Proposed Changes to the Remittance Basis of Taxation

The Minister of Finance is proposing changes in Malta’s Budget Bill. Read on to know how the proposed changes will affect you.

Following the 2018 Budget delivered by the Minister of Finance earlier in October this year, one of the proposed changes in the said Budget Bill relates to the remittance basis of taxation.

Until now, a person who is either ordinarily resident or domiciled in Malta is taxable only on income and capital gains arising in Malta and on foreign-sourced income received in Malta. This means that income arising outside Malta would only be chargeable to tax in Malta if received in Malta.

As a result of the proposed changes in the Budget Bill, a person who is either ordinarily resident or domiciled in Malta will be subject to a minimum tax of €5,000 annually in Malta. This is with effect from the financial year 2018 being the year of assessment 2019.

Such minimum tax payable is subject to the following:

  • Income derived amounting to not less than €35,000, or its equivalent in another currency, arising outside Malta
  • In the case of a married couple whose income is chargeable to tax, the minimum tax will apply to the income derived by both spouses
  • Proposed change will not apply to individuals who are already taxable under any scheme under the Income Tax Act, establishing a minimum tax payable. These are mainly the Residence Programme, Global Residence Programme, Malta Retirement Programme and the Residents Scheme Regulations.

In computing the minimum tax, account shall be taken of tax paid whether by withholding or otherwise, regarding all income excluding tax imposed on Capital Gains.

Should the income chargeable to tax in the hands of an ordinarily resident or domiciled individual for any year of assessment result in a tax liability amounting to less than the minimum tax, the person shall be deemed to have received additional income arising outside Malta. This shall result in a total tax liability amounting to the minimum tax.

For example, if a person would be liable to €3,000 of tax in Malta, they will be deemed to have earned additional income arising outside Malta, amounting to another €2,000 of tax. The total tax payable would be equal to the minimum tax of €5,000.

The rules will not change concerning Capital Gains arising outside Malta. Thus, no tax will be chargeable on such gains, whether received in Malta or not.

It is important to note that this is a proposed change and would need to be approved by Parliament before implementing the Malta Income Tax Act. However, if such change is approved, it will most likely be effective from 1st January 2018.

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