The commissioner for revenue has published the first ever guideline on the remittance basis of taxation as this applies to individuals. It was well overdue.
The remittance rules have been an integral part of Malta's taxation system since the 1940s. They apply with reference to the concepts of 'residence', 'ordinary residence' and 'domicile'. These concepts have been borrowed from UK common law and/or honed with reference to UK case law, as referred to by the Maltese judiciary over the course of decades.
The guideline is to be viewed, largely, as a useful summary of these key concepts that have underpinned the remittance system of taxation in Malta, and the way the revenue is currently interpreting and applying these in practice.
Key statements include the following:
- Residence does not depend on nationality or any other civil status, but is a question of fact. A person may be resident in Malta, even if he is also resident for tax purposes in another country.
- Presence in Malta for more than 183 days in any particular year amounts to residence in Malta for that year, regardless of the purpose and the nature of the individual's stay in Malta. An individual who comes to Malta to establish their residence here becomes a resident from the date of their arrival, regardless of the duration of their stay in Malta in any particular year.
- A person who lives in Malta on a permanent or indefinite basis is ordinarily resident in Malta.
- An ordinary resident loses their residence status if they leave Malta permanently or indefinitely. If they are temporarily absent from Malta, they continue to be considered as a resident unless their absence is or becomes inconsistent with a residence status. This depends on the circumstances of each case and, in particular, on the personal and economic ties that the individual may have retained with Malta.
- Individuals who are in Malta and consider Malta as their permanent home are domiciled in Malta. 'Home' in Malta refers to the place where a person belongs and implies stronger ties with a country than residence.
- Domicile does not depend on nationality.
The guideline also provides some guidance on a practical level. This guidance will undoubtedly be of assistance to individuals looking to spend time in Malta and their advisors. For instance, with reference to the concept of being in Malta for a "temporary purpose", the guideline indicates that a person who is in Malta for a temporary purpose may become ordinarily resident in Malta in certain circumstances, including where "individuals who do not stay in Malta for more than 183 days in any year … come to Malta regularly over a long period – say, over a period of three years – and establish personal and economic ties with Malta."
It has also, however, arguably thrown some spokes in the wheel for clients and advisors alike, e.g. clients, having made arrangements to separate foreign based/source capital, capital gains and income before moving to Malta, will now need to seriously consider the revenue's position with respect to remittances made to cover "ordinary expenses, such as living expenses" and the presumption therein that remittances made for these purposes are remittances of income, regardless of their source.
On much the same lines, while the guideline provides clarity on the revenue's position on the source of various forms of capital gains and income, it arguably fails to hit the mark with anything close to sufficient clarity when it comes to the source of self-employment/employment income of individuals who have set up home in Malta but are very mobile and accordingly spend considerable periods of time abroad for work or pleasure. Statements such as "the duration of the stay in Malta and the existence or otherwise of a fixed place of business in Malta are not determining factors" are not particularly helpful and somewhat contradictory when viewed in conjunction with the statement made therein that "income derived from employment or from a profession, business or other self-employment arises in Malta if the activities are performed in Malta".