The Income Tax Act (ITA)specifies that income tax shall be payable at the rate or rates specified accruing or derived from Malta or elsewhere and whether received in Malta or not. This in substance means that Malta imposes tax on all income and capital gains irrespective of whether a person is resident or domiciled in Malta. However, one needs to analyse deeply the words and provisions within the act before arriving to such a conclusion.
If one starts by analysing the word “ Malta”, the ITA gives a definition and does not simply refer to the Constitution of Malta as it does in other definition s such as the Commonwealth. In fact according to Article 2 of the ITA “Malta” means the island of Malta, the island of Gozo and the other islands of the Maltese Archipelago, including the territorial waters thereof and the continental shelf. Although the ITA gives the definition of Malta it then refers to the Continental Shelf Act for the definition of the said continental shelf. Subsidiary legislation of the Continental Shelf Act gives the boundaries of Malta. In this context, the ITA leads us to the boundaries where income accrues to be chargeable in Malta.
Article 4 (1) (a) refers to the profits or gains by any person. A person within the act includes a body of persons and the responsible spouse. The meaning given to a body of persons by the ITA is anybody corporate, including a company and any fellowship or society or association of persons whether corporate or not corporate and whether vested with a legal personality or not. With respect to spouses which include persons within a civil union they shall be jointly and severally responsible for all obligations within the ITA. The automatic responsible spouse unless otherwise selected by the couple, the Commissioner has the authority to appoint a responsible spouse. The Inland Revenue has to date attribute this generally to the husband. One will need to see what will be the parameters of attribution in case of Civil Unions.
The only fact that the ITA requires joint declarations and also the nomination of a responsible spouse is the first indication that the Act is an old and outdated Act. It puts responsibilities on persons for the actions of others. In other words you are found guilty if your spouse has evaded tax. It is like the spouse is responsible if the other spouse kills a person. It may sound as an exaggerated comparison but in case of tax evasion it is the Police that will act against you so it is considered a crime. One may recall that until recently persons were also sent to prison particularly when it comes to the VAT Act. There were also cases whereby the surviving spouse had to suffer consequences for matters allegedly done by the spouse that passed away and who obviously could not have defended himself.
Article 4 (1) lists the various forms of income, chargeable to tax and referring to other forms of organisation that may be taxable under the act which also leads to entities that operate on their own account a trading or commercial undertaking including a school, printing press, hospital or cinema, whereby the entity shall be chargeable to tax separately
Article 4(1)(g) gives a different dimension to the Act in the sense that it introduces the concept of resident, ordinarily resident and domicile. The ITA defines “Resident in Malta “ in the case of individuals as one who resides in Malta except for such temporary absences as to the Commissioner may seem reasonable and not inconsistent with the claim of such individual to be resident in Malta. So the ITA here introduces also the concept of Temporary Resident.
In the case of body of persons, residence is when the control and management of whose business are exercised in Malta provided that a company incorporated in Malta on or after 1 July 1994 shall be resident in Malta and any other company in Malta shall be resident in Malta from 1 January 1995 where the Management and control of the business of the company is exercised outside Malta. In substance the ITA states that any company registered in Malta is considered as resident in Malta. In this context, the Inland Revenue is trying to reach to business that is done outside Malta as well, something that may be arguable by other jurisdictions. It may also be argued that this is not in accordance with the concept of Permanent Establishment as explained by the OECD commentary. The Management and control is a difficult subject which is constantly under discussion. However, it is evident that the way residence has been defined for companies under the ITA is in strong conflict with various International Cases. The reader may be referred to the writings of Professor Avery Jones who did an in depth analysis of Management and Control
The concept of Ordinary Residence, applied to the tax laws has been derived from the British Courts. Although there seems to be reference in the Civil Code with respect to Ordinary Abode when it comes to the jurisdiction of Maltese and Gozitan Courts this has not been applied in terms of tax. The Income tax Act itself states where there are words and expression not known to the Maltese Law they shall take the meaning assigned to them by English Law. In spite of the fact that 52 years have passed from the independence of Malta, the Income Tax Act still has this in article 3 of the Act. In this case although there is reference in Maltese law general practice has been to refer to the British Courts for the interpretation of Domicile and residence.
Ordinary Residence is contrasted with occasional or temporary residence. It is necessary to take into account the duration of an individual’s presence in a country, the regularity and frequency of his visits to a country, his family and business ties and nature of a person’s visits to a country to determine whether a person is an ordinary resident of that country Temporary residence relates to people who stay in Malta less than 6 months per year (183 days) without intention to establish a permanent residence on the Island. The establishing of a temporary residence within Income Tax relates also to casual purpose. For example the Special Commissioners held that a person visiting a country each year to exercise a hobby is not held to be a temporary residence. This means that simply because a visit is short it does not necessarily constitute a temporary residence. Therefore the 183 day rule is merely an indication and does not necessarily mean that it does not constitute residence for tax purposes.
The concept of Domicile is not defined in the Income Tax Act in spite specific reference to it and therefore again one needs to refer to the Law in England and the British Courts.
There are 3 types of domicile:
- Domicile of origin: it means like the nationality or the place of birth. The domicile of origin is particular because it’s a concept not mentioned in the Law. To acquire this status the place of birth and the domicile of the father operate.
- Domicile of choice: it’s a deliberate decision and the most difficult status to acquire. If someone wants to obtain the domicile status, he has to prove his ties with the country (for example: have a family, purchase a house…), and his intention to stay indefinitely in the country. It may take years to obtain the domicile status in order to show that one has a strong connection with the country to state that he has acquired a new domicile
- Domicile by operation of the law: it is imposed by law, by the family link (for example: children and wife).
British Case Law has established that a person must always have a domicile and that conversely he may have one domicile at same point in time. Every person acquires the domicile of his father at birth. When either the child’s father is dead or the child is illegitimate, the child acquires the domicile of the mother. Children of unknown parents acquire the domicile of where they are found. A wife acquires the domicile of the husband.
This brings to question various other matters. If one takes the example of the children found in the Maltese waters, these should be considered as Domiciled in Malta and they cannot acquire citizenship as they were not born in Malta and their parents are unknown. What is the status of these persons in terms of law? They will be considered Domiciled and Resident in Malta so they will be required to pay tax on their worldwide income whether remitted to Malta or not. Are they required to be fully treated as Maltese when it comes to charge tax yet do not have a citizenship? One may argue that these will become residents of Malta but not citizens. Although its beyond the scope of this analysis one does put to question whether such a system is considered as fair and just . It would be also interesting to understand how the Government of Malta will deal with this situation as every person is entitled to have a Home Country.
 Principles of Income Tax Law – Attard, Robert
 Principles of Income Tax Law – Attard, Robert p173