Digital Nomad Tax

Malta for digital nomads: a match made in h(e)aven?

Malta for digital nomads, a good match or not? A lot of press covers the fact that Malta can (or maybe should) be considered a tax haven. We’ll discuss later on why some people think so.

In any case, we would also want to know if Malta is also a match made in h(e)aven for digital nomads and that’s what I am dedicating this article to.

Malta, the basics

Malta is an island situated in the Mediterranean between Italy and North Africa. The place comes with quite some history as it was ruled by different empires like the Romans and the Moors.

Given its location, you can image the country has a mild climate year long and some hot summer months. Ideal if you plan to escape the cold of mainland Europe.

malta for digital nomads: coast

Living in Malta

The first question is always if you are able to live in the country concerned, Malta in this case.

Malta is part of the Schengen Area so there is no problem for citizens of other Schengen countries. You are free to live in Malta if you choose to do so.

If you don’t hold a passport of a country of the Schengen Area, you will need a visa. In order to also attract nomads from outside Europe, Malta launched a nomad visa. Therefore, I also included it in my article on digital nomad visas in Europe.  As you can read in the article, the Maltese government set up a specific website where digital nomads can find more information about the nomad visa and Malta in general.

Maltese tax rules

If you plan to spend some time in Malta, this could have some tax consequences. For this reason, we’ll dive deeper into the tax rules of Malta.

Establishing tax residency in Malta

Malta has different approaches to tax residency with different gradations. You can be a resident in Malta on the one hand, but you also have the concept of domicile on the other hand.

Malta evaluates residency rather on the short term. Generally, if you spend more than six months in the country, Malta will see you as a (tax) resident. However, if you have or don’t have your residence in Malta is mainly evaluated on a factual basis.

Maltese domicile refers rather to your long term intentions. If you have, or intent to have, your permanent home in Malta, you will be domiciled in Malta. However, you can always declare that you don’t have the intention to become domiciled in Malta.

If you look at Malta for digital nomads, the division between being an ordinary tax resident or being a domiciled there is important.

The reason for this is that if you are domiciled in Malta, Malta will levy taxes on your worldwide income. If you are only an ordinary tax resident, you will only pay taxes on your Maltese source income and any income remitted back into Malta.

Whether or not certain income is local source income or remitted back into Malta is a question of fact and should be assessed in detail for each case.  

Malta for digital nomads: income tax rates

Once you know which income Malta will tax, we need to have a look at the applicable tax rates. Maltese tax rates are progressive and start at a level of 15% as from around €9.000,00. The highest rate is 35% as from an income of €60.000,00.

Also capital gains and investment income (e.g. dividends) are subject to the same rates.

Furthermore, it is important to know that a minimum tax of €5.000,00 is applicable to ordinary tax residents who meet certain conditions. This is the case when you earn more than €35.000 per year in foreign income while you remit less than that amount back to Malta.

Malta for digital nomads: social contributions

Next to income taxes, you will also need to account for social contributions. For self-employed nomads, social contributions amount to 15% of their income. Nevertheless, the maximum weekly contribution amounts to around €75,00 per week or €3.900,00 per year.

If you are an employee, both you and your employer need to pay social contributions. Each at a rate of 10% with a maximum contribution of around €50 per week. Thus, the total maximum contribution will be around €5.200 per year.

Tax residency in Malta for digital nomads

Depending on your personal situation you could end up paying rather a big percentage in taxes (plus social contributions) if you set up tax residency in Malta as a digital nomad. This probably does not sound too appealing to you…

malta for digital nomads

Setting up a company in Malta

Didn’t I mention in my introduction that some people consider Malta a tax haven? Based on the aforementioned tax rates, you probably don’t agree with this statement. I can’t blame you, you are totally right! Malta is mainly interesting when you want to set up a company there. So now it is time to dive deeper into the most interesting part of this article.

Corporate tax rate

The corporate tax rate in Malta totals 35%, a flat tax rate. Again, this doesn’t look too appealing!

However, Malta applies a tax refund system. This leads to a low effective tax rate. Based on the tax refund system, a shareholder can reclaim 6/7th of the corporate taxes paid. Basically, this means that you get a refund for 30% of the total 35% in corporate taxes. Consequently, the actual tax rates only amounts to 5%.

The shareholder can request the refund within 14 days of the distribution. In most cases, the refund is paid out after two to four months after the underlying company paid its corporate taxes. This does mean, though, that from a cash perspective there is period in between where your cash will be held by the Maltese tax administration and you can’t use it yourself. Nevertheless, there is the possibility to setup a company structure where the tax refund is accounted for immediately. Hence, there will be no negative impact on cashflow.

Withholding tax rate

So, we established that if the company pays out a dividend, you can reclaim most part of the corporate taxes.

Nevertheless, if we talk about dividends, the question is always if the company needs to apply a withholding tax rate. Malta does not levy any withholding tax which thus limits your tax burden.

Accordingly, setting up a company in Malta might enable you to enjoy a total tax rate as low as 5%.  

Malta for digital nomads: conclusion

Setting up shop in Malta as a private individual is probably not the most interesting bet from a tax perspective. However, by combining your tax personal tax residence with a Maltese company, Malta starts getting more interesting.

Malta is even more interesting if you can set up your company there while being a tax resident in another country that doesn’t tax (foreign) dividends, this can be an interesting play.

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