The Maltese government has published the Highly Qualified Persons Rules bringing into force tax incentives retrospectively to January 1, 2010. The Highly Qualified Persons Rules were introduced to encourage non-resident highly-skilled workers to the island and clarifying the parameters of the scheme.

These Rules must serve to create a scheme to attract highly qualified persons to occupy 'eligible office' with companies licensed and/or recognized by the Malta Financial Services Authority.

'Eligible office' comprises employment in one of the following positions:

Actuarial Professional;

Chief Executive Officer;

Chief Financial Officer;

Chief Insurance Technical Officer;

Chief Investment Officer;

Chief Operations Officer;

Chief Risk Officer;

Chief Technology Officer;

Chief Underwriting Officer;

Head of Investor Relations;

Head of Marketing;

Portfolio Manager;

Senior Analyst (including Structuring Professional); and,

Senior Trader/Trader.

These Rules are applicable as of January 1, 2010 and applies to income earned in 2010 by non domiciled individuals in Malta.

The rules of the scheme are as follows:

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 EUR 75,000 (adjusted annually in line with the Retail Price Index). The 15% flat rate is imposed up to a maximum income of EUR 5,000,000. The excess is exempt from tax.

The 15% tax rate applies for a consecutive period of five years for the European Economic Area (EU countries plus Norway, Iceland and Liechtenstein) and Swiss nationals and for a consecutive period of four years for third country nationals. Individuals who already have a qualifying contract of employment in an eligible office two years before the entry into force of the scheme may benefit from the 15% tax rate for the remaining years of the scheme. This means that a national of the EEA and Switzerland who has a qualifying contract of employment in an eligible office starting in 2008 (basis year) will benefit for three years from the scheme, ie basis years 2010, 2011 and 2012, while a third country national will benefit from one less.

Qualifying Contract of Employment

An individual may benefit from the 15% tax rate if the following employment conditions are met:

derives employment income subject to income tax in Malta;

employment contract is subject to the laws of Malta and proves to the satisfaction of the Malta Financial Services Authority that the contract is drawn up for exercising genuine and effective work in Malta;

proves to the satisfaction of the Malta Financial Services Authority that he is in possession of professional qualifications and has at least five years' professional experience;

has not benefited from deductions available to investment services expatriates with respect to relocation costs and other deductions (under article 6 of the Income Tax Act);

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;

proves to the satisfaction of the Malta Financial Services Authority that the activities performed are those of an eligible office

and proves that:

they are in receipt of stable and regular resources which are sufficient to maintain themselves and the members of their family without recourse to the social assistance system in Malta;

the applicant 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;

they are in possession of a valid travel document and

they are in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for themselves and the members of their family.

Exclusions 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 recognized by the Malta Financial Services Authority or 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 recognized by the Malta Financial Services Authority or not holding 'eligible office' with a company licensed and/or recognized by the Malta Financial Services Authority.

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 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 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

An application for a formal determination relating to eligibility under the Highly Qualified Persons Rules must be made to the Chairman, Malta Financial Services Authority on the appropriate form, found on the tax authority website.

The benefit is exercised for each year of assessment by means of a declaration made on the RA17 form signed by the beneficiary and endorsed by the Malta Financial Services Authority. This form is to be attached to the income tax return and filed with the Inland Revenue Department by the tax return date.