New tax rules for digital nomads in Malta – income tax

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On 7 December 2023, Malta’s Minister of Finance issued the Nomad Residence Permit (Income Tax) Rules 2023. The new rules apply to digital nomads who are resident and working in Malta, as well as applicants who are currently in the processing stage, and also future digital nomads. An individual holding a valid Nomad’s Residence Permit issued by the Residency Malta Agency will be subject to income tax at 10% on income derived from “authorized work”. This is a substantial reduction in the progressive rate of taxation, which can reach up to 35%.

“Permitted work” is defined in the Rules as services provided by an authorized principal applicant pursuant to a contract of employment with an employer who is not domiciled in Malta and does not carry on business in Malta through a permanent place of business, or services provided by an authorized principal applicant as a self-employed person for clients , who are not domiciled in Malta and who do not carry on business in Malta through a fixed place of business, both of which services are provided remotely by means of telecommunications technology as may be approved by the Residency Malta Agency.

An individual will also be able to benefit from double taxation relief under Malta’s tax treaties (provided he is eligible to benefit from such treaties by being tax resident in one of the tax treaty contracting states).

The rules also provide in rule 3(2) that income from permitted work is treated as the initial part of the total taxable income of an individual for a particular assessment year. This means that income derived from permitted employment, subject to the 10% rate of income tax referred to in sub-rule (1), will be treated as a starting component in computing the total taxable income of the person for the relevant assessment year.

Rule 3(3) introduces an “exemption” period during which the authorized principal applicant is not liable to pay tax on the income from the authorized work. This exception is valid for a period of 12 months from the date of issue of the nomads’ residence permit.
This exception also removes ambiguity regarding the tax status of those who already have a residence permit for more than a year. Income received before January 1, 2024 will not be taxed.

In order to benefit from this exemption, an eligible applicant must submit a written declaration to the Malta Residence Agency stating that their stay in Malta during this twelve-month period is not of an occasional nature only. The purpose of this provision is to provide individuals newly granted a nomadic residence permit with a tax grace period to allow them time to settle in Malta before becoming subject to income tax on their permitted employment income.

However, this exception does not apply to persons who do not have a valid nomadic visa (e.g. expired), but who have been granted a nomadic visa within 2 years of the date they ceased to hold the original nomadic visa. This means that even though they will be able to take advantage of the reduced 10% income tax rate, they will have to include their total income derived from permitted work and pay a 10% income tax rate on this gross amount. For persons who have been granted a new nomadic visa after 2 years from the date they ceased to hold the original nomadic visa, they are entitled to the above exemption.

Any other income not derived from authorized employment will be subject to the general tax rules under the Maltese Income Tax Act. So the general rules regarding progressive taxation, dividends, interest and so on apply.

The rules also prescribe reporting obligations. The rules stipulate that an applicant for a nomadic visa must file an income tax return. Eligible principal applicants whose income is taxable in Malta must register for income tax and file a tax return in accordance with the above rules. Applicants must register for income tax, even for activities carried out before the end of the initial twelve-month period.

They do not have to report income from authorized work for the first twelve months, unless they submit a written statement to the Residency Malta Agency about their presence in the country.

If their income comes only from permitted work and other income that does not require reporting, and the period covered does not exceed the first twelve months, they are exempt from filing a tax return.

In terms of foreign taxes, if the eligible principal applicant is subject to tax on income from authorized employment for any part of the year, they provide evidence of paying taxes outside Malta of at least 10%, this will mean that they do not need to report this income for Maltese tax purposes. This is because the tax due is treated as settled through the double taxation relief provisions.

It is the responsibility of the Residency Malta agency to submit proof of payment of foreign tax to the Malta Revenue Commissioners.

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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