Article 6 Of The Income Tax Act (ITA) – Tax Guidelines Updates

On 22 January 2024, the Commissioner for Tax and Customs published updated guidelines in terms of Article 6 of the Income Tax Act (ITA) concerning Investment Services and Insurance Expatriates.

Over the past few years, Malta's insurance and investment services sectors have grown efficiently, indicating a clear need for highly skilled individuals. It was therefore felt that in those areas of financial services and insurance where local expertise was insufficient, there was a need to import highly skilled individuals.

The aim of the tax benefits outlined in Article 6 of the Income Tax Act is to draw highly trained expatriates to Malta to work for companies that hold licences and/or are acknowledged by the Competent Authority overseeing the relevant industry.

Qualifying Expatriates

An Investment Services Expatriate or an Insurance Expatriate has to satisfy the abovementioned conditions, and either:

1. is not an ordinary resident and not domiciled in Malta; or
2. was not resident in Malta for a minimum period of three years immediately prior to the year in which he started working for the aforementioned investment services firm or insurance company, and only if, throughout those three years, the person has been employed full-time in a comparable role outside of Malta.

Investment Services Expatriate

In terms of Article 6 of the Income Tax Act, an Investment Services Expatriate shall mean any individual who is an employee of, or provides services to, a company that is:

• an investment services company holding an investment services license issued under Article 6 of the Investment Services Act; or
• a company which is recognised by the relevant Competent Authority for the purposes of Article 9A of the Investment Services Act, and whose activities solely comprise of the provision of the following:
  1. Management,
  2. Administration,
  3. Safekeeping, or
  4. Investment advice to collective investment schemes as defined in the Investment Services Act.

Insurance Expatriate

An Insurance Expatriate refers to any individual who is an employee of, or provides services to, an "insurance company" that is defined by Article 6 as meaning:

• a company authorised under Article 7 of the Insurance Business Act; or
• an insurance manager as defined in Article 2 of the Insurance Distribution Act; or
• a company carrying on the business of insurance broking under Article 12 of the Insurance Distribution Act.

Exemptions from Tax

The following personal expenses, which the employing financial services or insurance company pays for the expatriate or his immediate family, are free from taxation:

1. Removal costs in respect of relocation to or from Malta,
2. Accommodation expenses incurred in Malta,
3. Travel costs in respect of visits to or from Malta by the expatriate and his immediate family,
4. Provision of a car in Malta,
5. A subvention of not more than €600 per calendar month,
6. Medical expenses and medical insurance,
7. School fees of respective children.

The exemption from tax applies for ten years, beginning with the first year in which the expatriate is subject to taxation in Malta.

These expenses made by the employer on the employee's behalf are typically taxable as fringe benefits. However, the expatriate may choose to take advantage of the employer's payment exemption for the aforementioned costs. Any expenses made by the employer on behalf of the expatriate or their immediate family must be reported in the expatriate's FS3 as fringe benefits under the Fringe Benefits Rules, S.L. 123.55 of the Laws of Malta, regardless of whether the expatriate chooses to claim the exemption or not.

Employers are not required to withhold tax that would have been due under the Fringe Benefit Rules in cases where the expat claims the exemption.

The expatriate will not be subject to tax on income from the following sources as, for the purposes of Article 12 (1)(c) ITA, he is considered a non-resident in Malta:

1. Interest, discount, premium or royalties,
2. Gains or profits from the transfer of, or on a transfer of any rights over,
   • any units in a collective investment scheme, as defined in Article 2 of the Investment Services Act,
   • any units relating to the linked long-term business of insurance,
   • any interest in a partnership which is not a property partnership,
   • any shares or securities in a company which is not a property company.

Such benefits shall continue to apply for the duration of the expatriate's employment in Malta.

Expatriate Employee and the Provisions of Highly Qualified Persons Rules

An expatriate deriving income subject to tax under Article 4(1)(b) ITA being emoluments payable under a qualifying contract of employment may not benefit from the provisions outlined in the Highly Qualified Persons Rules.

Registration under both the Highly Qualified Persons Rules and the provisions for Expatriates under Article 6 of the Income Tax Act is mutually exclusive.

For more detailed information please refer to the Updated Tax Guidelines on Article 6 of the Income Tax Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.