Residency and Citizenship by Investment in Malta – are they considered as reputable high programmes?

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31 Oct 2018 Residency and Citizenship by Investment in Malta – are they considered as reputable high programmes?

 

“Malta has come a long way since the launch of its citizenship and residency programmes…we did not go chasing after numbers. We give priority to quality. So we have put in place all the necessary safeguards in order to make sure that we only attract the best talent to our shores”, explained the Maltese Parliamentary Secretary for Reforms, Citizenship and Simplification of Administrative Processes, while addressing the Investment Migration Council.1

 

The Residency and Citizenship by Investment Programmes (the “RCBI”) in Malta have been established to further enhance the freedom of movement, and to allow foreign individuals of high repute and integrity to establish themselves in Malta through their investments.

 

Introduction

 

On the 16 October 2018, the Organisation for Economic, Co-operation and Development issued a report raising concerns in relation to residency and citizenship programmes across countries, Malta being one of them. The report held that RCBI schemes can potentially pose a high risk in misinterpreting an individual’s jurisdiction(s) of tax residence and potentially endanger the proper operation of the Common Reporting Standard (the “CRS”) due diligence procedures.

 

Malta mapped out the RCBI programmes to facilitate the legitimate movement of capital and people. Both the Malta residency and Visa Programme (the “MRVP”) and the Malta Individual Investor Programme (the “MIIP”) were created with high-standards to enhance freedom of movement for foreign individuals having an impeccable standing and repute, to establish their residency or citizenship in Malta, either individually or together with their families.

 

 

It is important to accentuate that neither the MRVP nor the MIIP grant access to any preferential tax schemes, or tax residency without physical presence in the Maltese Islands.

 

The RCBI features and characteristics allow foreign individuals to relocate to Malta for different reasons, such as:

 

  • education;
  • standard of living;
  • property;
  • integration;
  • health;
  • religion, etc.

 

Due Diligence Process

 

The Government of Malta has committed itself to the highest standard of due diligence to ensure that only affluent and reputable applications are allowed to proceed and granted residency or citizenship by investment.

 

The RCBI programmes ensures that citizenship shall be granted only to suitable individuals and their families who pass the high standard due diligence test and who make the necessary contributions.

 

An applicant shall be deemed duly eligible if he/she satisfies a number of conditions mainly that he/she has a clean criminal record, is not/ may not be an enemy of the State or threat to Malta and he/she or his/her dependents must not suffer from any contagious disease and are otherwise in good health.

 

Identity Malta, being the local governmental entity in charge of the RCBI programmes in Malta, takes the following due diligence steps in consideration when processing applications under the RCBI programmes:

 

  • agents who are approved to prepare applications for applicants shall perform their due diligence before they accept any individual as their client;
  • the applicant must then apply for a Maltese residency permit and needs to undertake due diligence before a residency application can be admitted;
  • following a year of Maltese residency, should the applicant wish he/she could apply for the MIIP, in which case the applicant would need to undertake further due diligence conducted by the Malta Individual Investor Program

 

Agency (the “MIIPA”). The MIIPA has its own intense due diligence process;

 

  • the MIIPA ensures that the due diligence checks are run several times, and updates the due diligence checks after the approval of the application and before the end of the year residency requirement before the grant of the Maltese citizenship.

 

The due diligence process does not extend only in so far as the criminal records, the slightest criminal convictions or ongoing criminal prosecutions will automatically render the applicant ineligible to apply for the programme. In considering applications the MIIPA gives importance to reputation, credibility, source of wealth etc. Malta ensured that the due diligence process for the RCBI programmes filters out undesirable applicants who are not deemed to be fit and proper to be granted residency or citizenship.

 

Transparency

 

The Government of Malta in establishing the RCBI programmes, ensured that transparency is given the high importance in application processing for both residency and citizenship applications. In ensuring such, Identity Malta publishes the official statistics of the approvals,

 

rejections, nationalities, investments, contributions to the public. Such measure ensures that the both residency and citizenship by investment programmes are fully transparent and disclosed to the general public.

 

Genuine Link with Malta

 

One of the requirements for applying for the RCBI programmes is physical presence in Malta, the only non-economic criterion. Physical presence is the only requirement in the RCBI programmes which creates a genuine link with Malta. This requirement forms an essential part of the programmes and takes various forms through which an applicant may establish a link to Malta. Apart from the physical presence requirement, applicants may also consider other ways to establish a genuine link with Malta such as:

 

  • philanthropic purposes;
  • business investments;
  • social involvements;
  • cultural and social causes etc.

 

The genuine link requirement does not only impose on applicants the minimum period of physical presence in Malta, but also makes the applicants create a connection in Malta. This connection with Malta ensures that applicants, both for residency or citizenship show that they actually want to establish themselves in Malta.

 

Taxation

 

It is important to highlight that the RCBI programmes do not change the tax treatment of an applicant or his/her family unless they take up residency in Malta. If an individual lives in Malta for 183 days or more, he must pay tax on all income arising in Malta, on all capital gains taxable in Malta, and on all income arising abroad and remitted to Malta. On the other hand if one resides in Malta for less than 183 days, then he/she is not considered as a tax resident and tax is only incurred on income earned in Malta.

 

In respect of the above, residency shall mean that an individual is resident in Malta except for temporary absences, whereas domicile shall imply that the individual has long intention to live in Malta.

 

The acquisition of one of the RCBI programmes do not attach with them any tax implications because if a successful applicant moves his/her own residence to Malta, he/she would still retain the status of a non-domiciled person and thus be taxed as indicated above.

 

Conclusion

 

The ultimate goal of establishing the RCBI programmes in Malta was to facilitate free movement and to give foreign individuals the opportunity to establish themselves and their families in Malta.

 

The RCBI programme is aimed mainly at individuals with a good repute and standing, and purposely has created a specific regulatory framework to ensure the growth of international investments and free movement of persons to Malta whilst minimising potential risks. The RCBI programme ensures that together with intense due diligence process and transparency the legitimacy of the programme is ensured.

 

In light of the above criterion for RCBI applications, it is therefore important to reiterate that the RCBI programmes are not a leeway to circumvent taxation. RCBI programmes shall in no way be confused with tax residency.

 

Whilst it is important that the OECD’s concerns are given the due attention, and that individuals who try to make use of such programmes to avoid accurate CRS reporting or to engage in financial crimes, including money laundering or terrorist financing should be stopped. It is also important to mention that Malta has ensured that the RCBI programmes in place are highly reputable, through the different mechanisms and due diligence processes in place to ensure that they do not pose as a high-risk for ineligible applicants to filter the programmes.

 

1Press Release by the Parliamentary secretariat for reforms, citizenship and simplification of administrative processes: “Malta is chasing quality over numbers”.

 

 

 

celaine vella

Author:

Celaine Vella

Regulatory advice in corporate, banking, trust and finance regulatory matters.

 

 



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