In June last year, Times of Malta reported that the government was planning to impose a deterrent to those who might want to apply for long-term residency.
Long-term residents are eligible for social services: they basically become the responsibility of the country with regards to healthcare and benefits, including stipends.
The deterrent was to take the form of a clause which would mean that those who apply for long-term residence would have to pay normal rates of tax on their worldwide income – rather than the 15 per cent tax rate on income derived from or brought to Malta, from which they would benefit under other residency programmes.
For some reason, that clause was only introduced a few weeks ago – without any official announcement to draw any attention to it.
Five legal notices have now been issued, which, apart from including this punitive clause, have streamlined the three residency programmes and killed off the High Net Worth Individual Rules (see story on pages 1 and 9).
The legal notices have been backdated to July 2013 – and the indications are that the drafts have been ready for some time. Is it churlish to ask why there was a delay, rather than to welcome the fact that they have finally been implemented? After all, they mark the end of a chapter that is best closed and forgotten.
It started when the Permanent Residence Scheme (PRS) was suspended in 2011, leaving dozens of applicants in the lurch. In 2010 alone, the real estate business section within the Malta Chamber of Commerce, Enterprise and Industry had calculated that 151 non-EU citizens purchased property in Malta at a value of over €35 million. In the face of widespread howls of protest, it was hurriedly replaced by the High Net Worth Individuals scheme nine months later – by when considerable damage had been done to Malta’s reputation.
While the PRS was too lax and open to abuse, the HNWI scheme went to the other extreme, mandating unpopular bond requirements and much higher property thresholds. It did little to repair the damage and even less to attract newcomers: apparently only two applicants in two years.
The Labour government tackled this soon after the election and came up with the Global Residence Scheme (now being referred to as a ‘programme’), which struck a much better balance between the lax PRS and the stringent HNWI. But the PN had immediately pointed out that it lacked safeguards to deter applicants from going for long-term residency and getting all the benefits of the welfare state while only contributing 15 per cent tax. The parliamentary secretary spearheading the GRP at the time, Edward Zammit Lewis, had pointed out that becoming a long-term resident was not that easy – but he also acknowledged the need to make it even less attractive.
Hence the proposed clause about taxation on their worldwide income and not just on the income they bring to Malta. And also at a flat rate of 35 per cent. And, as it turns out from the legislation, not if their application is successful but even if they dare to apply.
The clause may be a year late – perhaps why it was done without any fanfare – but at least it is now there, part of a complete overhaul of the residency programmes which finally makes them a lot more logical, accessible and attractive. Not a moment too soon.