Maltese abroad to be charged income tax at 15%

Maltese workers abroad who signed their work contract in Malta are to be charged income tax at 15 per cent instead of the current low flat rates, Parliamentary Secretary Tonio Fenech has told Parliament.

Speaking during the debate on the Budget Measures Implementation Bill on Tuesday, Mr Fenech said the flat rates were introduced many years ago and were now extremely low and insignificant. It was important that the tax which Maltese workers abroad paid was fair, especially when other workers in Malta who earned the same amounts were taxed at 35 per cent. The percentage for the overseas workers had been kept low, at 15 per cent, so that such workers would still opt to pay their tax here instead of in other countries.

Replying to questions by Alfred Sant and Charles Mangion (MLP), Mr Fenech said that to date, only Lm300,000 were being paid in income tax by such workers, when the total sum earned was in the region of Lm30 million. With the new tax regime, the contribution would rise to Lm650,000.

Mr Fenech said the new system would not apply to Maltese working in Libya since they paid tax in Libya.

This measure would mostly affect professionals. There was a situation where some earned between Lm15,000 and Lm20,000, and some even earned Lm60,000, and they currently paid only Lm1,000 in tax, which was not fair.

The amendment was carried.

Mr Fenech also moved another amendment stipulating that equalisation reserves form part of distributable profits of a collective investment scheme. Mr Fenech said that profits distributed under this reserve are deemed to be dividends. If the profits of the equalisation reserve were not taxed under the collective investment scheme, a tax at source of 15 per cent would be applied once these profits were distributed to individuals resident in Malta.

Moving another amendment, he said that if the Commissioner of Inland Revenue was satisfied that a request for information made by a foreign tax authority concerned a tax fraud, or suspicion of tax fraud, he would be free to give information irrespective of confidentiality clauses. Mr Fenech said that this was in conformity with OECD information exchange regulations and Malta was being asked to include this clause in any double taxation agreement.

Dr Mangion insisted that Malta must be sure that all competitor countries selling themselves as financial centres had implemented this sort of amendment. He asked if this system was being incorporated in double-taxation agreements with other countries. The definition of fraud was so loose that it enveloped most possible circumstances, which meant that the Commissioner of Inland Revenue would be bound to give the information requested.

Considering that the financial sector accounted for 10 per cent of Malta's GDP, if Malta alone adopted this system it would constitute unfair competition for itself, because international companies would leave Malta and go to another country.

Mr Fenech said all of Malta's direct competitors were OECD member countries and had implemented the system. When Malta was negotiating a double-taxation agreement with Spain, the latter's authorities kept refusing to sign the agreement unless Malta implemented the system. In fact, Malta was among the last countries to implement it. All EU members were either already OECD members or had applied to become so. Malta too was seeking to be a full member of the organisation.

Only if a very serious case was made would the Maltese Commissioner of Inland Revenue be expected to consider it and divulge the requested information.