Highly Qualified Persons Rules

The Highly Qualified Persons Rules enacted by virtue of Legal Notice 106 of 2011 provide for the application of a beneficial flat 15% tax rate to the remuneration paid to employees in respect of certain qualifying employment posts.  Legal Notice 306 of 2012 has expanded the rules to apply to the income from specified employments with companies holding an Air Operators’ Certificate issued under the terms of Article 4 of the Civil Aviation (Air Operators’ Certificates) Act.

To accommodate this amendment the list of “eligible offices” has now been expanded to include the following;-

  •  Aviation Accountable Manager
  • Aviation Continuing Airworthiness Inspector
  • Aviation Flight Operations Inspector
  • Aviation Ground Operations Manager
  • Aviation Training Manager

These are in addition to the posts which are already included within the application of the rules such as Chief Executive Officer, Chief Financial Officer, Chief Operations Officer and Chief Commercial Officer.

The amendments to the rules as outlined above have been introduced with retrospective application, coming into force on 1st January 2012. However these Rules are not to be exercised by any persons who were employed prior to the 1st January 2010.  The Highly Qualified Persons Rules apply to income which is brought to charge in year of assessment 2011 (basis year 2010) and apply to individuals not domiciled in Malta.

Scheme Rules

a) Employment Income

Individual income from a qualifying contract of employment in an “eligible office” with a company licensed and/or recognised by the Malta Financial Services Authority is subject to tax at a flat rate of 15% provided that the income amounts to at least €75,000 (seventy five thousand euro) adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of €5,000,000 the excess is exempt from tax.

In practice this means that the minimum income (based on the Retail Price Index published by the National Statistics Office) must exceed the following thresholds:

€75,000 for basis year 2010

€76,136 for basis year 2011

€78,207 for basis year 2012

€80,100 for basis year 2013

The 15% tax rate applies for a consecutive period of five years for European Economic Area (i.e. EU countries plus Norway, Iceland and Liechtenstein) and Swiss nationals and for a consecutive period of four years for third country nationals.

The four or five year period, as the case may be, commences from the year when the individual concerned first becomes taxable in Malta.

In cases where the individual was taxable in Malta but not benefiting under this Scheme and subsequently comes to Malta and becomes eligible under the Scheme, he can benefit only if the four or five year period has not elapsed; the benefit is for the years remaining from the date of eligibility under the Scheme until the said four or five year period from the date of first being subject to tax in Malta elapses.

b) Qualifying Contract of Employment

An individual may benefit from the 15% tax rate if he satisfies all of the following employment conditions:

  1. derives employment income subject to income tax in Malta
  2. has an employment contract subject to the laws of Malta and proves to the satisfaction of Transport Malta that the contract is drawn up for exercising genuine and effective work in Malta (Note: where an individual receives salaries from different companies in the same group and the group relationship of such companies is of 100% ownership, he will still be eligible if the aggregate salaries (excluding fringe benefits) are higher than the minimum thresholds as specified above).
  3. proves to the satisfaction of Transport Malta that he is in possession of professional qualifications and has at least five years professional experience;
  4. has not benefitted from deductions available to investment services expatriates with respect to relocation costs and other deductions (under article 6 of the Income Tax Act);
  5. fully discloses for tax purposes and declares emoluments received in respect of income from a qualifying contract of employment and all income received from a person related to his employer paying out income from a qualifying contract as chargeable to tax in Malta;
  6. proves to the satisfaction of Transport Malta that he performs activities of an eligible office; and proves that:
  • he is in receipt of stable and regular resources which are sufficient to maintain himself and the members of his family without recourse to the social assistance system in Malta;
  • he resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
  • he is in possession of a valid travel document;
  • he is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself and the members of his family.

Exclusion from the Scheme

The individual income derived from employment in an “eligible office” will not qualify for the 15% reduced rate if it is paid by an employer who receives any benefits under business incentive laws or is paid by a person who is related to the employer who received any benefits under any business incentive laws or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by  a company holding an Air Operators’ Certificate or if the individual is already in employment in Malta before the coming into force of the scheme with a company not holding an Air Operators’ Certificate or not holding “eligible office” with a company not holding an Air Operators’ Certificate

The individual income derived from employment in an “eligible office” will not qualify for the scheme if a claim is made for any relief, deduction, reduction, credit or set-off of any kind except for any income tax deducted at source.   Provisions in respect of split contracts have been introduced.

An arrangement in terms of which a beneficiary receives a payment from a person related to his employer and such payment is not declared for tax purposes in Malta is considered to be an artificial arrangement.

Any rights are withdrawn with retrospective effect if a beneficiary is a third country national and he either:

  • Physically stays in Malta, in the aggregate, for more than four years; or
  • Directly or indirectly acquires real rights over immovable property situated in Malta or holds a beneficial interest directly or indirectly consisting in, inter alia, of real rights over immovable property situated in Malta.

Any individual who claims a benefit under the scheme when he is not entitled to do so is liable to a penalty equal to the amount of benefit claimed and if the benefit is paid the individual is liable to repay the benefit received plus additional tax of 7% per month or part thereof.

Application to Benefit from the Scheme

Please contact us for further details.