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Guidance Note on Benefits from Retirement Schemes

​Guidelines on the Malta tax treatment of Retirement Benefits arising from Retirement Funds or Schemes

This guidance note applies to any benefit derived from a retirement fund or scheme that is licensed under the provisions of the Special Funds (Regulation) Act or any Act replacing the said Act. It applies from 1 January 2012 onwards and constitutes a guideline for the purposes of Article 96(2) of the Income Tax Act. It is intended to provide guidance to practitioners, retirement fund administrators licensed/recognised by the Malta Financial Services Authority and beneficiaries of such funds or schemes that are administered in or from Malta.

A - Taxation of the Retirement Fund or Scheme

In accordance with the provisions of Article 12(1)(d) of the Income Tax Act, the income of any retirement fund or retirement scheme that is licensed, registered or otherwise authorised under the Special Funds (Regulation) Act or any Act replacing the said Act is exempt from income tax provided that this income is not derived from immovable property situated in Malta.
B - Taxation of Benefits derived from a Retirement Fund or Scheme
Given that under the provisions of the Special Funds (Regulation) Act, the principal purpose of any such funds or schemes is to provide retirement benefits, these retirement benefits are to be characterised as a pension for the purposes of Article 4(1)(d) of the Income Tax Act. Any capital sum received by way of commutation of a pension remains exempt in accordance with the provisions of Article 12(1)(h) of the Income Tax Act. These benefits are considered to be arising in Malta and taxable accordingly. In determining the tax treatment of such benefits, due consideration needs to be given to any relevant provisions found in any applicable double tax treaty.
C - Registration of Beneficiaries
Pursuant to the above, beneficiaries receiving retirement benefits considered to be a pension arising in Malta are required to register for Maltese income tax purposes and to submit an annual tax return in terms of Article 10 of the Income Tax Management Act. These returns will also need to include details of any tax withheld at source on the distribution under the provisions of Article 73 of the Income Tax Act or, if distributed free of withholding tax due to the provisions of a double tax treaty, then details of the treaty benefits being claimed would need to be provided, together with evidence of the tax residence of the recipient. Such evidence should ideally be in the form of a tax residence certificate issued by the tax authority of the jurisdiction in which the beneficiary is resident. Where it is not possible to procure such a certificate, the evidence may take the form of a declaration by the beneficiary to the trustee supported by relevant documentation (e.g. utility bills excluding mobile telephones).