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Working in Malta

Tax status of work done over Internet from Malta?

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Tax status of work done over Internet from Malta?

Postby johnofessex » Wed 26 Dec 2007 15:44 GMT

Hi

I'd be grateful if I could run this query past the members of this board, even though someone may (sensibly) tell me to check with an accountant!

If I have it right, an ordinary/temporary foreign resident is liable to Maltese tax on Malta-sourced income, and not liable to tax on foreign-sourced income, unless and until it's remitted to Malta (as income rather than capital).

I'm wondering about the status of income from work done over the internet, from Malta, on a freelance basis, for clients outside Malta. I am hoping that this counts as foreign-source income, and (perhaps another point) that one doesn't need to be set up as a self-employed person in Malta to do it.

Any views on whether that's right will be much appreciated.

Best regards

John
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Postby gozomark » Wed 26 Dec 2007 17:15 GMT

Hi John

An interesting one, and sorry but I don't know the answer, and the following is a bit of a ramble

is it foreign sourced or foreign earned that is potentially tax free in Malta ? Now, interest income on a bank account in say the Isle of Man is clearly both sourced and earned overseas.

I'm guessing, but I'd say your work would be classified as foreign sourced, but locally earned ??

where would you be paid ? I'd say its the same as someone who is a journalist living in Malta but working for an overseas newspaper - if you are paid in Malta, you pay tax in Malta. If you are paid outside, I'm not sure.

So the legal position I'm not sure about - however the practical point would be - would the authorities find out ? If you would be paid outside of Malta, would it be another EU country ?
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Postby johnofessex » Wed 26 Dec 2007 18:31 GMT

Hi Mark

Thank you for joining me in rambling around this tricky issue.

I got the phrase "foreign-sourced" from a (relatively well-known, I think) summary of Maltese personal tax by KPMG - see http://kpmg.com.mt/uploads/mt/Residence ... 0Malta.pdf. Having said that, while I'm sure KPMG are respected tax advisers, I'm equally sure that they don't actually write the tax legislation, and one should maybe not place too much reliance on their precise wording.

My client would be happy to pay to any reasonable location. I was thinking of an account in IoM, Guernsey, Jersey, etc - not exactly EU but, as you know, within the Savings Directive and subject to disclosure requirements. We are not talking huge sums here (perhaps GBP 5000) and I suspect that going further to very exotic and more secret locations would be questionably legal and rather too much fuss.

I suppose there's one further possible trade-off. As I understand it, being signed up as an employed or self-employed person in Malta, and "paying the stamp", entitles one to use Malta's national healthcare services (and to sign up for the state pension etc). If one isn't so signed up, one would need to buy health insurance which would also cost money. Have I got that right? If so, maybe the option of running this activity on a fully onshore basis in Malta is worth thinking about.

Perhaps I really should ask an accountant! But thanks again for your thoughts.

Best regards

John
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Postby gozomark » Wed 26 Dec 2007 20:34 GMT

a few things

1. are you aware of the third option within the EU savings tax ?
ie neither witholding tax nor disclosure, but a declaration that one is not liable to tax

2. As a UK citizen, you get preferential treatment under Maltese Health care - you only pay 15% of the cost of use of the health system, and use of the health clinic is free, even if you don't pay "stamp"
http://www.sahha.gov.mt/pages.aspx?page=188
Also, if you have been paying stamp in the UK (or other EU countries ?) then you get free health cover for two years from paying your last UK stamp

3. if you pay stamp, as self employed the minimum is about Lm 550 - this kicks in once you earn more than about Lm 600

4. The tax rates on that pdf are one (possibly 2) budgets out of date - the number of tax brackets has been reduced from 5 to , I think, 3
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Postby johnofessex » Wed 26 Dec 2007 20:57 GMT

Hi Mark

Thank you again.

1) You make a good and helpful point that one can declare that one's offshore accounts are not liable for tax. I would like to check a little further before making such a declaration that that was actually true, or at least reasonably arguable, in this case (perhaps I need to get less rule-bound and conscientious?), but maybe it is!

2) and 3) It looks as if my idea that the Maltese stamp might be worth paying is probably a red herring. Now I know. Thank you very much for clarifying that.

