Equality and taxation
Corporate and income tax rates should be cut, accompanied by an increase in corporate tax for companies registered in Malta but owned by holding companies or shareholders residing abroad
Malta needs a reform of its tax system. Why? Because it is extremely unfair on the Maltese taxpayer and electorate. After all, it is the Maltese electorate who have the ultimate power in this country and, yet, they are unfairly treated by their tax system.
While foreign companies investing in Malta or moving the revenues of their business to a Maltese company only end up paying 5% or less on their corporate incomes, Maltese companies owned by Maltese residents and registered in Malta pay 35% on theirs. This is a case of unfair competition.
Similarly, foreigners who move to Malta for their retirement or hold a residence permit are given special treatment and only pay tax on what money they send to Malta provided they send around €20,000 per year. They pay only 15% tax on that, that is, a tax of circa €3,000 per year.
These wealthy pensioners probably have incomes from other sources like rents, dividends, pensions sometimes to the tune of €200,000 or more. Normally, in Sweden, Germany, France or the UK, they would have to pay tax at between 40% and 65% on their total income each year, or around €100,000 each year and end up paying only €3,000.
Yet, they live here and use all our infrastructure but contribute almost nothing, flash their money around and irritate the local Maltese who must pay between 20% and 30% tax on all their world income. So, a Maltese earning €200,000 a year from various sources has to pay around €60,000 in tax plus NI.
How does it feel to live in a country where you pay 35% tax on the profits made by a company which you own or in which you have shares but where persons who are not Maltese but have a local company that is owned by shareholders abroad get back 95% of their corporate tax when they send their profits abroad? They pay less than 5%.
How does it feel to live in a country when, as a Maltese voter, you pay tax on all your world income even if not remitted to Malta, of around 25% or 35%, while foreigners who choose to live in Malta are allowed by different regimes set up by our own governments to pay only 15% on what they actually send to Malta but 0% on all their other income earned abroad but not sent here?
This is absolutely unfair and shocking since non-voting foreigners end up paying only around €3,000 of tax per year instead of €50,000 or €100,000.
You, as a locally resident Maltese, pay between €35,000 and €70,000 depending on your income from whatever source whether it is sent to Malta or not.
Is this fair?
These systems have been set up under Nationalist governments when attracting foreign retirees to move to Malta and to attract foreign investors to set up shop and create jobs in Malta. Labour kept up the same practices but added the selling of passports without making the new passport owners liable to Maltese tax.
Malta’s tax system is extremely unfair on the Maltese taxpayer and electorate- John Vassallo
They also fell for the arguments of the gambling industry to allow their top management to only declare a maximum of circa €60,000 of their income for tax and NI contributions, leaving any income above that amount (which could reach more than €200,000 as tax free) as well as any other foreign income away from our tax collector.
This is unfair on local managers who have to declare their full world incomes.
Both of these persons reside in Malta and both use our hospitals, our roads, our internet systems, our centres of entertainment and our limited housing. They live next door to you, play golf, tennis or bridge with you. They attend the same concerts, go to the same restaurants as you.
Yet, they pay about 1% or 2% tax towards Malta’s coffers. You, on the other hand, with the same income as them, pay 25% or 35% tax. There are more and more of these foreign residents enjoying this paradise on earth and you are paying the basic costs for them. This is not worthy of a country member of the European Union.
Because of this and other flaws in our taxation system, I welcome the Nationalist Party’s constant promises of reducing the taxation rates for all. Corporation tax from 35% to 20% or 15% and income tax for individuals down to 20%. The electorate and a potential third party must hold them to this promise.
This reduction should be accompanied by an increase in corporate tax for companies registered in Malta but owned by holding companies or individual shareholders residing abroad. This increase would be achieved by eliminating the tax refund that today is paid out when dividends are declared and remitted abroad.
The elimination can be done over three years by taking away 33.3% of the refund each year and eliminating it in year four when these will also be subject to the low 20% or 15% new company tax rate.
Retirees and employees of foreign extraction benefitting from the 15% rate on only the revenue they remit to Malta should be brought up to the new 20% tax rate on revenue just like the Maltese resident here on all their global income.
This is the only fair way to treat all residents in Malta equally, ensuring fair competition and justice for the Maltese electorate. It will also increase the tax and NI revenues of the government which can be used to reduce the national debt that Labour has burdened the nation with.
John VassalloJohn Vassallo is a former ambassador to the EU.