Malta’s efforts to develop itself as an onshore domicile have paid off as it is now recognized as an efficient and well regulated jurisdiction with a sound legal system. The underlying theme has long been stability and the availability of well trained staff. However, as the financial services and gaming industries, among others, began to thrive in recent years it became apparent that a significant need for additional, highly qualified workers developed.

It is for this reason that Legal Notice 106, Highly Qualified Persons Rules, 2011 (as amended) was introduced last September. Its scope is to attract highly qualified persons to occupy certain positions described as “eligible office” within companies licensed and/or recognized by the relevant Competent Authority that is, the Malta Financial Services Authority (MFSA) and/or the Lotteries and Gaming Authority (LGA). The HQP 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.

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.

Requirements

In order to benefit under the HQP Rules the person concerned must adhere to the following conditions:

1. Individual income must be made from a qualifying contract of employment in an eligible office;

2. The contract of employment must be with a company licensed and/or recognised by a competent authority, i.e., the MFSA and/or the LGA;

3. Income must amount to at least €75,000 (seventy five thousand euro) exclusive of the annual value of any fringe benefits, adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of €5,000,000 (five million euro) with the excess being exempt from tax altogether.

4. Prove to the satisfaction of the MFSA and/or LGA that:
i. Employment income is subject to income tax in Malta;
ii. The employment contract is subject to the laws of Malta for exercising genuine and effective work in Malta;
iii. That he/she is in possession of professional qualifications;
iv. That he/she has at least five years of professional experience;
v. That he/she performs activities of an eligible officer.

5. He/she 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;

6. He/she 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;

7. He/she is in receipt of stable and regular resources which are sufficient to maintain him/herself and the members of his/her family without recourse to the social assistance system in Malta;

8. He/she 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;

9. He/she is in possession of a valid travel document;

10. He/she is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for him/herself and the members of his/her family.

It is imperative to note that any person who was employed for a period exceeding two years preceding the 1st January, 2010, under a contract of employment requiring the performance of his/her duties in Malta is not eligible to benefit under the HQP Rules. However, an individual employed in Malta after 1st January 2008 and subject to the above, may benefit from the 15% tax rate. European Economic Area (i.e. EU countries plus Norway, Iceland and Liechtenstein) and Swiss nationals can benefit for a consecutive period of five years whilst third country nationals can benefit for a consecutive period of four years.

Individuals who already have a qualifying contract of employment in an “eligible office” two years before the entry into force of the scheme (1st January 2010) may benefit from the 15% tax rate for the remaining years of the scheme. Therefore, by way of example, if a CEO who is a national of an EEA country who has a qualifying contract of employment starting in 2008 (basis year) will benefit for three years from the scheme, that is, basis years 2010, 2011 and 2012, while an American citizen holding the same eligible office would benefit from the 15% tax rate for basis years 2010 and 2011.

Non-eligibility under the HQP Rules

The individual income derived from employment in an “eligible office” will not qualify for the 15% reduced rate if:

1. It is paid by an employer who receives any benefits under business incentive laws; or

2. It is paid by a person who is related to the employer who received any benefits under any business incentive laws; or

3. If the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by the Competent Authority; or

4. If the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognised by the Competent Authority or not holding “eligible office” with a company licensed and/or recognised by the Competent Authority;

5. A claim is made for any relief, deduction, reduction and credit or set-off of any kind except for any income tax deducted at source.

This article was published on Mondaq in February 2012

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.