Best regards

John
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Postby gozomark » Wed 26 Dec 2007 21:25 GMT

"It looks as if my idea that the Maltese stamp might be worth paying is probably a red herring" - not a red herring at all, but depends on your circumstances. Also, the point about paying only 15% - I've never had to test that, but it is on a Government website - certainly using the health clinic is free by flashing a UK passport - however the website http://www.sahha.gov.mt/pages.aspx?page=188 does refer to travellers -

"The UK has reciprocal healthcare agreements with Malta, enabling travellers to receive free or low cost emergency care for stays up to 30 days or reduced cost (15% of total) for stays longer than 30 days."

so you/I might not be covered - there is a further paragraph though on
http://www.sahha.gov.mt/pages.aspx?page=184
"Bilateral Agreements
There is one bilateral agreement in place up to now. Citizens of the United Kingdom (including Gibraltar, the Channel Islands) and Northern Ireland are exempted from the production of a valid EHIC when they call at a public hospital or government health care centre to be given emergency medical care. "

on declaring one's offshore accounts are not liable for tax - AFAIK what the bank would be declaring is the interest earned on your bank account balance, not the inflows into the account. As a result, declaring that the interest earned isn't subject to taxation (unless remitted to Malta) is true. Some banks are happy for a self certification, other want to see a certificate from the Maltese tax authorities, but all the banks I've used are aware of the third option, and that a foreigner living in Malta is one of the few opportunities for this to be applied to an EU citizen - see questions 17 and 18 on this from Isle of Man Government
http://www.gov.im/lib/docs/iomfinance/b ... rectiv.pdf
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Postby johnofessex » Wed 26 Dec 2007 22:43 GMT

Hi Mark

Thanks again. I take your good point about what exactly one is or isn't certifying regarding a foreign account. Also, the healthcare small print clearly needs to be read carefully.

Returning to the point we started with, I've found the following text somewhere on the web which seems to offer some hope that income can be "foreign source" even if it relates to work done in Malta:

"The liability to Malta tax of emoluments earned by foreign personnel depends on the factors of residence and domicile plus the provisions of the relative double taxation treaties. Effectively, foreign personnel are taxable on their income arising in Malta and on income remittances from abroad. Usually, consideration need be given only to their emoluments, including the benefits already indicated. Few foreign employees remit to Malta income arising to them from other sources abroad, while the only other income arising in Malta would probably be small amounts of bank interest. The question to be determined is, therefore, the locality where the income earned by foreign employees is held to arise. If these earnings are considered to have arisen in Malta, the full salary and benefits are subject to Malta tax. If the source of the income is held to be outside Malta, liability would be on the remittance basis (but including benefits received in Malta), notwithstanding that the work and services are performed in Malta. "

Having said that, I have no idea what the provenance of this information is! It seems to come from Chapter 20 of some book or manual but I'm not sure what. I got it from Google's cache at http://64.233.183.104/search?q=cache:9p ... clnk&cd=12.
As you've remarked before, web sources often need to be taken with a pinch of salt.

Best regards

John
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Postby gozomark » Thu 27 Dec 2007 07:05 GMT

it also seems you need to have health cover at the point you apply for your residency permit - this could be in the form of EHIC, obtained via your last country of residence (through either reaching legal retirement age, or through recent stamp payments), through paying Maltese stamp, or through private health care. I presume that the bilateral agreement between Malta and the UK doesn't suffice as it only covers emergency cover.

As such, even if you rely on the bilateral agreement once your stamp cover expires, you would probably need an insurance policy in place when applying for (or renewing) a residency permit

that website you found - I'm guessing its from Price Waterhouse (the accountants), but that's only based on seeing "PWGuides" in the web address. Its at least 2 years out of date (and as PW was renamed PWC in 1998, it could be 9 + years old.) as it mentions the minimum tax liability of Lm 1,000 for permanent residents (raised to Lm 1,800 2 years ago I think), but I'd guess the principles are unchanged.

It makes interesting reading, and as you say seems to be in your favour, and depends on the phrase "If the source of the income is held to be outside Malta"
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Postby Mr Kriss » Thu 27 Dec 2007 15:06 GMT

Have you also considered another option, John. That is to set up a limited company offshore and invoice your client through that vehicle, then set up a contract tp pay yourself in December of each year and remit the money to Malta in January. If you use Isle of Man be careful about what is payment of directors fees/dividend and what is payment of salary or contract fees, so as not to get caught by non resident directors taxation in IOM.

