As industrialised economies shift to knowledge-based economies, strategically touting, engaging, managing and retaining optimum human capital, a new era dubbed ‘the war of talent’ has emerged as businesses scour the labour market to attract the finest talent. In an increasingly fierce competitive business environment, human capital and talent presents a uniquely differentiated value proposition providing business a competitive edge.
Globally, a culmination of factors is contributing to a widening talent gap and a growing mismatch between available talent and the skills required by businesses.
Some countries have to contend with geopolitical issues, demographic trends and social, political and economic instability.
Malta has to contend with the pros and cons of a small-sized open economy while going through rapid innovation, volatile business cycles and an emergent propensity towards industry clustering.
Malta stands at the forefront as a best practice example of flourishing and lucrative cluster industries like software development, digital gaming and other knowledge-based industries.
The continued development and forecasted expansion of these industries unequivocally necessitate the availability of human resources for sustainable competitiveness and economic growth.
The European Commission’s Country Report Malta 2015 projects that economic growth will remain robust, supported by strong domestic demand. This positive trend aligns with the country’s decade-long foreign direct investment by international players who elect to conduct business in Malta. Its sound regulatory framework, competent workforce and favourable corporate tax system are contributing factors to the country’s current and future growth potential in different industries.
Part of Europe’s 2020 Strategy zooms in on labour market requirements, flagging the urgency to modernise labour markets by facilitating mobility and the development of skills with the ultimate aim of increasing labour participation and adequately matching labour demand with supply. While EU Migration Directives respect member states’ sovereign competence on matters relating to employment, labour and social matters, the 2020 Strategy paves the way for economic migration in emerging sectors where labour and skills shortages exist in a bid to attract highly skilled third-country nationals in the global competition for talent.
The rationale behind this tax incentive is in sync with the country’s aspiration to become a society par excellence
As reported to the European Migration Network, Malta highlighted skill shortages in, inter alia, the medical sector, including nurses; construction section; and IT analysts where demand considerably exceeds supply. Shortages in the gaming industry exist as well ensuing from the positive results yielded by the Digital Gaming Strategy in 2012 that was in itself an offshoot of the flourishing ICT industry.
The government’s response to the human capital shortage is multifaceted and includes an injected dose of creativity and innovation into the tax rules meant to attract valuable human power to Malta and address human capital shortages in the local labour market by temporarily easing the tax expenses through a fiscal incentive.
The legal basis for this incentive is governed by the Qualifying Employment in Innovation and Creativity (Personal Tax) Rules as subsidiary legislation to the Income Tax Act (Cap. 123) of the Laws of Malta that came into effect on January 1, 2012 through Legal Notice 106 of 2013 but the scope of which was considerably widened through the amendments introduced by Legal Notice 462 of 2014.
This incentive is targeted solely to expatriates – EEA/Swiss nationals or third country nationals – who fulfil a role as employed individuals in an eligible office which refers to an employment in a role directly engaged in industrial research and experimental development; product development and product or process innovation; or in a senior management role.
Successful applicants will be afforded the opportunity to have their employment income in respect of work exercised in Malta chargeable at a flat rate of 15 per cent tax in lieu of progressive rates which have a 35 per cent income tax ceiling. The minimum annual amount taxable at 15 per cent is €45,000. In addition, any qualifying income above €5,000,000 is not subject to tax in Malta.
The measure will be active until December 31, 2017 and is applicable for a consecutive period of not more than three years. Commencement period kicks off from the year in which the expatriate takes up residence in Malta and derives income which is subject to tax in Malta.
The period may in certain circumstances be extended by a further one year when the employment commences between September 1 and December 31.
The rationale behind this tax incentive is in sync with the country’s aspiration to become a society par excellence. Concretely addressing the labour market shortage will progressively lead to a narrowing of the existing gap and elevate Malta’s status as a centre of excellence and competitiveness in various niche areas. Affording expatriates the opportunity to benefit from the fiscal incentive will enable human capital to set the course trajectory towards Malta, a dynamic evolving hub that builds bridges where human capital and talent collide merging innovative, creative and talented minds.
doreenfenech@kpmg.com.mt
Doreen Fenech is a partner in the Tax Department of KPMG.