domicile, residence, place of management, or any other criterion of a similar nature.
- The treaty also specifies tie-breaker rules for individuals considered residents of both Malta and Portugal under each country's domestic law.
Malta Residency Programmes with Tax Incentives:
- Malta offers various residency schemes with specific tax implications. The Malta Permanent Residence Programme (MPRP) allows for no taxation on worldwide income unless remitted to Malta. Taxes are based only on Maltese-sourced income and foreign income received in Malta.
- The Malta Global Residence Programme provides a beneficial flat rate of taxation on foreign income remitted to Malta, with an annual minimum tax payment requirement.