Of course this does nothing to solve health insurance or such, but may well see you hanging on to more of your cash to afford private medical insurance.

The sums you mentioned are, of course, well below VAT registration thresholds in IoM, but I assume this would not be a one-off so consider also the benefis/drawbacks of VAT registration too.
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Postby johnofessex » Thu 27 Dec 2007 19:54 GMT

Hi Mr Kriss

Thank you very much. That's a good point.

I guess you may be quite right about the merits of setting up an offshore company if one intended to do a lot of non-Maltese business from a Maltese residential base. As I understand it, many countries (such as the UK) have what is called "controlled foreigh company" law, so if you were running an offshore-registered company from the UK the fact that it was offshore-registered wouldn't help you for tax purposes. However, I believe that Malta doesn't have such laws, so the possibility is certainly there.

I suppose any given individual would need to consider the likely scale of their non-Maltese business, and hence how much effort and expense it was worth putting in to avoid Maltese tax liability. I may need to think that through myself (perhaps with some professional advice).

Many thanks again for your thoughts.
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Postby peterj » Fri 28 Dec 2007 11:21 GMT

johnofessex wrote:(perhaps GBP 5000)


Hi John

If your client is only looking to declare GBP5000, it may not be worth worrying about. The single personal allowance for 2008 is €8150 or about 5900GBP. If they are taking any other income into the country as capital as I suspect most ex-pats do, there won't be a tax bill to pay anyway.

If they are married/have a partner they can opt to be taxed separately and this doubles the tax free allowance. I would guess (GUESS) that if your client was paid overseas and then remitted the income into a joint Maltese account, his partner could declare half the income.

If there is no way to avoid health insurance, one way to minimise the cost, if you have maintained an overseas address, is to take out travel medical only cover, which in my case at least was considerably cheaper than Maltese health insurance. This is only available, from Australian co's a least, for a maximum of two years per "trip".
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Postby johnofessex » Sat 29 Dec 2007 19:24 GMT

Peter, thank you. As I think you've worked out, this is a little sideline, not a serious way of earning a full-scale living. So if the income from it fits neatly into the zero-rate band, then as you say the problem goes away. (By the way, just to clarify terms - I'm the potential expat - the "client" is the foreign outfit who might pay me the £5000.)

Good point. Much obliged.
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Postby johnofessex » Sat 29 Dec 2007 20:31 GMT

Thank you to everyone who helped with this query!

As we discussed it, I must admit the thought crossed my mind "blimey, isn't there somewhere authoritative where one can look this sort of stuff up?", since I presume (or at least hope) that real Malta tax professionals have something better to work from than (like me) Google caches of old pages that may or may not have been written some time fairly recently by Price Waterhouse. So I dug a little deeper.

And I have some (qualified) good news. The Malta Institute of Taxation is apparently going to publish the first ever Malta tax manual during 2008 (alas I don't know when). Here's the press report - http://www.maltamedia.com/artman2/publi ... 4229.shtml .

The Institute's website is at www.maintax.org. It already seems to feature much or all of the relevant legislation, though as an amateur I found it rather hard to get my head round some of that. I'm sure the guide, when it arrives, will add some real value.

I hope that's interesting.

Best regards

John
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Re: Tax status of work done over Internet from Malta?

Postby doc » Mon 3 Aug 2009 22:33 GMT

johnofessex wrote:Hi

If I have it right, an ordinary/temporary foreign resident is liable to Maltese tax on Malta-sourced income, and not liable to tax on foreign-sourced income, unless and until it's remitted to Malta (as income rather than capital).

I'm wondering about the status of income from work done over the internet, from Malta, on a freelance basis, for clients outside Malta. I am hoping that this counts as foreign-source income, and (perhaps another point) that one doesn't need to be set up as a self-employed person in Malta to do it.


Did anyone ever figure out the answer to Johns question above?

ie Whether income earned by working over the internet while physically in Malta counts as income earned in malta, or foreign income, for the purposes of the distinction between foreign income only becoming liable to tax in malta if remitted to malta.

I guess his second question which is also interesting, is that if this is not counted as income earned in malta, then presumably you dont need to be registered as self-employed to do it. (eg just register as self-sufficient if you can show an account with eur15k in it.)

