Taxable Person
A taxable person is any person (individual or company) that is required to pay tax in a jurisdiction (in this case Malta) based on the connection between Malta and the income received by the taxable person, and the connection between Malta and the tax payer i.e. the source of the income and the residence status of the tax payer.
Basis of Taxation
- Individuals who are ordinarily resident and domiciled in Malta are taxed on their worldwide income and certain capital gains.
- Those who are resident but not domiciled, are taxed on income arising in Malta (Malta source income), and on foreign income and certain capital gains only when such income is remitted to Malta (received).
- Non-resident individuals are taxed only on the income arising in Malta. Capital gains arising outside Malta are exempt from tax even if they are remitted to Malta.
- Companies, partnerships and similar entities, being incorporated, managed and controlled in Malta are deemed to be resident and domiciled in Malta and are therefore also taxed on their worldwide income.
This distinction is key to knowing how much tax applies and on which income, ensuring full compliance with the Malta Income Tax Act (Cap. 123).
The Concept of Residence
‘Resident in Malta’ when applied to a natural person (an individual) means an individual who resides in Malta except for such temporary absences that the Commissioner for Revenue considers reasonable and not inconsistent with the claim of such individual to be resident in Malta.
Residence is generally based on two factors, physical presence and the intention to reside therein.
- Presence in Malta for more than 183 days in any particular year amounts to residence in Malta for that year, regardless of the purpose and the nature of the individual’s stay in Malta.
- An individual who comes to Malta to establish his residence here becomes resident from the date of his arrival, regardless of the duration of his stay in Malta in any particular year. If their personal, social, or economic ties show a clear connection to the country, such individual will be considered as a resident.
‘Resident in Malta’ when applied to a body of persons (companies and other entities), residence is determined by where management and control are exercised. A company managed and controlled from Malta, even if incorporated abroad, is treated as resident in Malta for tax purposes.
Residence therefore establishes where a person or entity is subject to tax and on what portion of their income.
The Concept of Ordinarily Residence
A person who lives in Malta on a permanent or indefinite basis is ordinarily resident. This would apply to individuals who are in Malta for more than 183 days in each year over a period (number of years). It can also apply to individuals who do not stay in Malta for more than 183 days over in any year, but who come to Malta regularly enough to establish personal and economic ties.
The Concept of Domicile
Domicile is a legal concept and it refers to the place or country in which the person has his home and has the intention to reside permanently.
There are two types: Domicile of Origin and Domicile of Choice.
Domicile of origin:
A person’s domicile of origin is acquired at birth.
The domicile of origin typically follows the domicile of the father, or in his absence, the domicile of the mother.
Domicile of choice:
A person can acquire a new domicile by leaving his current country of domicile, changing his residence and settling in another country.
The person must provide proof of intention to live in a new place of residence permanently and indefinitely. There must be no intention to return and there should be no economic and personal ties to the domicile of origin.
Domicile of dependence:
Until a person has the legal capacity to change its domicile of origin, the domicile will follow that of the person on whom that person is legally dependent.
If the domicile of a person changes, the domicile of any dependents will automatically change into the same domicile.
