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Proposed Changes to the Remittance Basis of Taxation

Following the 2018 Budget, delivered by the Minister of Finance earlier in October this year, one of the changes being proposed 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 which is 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, with effect from financial year 2018, being year of assessment 2019, a person who is either ordinarily resident or domiciled in Malta, will be subject to a minimum tax of €5,000 annually in Malta.

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 in accordance with any scheme under the Income Tax Act, establishing a minimum tax payable, 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, in respect of all income, excluding tax imposed on Capital Gains.

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

By way of an example, if a person would be liable to €3,000 of tax in Malta, such person will be deemed to have earned additional income arising outside Malta, amounting to another €2,000 of tax, so that the total tax payable would be equal to the minimum tax of €5,000.

The rules will not change with respect to Capital Gains arising outside Malta, and thus, no tax will be chargeable on such gains, irrespective of 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 prior to being implemented within the Malta Income Tax Act. However, if such change is approved, it will most likely be effective as from 1st January 2018.


Disclaimer: The information and material contained in this document are provided by the Integritas Group and are for general information purposes only. Integritas Group will not accept any responsibility for any direct, indirect or consequential loss or damage which may occur from reliance on information contained in this document. Users are advised to seek our professional and specialist advice on specific issues.

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