-doc
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Re: Tax status of work done over Internet from Malta?

Postby doc » Thu 6 Aug 2009 14:56 GMT

I went to see gozomark's recommended accountant (see recommended suppliers board) and here are some not so nice answers.

A friend of mine who lives in another very high tax european country (50%+ income tax!), and does consulting work over the internet is coming to visit, check out Malta, with some interest to relocate away from 50% tax rates. For him Andorra is another option. So I felt the need to investigate this question more seriously.

doc wrote:Did anyone ever figure out whether income earned by working over the internet while physically in Malta counts as income earned in malta, or foreign income, for the purposes of the distinction between foreign income only becoming liable to tax in malta if remitted to malta.


According to this accountant I spoke to, this would be deemed income arising in Malta and so taxable in Malta.

So I asked some follow on questions and I saw this mentioned somewhere else on this forum. What if the income is routed through an offshore (non-Maltese) company? And the profits retained by that company?

So beforehand I had read this

http://www.3a.com.mt/Articles/The-remit ... Malta.html

which talks about some interesting options to opt to domicile a company in Malta that is actually incorporated offshore (in another country, presumably with lower corporation tax rates) and thereby benefit from Malta's double tax treaties which maybe wider/better than the the companies country of incorporation. The company is treated in Malta to the same remittance basis as individuals on its foreign income. Incentive to do offshore company management in Malta I guess.

Ok so that page mentions treatment of CFCs (controlled foreign company) in Malta. How you elect to make a company domiciled in Malta is to control or manage it from Malta. (Or conversely if you control and manage it from Malta it may be deemed to be domiciled in Malta against your preferences!)

Anyway said accountant seemed to be of the opinion that by routing consulting work through the company, the work is still deemed as arising in Malta, and so under the CFC rules, the company has to pay Maltese corporation tax on it.

Dividend payments to you from the offshore company as shareholder of the company would be tax free (if not remitted.) The only problem being those dividends are only paid net of/after cMaltese corporation tax.

Anyway so as these things always go with complex questions, I think I asked the wrong question on reflection, and he wasnt volunteering better information.

What I think you need to do is ensure your company is non-CFC, ie that it is NOT controlled from Malta, but that you are a shareholder. Then the company can earn all the income it likes that maybe deemed to arise Malta (for a CFC) and not be taxed on it. And because the company its in a 0% corporation tax jurisdiction, it can then pay no corporation tax, and periodically make dividend payments to your offshore account as shareholder. And then you do NOT remit it to Malta and no tax is due.

I wasnt fully sure if this accountant was on the side of the tax payer or the maltese tax department. I've seen it before in other countries where the advice is not focused on minimizing tax liability (neutral) or even worse (giving advice tht actually increases your tax liability). It was a short meeting, he had to rush off on holiday, he didnt charge me, so no criticism/judgement.

The tests for non-CFC are mentioned on the above link and are:

* Directors are resident in Malta
* Head office of the company is located in Malta
* Minutes of the board meeting show that most important decisions were taken in Malta
* Management decisions were taken in Malta
* Company operates a Maltese bank account
* Financial Statements are audited by a Maltese auditor

shouldnt be too hard to ensure none of those factors is the case. Just dont be a director. And the actual director would probably need to be in a country with no anti-CFC rules. eg. like director located in its own incorporation jurisdiction. Or another country with CFC friendly rules like Malta's (but not Malta).

However that link says one clearly conflicting thing:

- no CFC regulation (in Malta)

I think it would be more accurate to say that Malta is a very CFC (offshore company management) friendly jurisdiction because they only charge corporation tax on the remittance basis and on corporate income arising in Malta.

I'm pretty sure the non-CFC route should work because an offshore company can retain any amount it wants as working capital to subsequent years. eg 100%, 50%. And pay dividends at arbitrary deferred times. So you could remit to Malta income up to your 0% tax limit as payment for your services (reduce your rate of pay until it is below the threshold). The rest could be retained by the company as profits which could be remitted to you, the shareholder, as dividends later, or just invested and retained.

I might ask some questions about the non-CFC route to someone qualified.

I saw another thread here somewhere that said malta has no anti-CFC regulation, but if the above links is correct, that information is also wrong. Its quite friendly CFC regulation, but its still CFC regulation.

-doc
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