The Investment Registration Scheme is intended to enable the irregular taxpayer to adjust past non-declarations or under-declarations of income.The Investment Registration Scheme is intended to enable the irregular taxpayer to adjust past non-declarations or under-declarations of income.

In the context of states’ growing efforts to fight tax evasion through concrete measures, the exchange of information network through bilateral and multilateral agreements between tax authorities is ever on the increase and the obligation to disclose when it comes to investment earnings is even greater.

Against this backdrop, on July 22, the Investment Registration Scheme Regulations 2014 were published by virtue of Legal Notice 256 of 2014. This legal notice provides the details of the Investment Registration Scheme launched by the Minister for Finance during a recent press conference, in line with one of the budgetary measures announced last November 2013.

These regulations are essentially designed to provide Malta resident persons (individuals and corporate entities alike) irrespective of nationality, who are subject to tax in Malta, with the opportunity to regularise their position. This applies to holdings of eligible assets which have been derived from income, including realised capital gains, and which have not been declared to the Maltese tax authorities for Maltese income tax and/or stamp duty purposes.

The scheme is applicable to the eligible assets held in or outside of Malta on November 4, 2013 and still so held on registration date, including but not limited to deposits held with credit institutions licensed in Malta or abroad, securities, precious metal bullion, units in a collective investment scheme, life and annuity long term insurance, shareholder loans or other advances extended to companies registered in Malta or any other reputable jurisdiction and immovable property situated in Malta or abroad.

Registration shall also apply to those eligible assets which were held on Nov­em­ber 4, 2013, and were converted into other eligible assets prior to the registration date.

Eligible assets which are held by a fiduciary may also be registered under the scheme, provided that the identity of the beneficial owner or originator is disclosed. Moreover, eligible assets may also be registered by the heir or legatee of the person who beneficially owns such assets on the applicable date.

The main benefit of registering assets under this scheme is that such person shall be deemed not to have committed any offence under all relevant laws covered by the scheme in relation to such registered assets. Thus, upon registration, the taxpayer in question is exempted from any action which may be taken against him for past breaches and, accordingly, is also exempted from all tax that would have been chargeable on the accumulated undeclared income and gains derived from such eligible assets throughout the applicable period prior to registration and on the relevant income represented by such assets.

Hence, the scheme is intended to enable the irregular taxpayer to adjust past non-declarations or under declarations of income, which should have been declared in tax returns filed by November 4, 2013, arising from the inheritance of foreign investments, rental income, income represented by a registered loan to a company and part-time self-employment income deposited in an overseas bank account, for instance.

The issue of a registration certificate under the scheme is subject to the payment of a one-time registration fee by the applicant of, in the case of immovable property 7.5 per cent of the original cost on date of purchase of the property, and in the case of all other eligible assets 7.5 per cent of the current market value of the registered eligible assets.

A lower rate of five per cent is chargeable on applicants who decide to repatriate their eligible non-Maltese assets to Malta. In the latter case, there is a requirement for the applicant to make an irrevocable commitment to repatriate the relative proceeds within two weeks after the date of registration and to invest such funds locally to then be so retained for at least three years after the date of registration.

Where the holder of a registration certificate is served with a notice of a tax enquiry, such person is required to produce same certificate to the Inland Revenue Department within 30 days from the date of such notification. In the event that a taxpayer in default should decide not to register eligible assets under the scheme, should said taxpayer be investigated by the income tax authorities and found to be in breach, such persons shall be liable to tax on the undeclared income, omission tax and interest and even penalties including fines or imprisonment or both, as contemplated in terms of the legislation in question.

Registration is covered by confidentiality and all officials and employees administering the Scheme are bound by the duty of professional secrecy in the exercise of their functions under this scheme. The scheme is available until September 30.

www.fenechlaw.com

This article is not intended to offer professional advice and you should not act upon the matters referred to in it without seeking specific advice.

Sarah Scicluna works with Fenech & Fenech Advocates and specialises in tax law.

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