Minister says OECD claim that passport buyers get tax refunds ‘mistaken’

Persons benefiting from Malta’s golden passport programme or the visa residence programme are not automatically eligible to claim refunds on the tax charged on their foreign assets. 

The Maltese finance ministry was responding to a list of citizenship-by-investment programmes published by the rich nations’ club think-tank OECD (Organisation for Economic Cooperation and Development), which said Malta’s Individual Investor Programme was among some 21 schemes that gave its beneficiaries access to a low-tax regime on their foreign assets – a reference to Malta’s effective 5% tax on foreign profits booked in a Malta tax-resident company. 

Finance minister Edward Scicluna said that in respond to a letter from the OECD back on 23 March 2018, he had already declared that Malta abided by EU rules on mandatory, automatic disclosure of tax information. 

“Malta has not only cooperated in the discussion and compilation of information on such schemes, but also made a number of commitments so as to further mitigate any potential risks. This shows Malta’s commitment to ensure that the Malta Programmes are not used for the purpose of circumventing the CRS (common reporting standard).” 

Scicluna said persons benefitting under the IIP and the MRVP do not automatically become resident for tax purposes in Malta nor are they granted any tax-related benefits. 

“For the purposes of the CRS, Malta financial institutions cannot conclude that an individual is tax-resident in Malta, and consequently not disclose information, purely on the basis of such individual’s qualification under any of the Malta [citizenship] programmes.” 

Scicluna said that determining residence for tax purposes under the Maltese Income Tax Act depends on that person’s physical presence in Malta. “An individual would become liable to taxation in Malta once such an individual becomes resident in Malta for tax purposes and is not given any beneficial tax treatment, purely on the basis of qualification under any of the above-mentioned Malta programmes.  These factors do not seem to have been sufficiently considered in the analysis of the Malta programmes,” Scicluna said. 

“The listing of the Malta programmes can only be a result of a misunderstanding. We look forward to further engagement with the OECD so that a proper analysis is carried out and the Malta programmes are removed from the stated category.” 

Malta’s sale of citizenship was said to be one of several high-risk investment schemes, because the island offers a low personal tax rate on income from foreign financial assets, the OECD has warned.  

Malta was one of several countries whose own taxation system, combined with a lenient regime on the length of stay for buyers of golden passports, placed it in a group of countries with “potentially high-risk” citizenship-by-investment schemes.  

Malta sells citizenship to the global rich for €650,000 through the Individual Investor Programme, which comes with a mandatory property and investment component that raises its total cost to just over €1 million.  

“Potentially high-risk CBI/RBI schemes are those that give access to a low personal tax rate on income from foreign financial assets and do not require an individual to spend a significant amount of time in the jurisdiction offering the scheme,” said the Organisation for Economic and Social Development, a rich countries’ club which has produced respected standards on taxation, bribery, and consumer protection.  

“Such schemes are currently operated by Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.”  

The OECD published a short analysis of over 100 CBI schemes which it said posed a high-risk to the integrity of its common reporting standard for taxation (CRS).  

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In the main, the OECD’s criticism was geared at the ability for such golden passport schemes to allow the rich to hide their assets abroad or even incur lower taxation on their foreign assets.  

“In particular, identity cards, residence permits and other documentation obtained through CBI schemes can potentially be abused to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures,” the OECD said.  

Malta offers an effective tax rate of 5% on dividends from profits generated outside of Malta but booked here. 

The OECD pointed out that schemes that are potentially high-risk are those that give a taxpayer access to a low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction.  

“This is based on the premise that most individuals seeking to circumvent the CRS via CBI/RBI schemes will wish to avoid income tax on their offshore financial assets in the CBI/RBI jurisdiction and would not be willing to fundamentally change their lifestyle by leaving their original jurisdiction of residence and relocating to the CBI/RBI jurisdiction.”  

“Such a scenario could arise where an individual does not actually or not only reside in the CBI jurisdiction, but claims to be resident for tax purposes only in such jurisdiction and provides his Financial Institution with supporting documentation issued under the CBI scheme, for example a certificate of residence, ID card or passport.”  

Malta’s Individual Investor Programme has generated over €680 million for the government’s posterity fund, as well as an additional €170 million in property investments.