A. INTRODUCTION

Permanent residence permits are regulated by the so-called '1988 Residence Scheme'. Interestingly, notwithstanding the reference to 'permanence', such a permit does not impose permanent residence in Malta as a condition for the issue thereof. Indeed, Permanent Residence Permit holders may choose to reside in Malta for any length of time which is convenient, be it days or years, with the freedom to come and go as they please.

B. PERMIT CONDITIONS

Besides submitting a number of documents (e.g. birth certificate, police conduct certificate, etc.), an applicant is required to provide evidence of the fact that he has a capital (e.g. bank deposits, investments, immovables) of Lm150,000 (circa US$405,000) or an annual income of Lm10,000 (circa US$27,000). This capital does not have to be imported into Malta, unless the permit holder wishes to purchase a property.

Permit holders are required to comply with a number of conditions, including the following:

(i) They must, within the first twelve months from the date of issue of the permit, purchase property the value of which exceeds Lm20,000 (US$54,000) in the case of an apartment and Lm30,000 (US$81,000) for a house. Alternatively, a permit holder may decide to rent/lease property at a minimum charge of Lm1,200 (US$3,240) per annum.

(ii) They must import a minimum income of Lm6,000 (circa US$16,200), plus Lm1,000 (circa US$2,700) for each dependant, into Malta on an annual basis.

(iii) The exercise of a profession, occupation, employment or engagement in trade/business is prohibited (subject to the exception relating to offshore companies discussed below).

C. TAX BENEFITS

Persons holding a Permanent Residence Permit are eligible for a number of tax incentives:

1. INCOME TAX

A permit holder is liable to pay Malta tax on chargeable income, being Malta source income or foreign income remitted to or received in Malta, at a flat rate of 15%.

A minimum amount of tax must be paid every year - Lm1,000 (US$2,700). This amount is net of any double taxation relief (Treaty relief, Unilateral relief) to which the permit holder may be entitled.

It is important to note that the definition of "income" for income tax purposes includes capital gains. Accordingly, the above mentioned flat rate and minimum tax liability are also applicable to capital gains subject to Malta tax.

2. CUSTOMS DUTY

Used household and personal effects, furniture and other domestic articles, excluding firearms and weapons of all kinds, may be imported free of duty within six months of the date of arrival in Malta to take up residence.

One private motor vehicle may also be imported free of duty by a person (husband and wife counting as one) provided: (i) it was purchased abroad and was in the permit holder's ownership for a continuous period of six months preceding the issue-date of the permit, (ii) all foreign charges due thereon have been paid prior to vehicle's arrival in Malta, and (iii) the car is imported within six months from the issue-date of the permit or the date of the permit holder's arrival in Malta to take up residence, whichever is the later.

3. REGISTRATION TAX

The exemption from customs duty has lost much of its importance in view of the fact that customs duties have been lowered considerably, to be replaced by hefty registration taxes. Permit holders however pay registration tax at reduced rates, ranging from 10% to 15%, depending on the engine capacity of the vehicle concerned.

4. VALUE ADDED TAX

Used household and personal effects, furniture and other domestic articles, excluding firearms and weapons of all kinds, may be imported free of VAT within six months of the date of the permit holder's arrival in Malta to take up residence. VAT is however chargeable on the importation of the permit holder's private motor vehicle.

D. OFFSHORE COMPANIES

A permanent residence permit holder is considered as a non-resident person for the purposes of the Offshore regime. Accordingly, a holder may hold shares in both trading and non-trading offshore companies (vide previous Article entitled "Offshore Companies"): any dividends which the permit holder may receive from such companies would be tax free.

It is also interesting to note that, by way of exception to the prohibition as to employment in Malta imposed by the permit itself, a Permanent Residence Permit holder may apply for an employment licence ('work permit') to be issued to him in relation to an offshore company. In virtue of such employment licence, the permit holder may act as director of the offshore company or be employed by such company.

Directors' fees or salaries paid by the offshore company are charged to Malta tax at standard rates of tax as a separate chargeable income, that is, distinctly from the annual remittance of income taxed at 15% (vide "Income Tax" above). Directors and employees of offshore companies may however opt for a 30% maximum tax rate, subject to a further minimum tax liability of Lm1,000 (US$2,700).

It is noted that offshore companies may continue to be registered until 31 December 1996.

THE CONTENTS OF THIS ARTICLE ARE INTENDED TO PROVIDE GENERAL INFORMATION ON THE SUBJECT MATTER. IT IS THEREFORE NOT A SUBSTITUTE OF PROFESSIONAL ADVICE AND IS NOT TO BE ACTED UPON WITHOUT PRIOR CONSULTATION WITH SPECIALISED CONSULTANTS.