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Retirement Schemes and Retirement Funds in Malta

12.01.2015

The Maltese tax authorities issued a guideline with respect to the taxation of Maltese retirement funds and retirement schemes, as well as the taxation of beneficiaries of retirement income from such schemes. In terms of Article 12(1)(d) of the Income Tax Act (Cap 123 of the Laws of Malta), the income of any retirement fund or retirement scheme that is licensed, registered or otherwise authorised under the Special Funds (Regulation) Act or any Act replacing the said Act is exempt from income tax provided that this income is not derived from immovable property situated in Malta.

An (occupational) retirement scheme is a vehicle to which contributions are made either solely by the employer or by the employer and employees combined, for the benefit of the employees. The benefits provided by a Malta based retirement scheme are characterized as pension income having a Malta source. As a result, benefits are taxable in Malta, whether resident in Malta or not, at progressive rates up to 35%; and such beneficiary must register in Malta for income tax purposes and file annual income tax returns. Capital sums received by way of commutation of a pension are exempt from tax in Malta at the level of the beneficiary. When the beneficiary is not resident in Malta for income tax purposes, the same pension income may also be subject to tax in the country of residence of the recipient in terms of the national tax laws. Reference is then to be made to the double taxation treaty. Should treaty benefits be claimed, evidence of the recipient’s residence, ideally in the form of a tax residence certificate issued by the relevant tax authorities, should be provided to the Malta tax authorities.

A retirement fund is defined as a company established for the principal purpose of holding and investing the contributions made to one or more schemes or to one or more overseas retirement plans and must have its principal purpose of providing retirement benefits.

Taxation of the benefits derived from a retirement scheme or fund

The benefits provided by a Malta based retirement scheme are characterized as pension income having a Malta source. As a result, such benefits are taxable in Malta in the hands of the beneficiary, whether resident in Malta or not, at progressive rates up to 35%, and such beneficiary must register in Malta for income tax purposes and file annual income tax returns. Capital sums received by way of commutation of a pension are exempt from tax in Malta at the level of the beneficiary.

When the beneficiary is not resident in Malta for income tax purposes, the same pension income may also be subject to tax in the country of residence of the recipient in terms of the tax laws of that jurisdiction.

Reference is then to be made to the double taxation treaty which Malta has in place with that particular State of residence. Should treaty benefits be claimed, evidence of the recipient’s residence, ideally in the form of a tax residence certificate issued by the relevant tax authorities, should be provided to the Malta tax authorities.

Allocation of exclusive taxing rights to residence state 

Whether covered by the Pension Income or Other Income articles of the treaties, the vast majority of Malta’s treaties allocates exclusive taxing rights on such income to the country of residence of the beneficiary, unless the income is effectively connected with a permanent establishment or fixed base located in the source state. Some of the treaties restrict the applicability of the exemption in Malta (as the state in which the pension arises) if under the law in force in the state of residence of the recipient the income is subject to tax only by reference to the amount remitted to or received therein.

Some treaties provide exclusive taxing right to source state and others provide shared taxing rights, as explained in the full document.

Click here to download the factsheet Retirement Schemes and Retirement Funds in Malta.