Private client and Tax Law – Global Mobility
Is your jurisdiction developing immigration legislation to deal with ‘digital nomads’ – and if so, how is this set to change in the year ahead?
Malta has been attracting digital expats from the EU for a number of years, ever since Malta became a hub for gaming companies. Over time Malta has become a multi-cultural, cosmopolitan country. The technological investment and change in mindset brought about by Covid-19 accelerated the shift from the traditional office towards remote working, enabling certain individuals to continue performing their employment or self-employment activities from anywhere in the world.
The introduction of the Nomad Residence Permit (NRP) in June 2021 enables third country nationals (TCNs) to legally reside and work from Malta, even when the entities or customers to whom they are providing services have no presence in Malta. TCN applicants are subject to an initial application fee of €300 (application can be renewed annually at a further cost of €300) and must:
- Be over 18 years of age.
- Have a valid travel document.
- Possess a valid property rental/purchase agreement covering the whole duration of the permit upon approval of application.
- Hold a valid health insurance policy upon approval of application (not applicable to British nationals).
- Enjoy a minimum gross yearly income of €32,400.
- Prove that they are working remotely from Malta using telecommunications technology.
- Further prove that they fall under any one of the following three categories: contractually employed, self-employed or freelance.
If the prospective applicant has a contract with a foreign employer but will be offering services to a Maltese subsidiary company, the prospective applicant will not be eligible to apply for the NRP.
After the completion of a background verification check on each application to ensure that the main applicant and any of his dependents is not, or may not be, a potential threat to national security, public policy or public health, and subject to all the eligibility criteria being satisfied, an NRP is issued. This will in turn allow the NRP holder to travel within the Schengen Area without the need of a visa as long as the permit is valid.
With millions of people on the move worldwide and the increasingly popular trend to work remotely, Malta acknowledges the impact that the NRP might have to its economy. Consequently, and in order to further enhance the already thriving digital nomad community on the island, authorities are constantly striving to improve the application process whilst investing heavily in infrastructure to continue attracting digital nomads to its shores.
What taxation issues do clients need to be aware of if they are emigrating longterm or exploring temporary remote work visas in your jurisdiction?
International migration is intimately intertwined with issues of taxation, both in home and destination countries. Individuals who intend to emigrate to Malta, whether on a long-term or temporary basis, must take into account tax consequences and all the reporting formalities. Any foreign national who resides in Malta for more than three months is required to apply for a Residence Permit.
From a tax perspective, when transferring residence it is necessary to consider whether a nexus remains for continuing liability in the home jurisdiction of the emigrant. Such a nexus may typically consist of a place of residence, a holiday home or an extended regular physical presence (stay). If not properly addressed, this may result in a situation where the individual will be simultaneously resident in two countries (under their domestic tax laws). Malta has concluded over 75 double tax treaties with a number of countries and jurisdictions. These treaties regulate taxing rights between the countries that are parties to the respective treaty and allocate the income that a person obtains between them so as to avoid double taxation. The double tax treaty is applied to determine in which of the two countries the individual will be considered resident for treaty purposes.
Another tax issue to consider when changing residence is exit tax, an expatriation tax or an emigration tax, which are taxes imposed on persons who cease to be tax resident in a country. This often takes the form of a capital gains tax against unrealised gain attributable to the period in which the taxpayer was a tax resident of the country in question. In most cases, expatriation tax is assessed upon change of domicile or habitual residence.
Any prospect for tax optimisation ought also to be considered. An individual who is both ordinarily resident and domiciled in Malta is taxed on his worldwide income. However, in Malta emigrants would, upon satisfying certain criteria, usually be considered as being resident but not domiciled. This could result in possible optimal tax planning scenarios, as resident but not domiciled individuals would only be taxed in Malta on income arising in Malta and income arising abroad but remitted to Malta.
Another tax issue to look into revolves around social security and the rights of long term or temporary residents to access social protection benefits. Such individuals may be denied access or have limited access to social security because of their status or nationality or due to the insufficient duration of their periods of employment and residence. This is particularly important in the case of long-term benefits (such as those for invalidity and old age) where qualifying periods may be considerable. In the area of social security, Malta enjoys several bilateral and multilateral agreements that govern reciprocity between the contracting parties and ensure that their nationals receive equal treatment.
Are there any challenges related to short-term residency that clients need to be aware of, and how can they overcome them?
A particular challenge arises from the fact that a person may be tax resident in Malta even if he is also resident for tax purposes in another country. In such situations, an individual would be considered as having dual residence for tax purposes, with the latter potentially giving rise to significant tax implications.
When an individual is present in Malta for more than 183 days (in any particular year) they will be considered as tax resident in Malta for that year, regardless of the purpose and the nature of the individual’s stay in Malta. On the other hand, an individual who does come to Malta to establish residence becomes resident from the date of his arrival, regardless of the duration of his stay in Malta in any particular year.
It is therefore very important to understand when an individual is considered as tax resident in a jurisdiction. Tax rules can be complex and there may be different rules in each country. Consequently, the best way to overcome such challenges is to get proper advice as to the tax implications arising in the home and destination countries, giving particular attention to any double tax treaty provisions to tackle, for example, the determination of where an individual resides and how foreign income can be taxed.
“In order to further enhance the already thriving digital nomad community on the island, authorities are constantly striving to improve the application process whilst investing heavily in infrastructure”