The Highly Qualified Persons Rules, 2011 (Legal Notice 106 of 2011) (the ‘Rules’) represent yet another incentive to attract foreign business to Malta by allowing for a 15% flat rate of tax to be availed of by non-domiciled individuals employed in the financial services and gaming sectors (the ‘Scheme’). The Rules came into force with effect from 1 January 2010 and apply to income which is brought to charge in year of assessment 2011 (basis year 2010).

Qualifying Income under the Scheme

The 15% reduced rate of tax is applicable in respect of emoluments payable under a contract of employment to an employee who holds an eligible office and who satisfies the relevant conditions (set out below). The minimum annual amount which may be taxable at 15% is €75,000, adjusted annually in line with the Retail Price Index. Any qualifying income above €5,000,000 is not subject to tax in Malta.

Eligible office

In order to qualify under the scheme, aside from satisfying the conditions set out below, the individual must:

1. be employed by a company licensed and / or recognised by the Malta Financial Services Authority (‘MFSA’), the Lotteries and Gaming Authority (‘LGA’) or companies which hold an Air Operators’ Certificate; and

2. hold an eligible office.

Companies licensed or recognised by the MFSA include credit institutions, financial institutions, insurance companies, PCCs, insurance intermediaries (including brokers, agents, managers), investment services licence holders (including fund managers and fund administrators), funds and pension schemes (including pensions scheme administrators). Companies licensed and regulated by the LGA include companies engaged in remote gaming, casino gaming and sports betting.

‘Eligible office’ comprises employment in one of the following positions:

• Actuarial Professional,

• Chief Executive Officer;

• Chief Financial Officer;

• Chief Commercial Officer

• Chief Insurance Technical Officer;

• Chief Investment Officer;

• Chief Operations Officer;

• Chief Risk Officer (including Fraud and Investigations Officer);

• Chief Technology Officer;

• Chief Underwriting Officer;

• Head of Investor Relations;

• Head of Marketing (including Head of Distribution Channels);

• Head of Research and Development; (including Search Engine Optimisation and Systems Architecture)

• Portfolio Manager;

• Senior Analyst (including Structuring Professional);

• Senior Trader/Trader;

• Odds Compiler Specialist;

• Aviation Continuing Airworthiness Manager;

• Aviation Flight Operations Manager; and

• Aviation Ground Operations Manager.

Scheme Conditions

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

1. derives employment income (minimum € 75,000) subject to income tax in Malta;

2. employment contract is subject to the laws of Malta and the contract is drawn up for exercising genuine and effective work in Malta;

3. 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 the MFSA or the LGA that he performs activities of an eligible office; and

7. proves that:

i. 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;

ii. 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;

iii. he is in possession of a valid travel document;

iv. he is not domiciled in Malta.

Exclusions from the Scheme

The flat rate will not apply if:

• the employer, or a related entity received any form of benefit provided in terms of the Malta Enterprise Act and the Business Promotion Act;

• where the expatriate benefitted from the Investment Services or Insurance Expatriate benefits under Article 6 of the Income Tax Act;

• 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.

Period of availability of the Scheme

The Rules provide that the benefit is available as from year of assessment 2011 for a period of five years in the case of EEA and Swiss Nationals and four years in case of third country nationals.

However the Rules provide that:

• Expatriates who were employed in Malta for a period of between one and two years immediately prior to 1st January 2010, can only benefit from the reduced tax rate for a maximum period of three years if European Economic Area (EEA) or Swiss nationals, or two years for third-country nationals;

• Expatriates who were employed in Malta for of period of not more than one year prior to 1st January 2010, can only benefit from the reduced rate of tax for a period of four years if EEA or Swiss nationals, or three years for third-country nationals.

• Expatriates who have been employed to work in Malta for more than two years preceding 1st January 2010, cannot benefit from the Rules.

Withdrawal of the Scheme

The benefits of the Scheme 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.

Application to Benefit from the Scheme

An individual eligible to opt to pay tax on employment income at the reduced rate of 15% (in terms of the Rules) would be required to apply to the MFSA or the LGA, as may be applicable, for a formal determination confirming eligibility to the Scheme. The eligible individual would then be required to submit a prescribed form (endorsed by the LGA/MFSA) to the local tax authorities together with his/her tax return for the relative year of assessment by not later than the relative tax return date, i.e. 30th June following the calendar year in which the income was earned.

Update

As from Y/A 2013, employments with undertakings holding an aerodrome licence issued by the competent authority and consisting in employment as Chief Executive Officer, also fall within the parameters of the Highly Qualified Persons programme.