A law introduced in the small Mediterranean island last month, means that “highly qualified persons” who occupy an “eligible” office within a financial services firm licensed or regulated by the Malta Financial Services Authority (MFSA), will pay a flat lower rate of tax.
The Legal Notice 106 Highly Qualified Persons Rules, 2011, which has been backdated to January 2010, means that eligible employees will pay income tax at a flat rate of 15% provided that the income amounts to at least €75,000. This 15% flat rate is imposed on income up to a maximum of €5m – the excess is exempt from tax.
The Inland Revenue Department (IRD) of Malta said eligible persons will include actuarial professionals, department heads such as marketing and investor relations, and the various “chiefs” which make up the management of a business including chief executive officers, chief financial officers, chief investment officers and chief risk officers.
Malta’s 15% rate of tax applies for a period of five consecutive years for European Economic Area countries (i.e. EU countries plus Norway, Iceland and Lichtenstein) and Swiss nationals and for a consecutive period of four years for third country nationals. Individuals, who already have a qualifying contract of employment in an “eligible office” two years before the start of the scheme in January 2010, may benefit from the 15% rate for the remaining years of the scheme.
Standing out from the crowd
The decision by the Maltese government to introduce a favourable tax rate for higher earners is in stark contrast to decisions taken by other European governments in recent months.
In the UK, those earning more than £100,000 and £150,000 per year, saw an increase in the level of tax they pay, while the amount people are allowed to put into their personal pension each year has also been cut. Both actions have seen higher earners give more to the UK Treasury.
Meanwhile, Switzerland, which has long been seen as a haven for the rich, has begun to make changes to its accommodating tax regime. In Bern, one of the 26 cantons (districts) which make up Switzerland, the local government has decided to raise the levies paid by wealthy foreigners. The levy, a lump sum agreed between the local government and the individual, is normally worked out as five times the individual’s housing cost but will be increased to seven.
Furthermore, in 2009 the canton of Zurich, Switzerland’s most populous, decided in a surprise referendum result to back a plan to abolish lump sum deals altogether.
