Malta offers a number of tax incentives to locally-established gaming companies. One of the major benefits, for instance, is the availability of a mechanism that reduces the corporate tax on profit to as low as 5%. Another important advantageous scheme recently introduced is the so called Highly Qualified Persons (‘HQP’) Rules, a scheme that drastically reduced the income tax payable by certain employees of licensed gaming companies from 35% to 15% and, therefore, benefits not only the employees themselves, but also their employer companies, making it easier to attract to Malta and retain human capital of the highest caliber.
The HQP Rules previously only covered specialists in the financial services sector, but were recently extended to apply to those carrying on certain functions within entities licensed by and/or recognized by the Lotteries and Gaming Authority (‘LGA’). The Rules are intended to address long-standing concerns regarding human resources limitations in Malta – by granting tax reductions to highly qualified individuals, the government has signaled its intention to expand and support this important sector by attracting the best minds in the business to the Islands.
In brief, the HQP Rules establish a framework which rewards highly qualified persons occupying ‘eligible office’ with bodies corporate licensed by the Malta Financial Services Authority (‘MFSA’) (in the financial services sector) or the LGA (in the gaming sector). The posts comprising ‘eligible office’ in the gaming industry are C-level positions (CEO, Chief Risk Officer, CFO, COO, CTO, Chief Commercial Officer) and other high management positions (Odds Compiler Specialist, Head of R&D (including Head of Engine Optimisation and System Architecture), Head of Marking (including Head of Distribution Channels)).
For this scheme to apply to an individual a number of requirements must be met. These include the following:
- The beneficiary must be an individual who derives income subject to tax as a salary from a company licensed by the LGA;
- He must be protected as an employee under Maltese law, irrespective of the applicable legal relationship, in the sense that he exercises work for or under the direction of someone else, is paid in respect thereto and possesses the required adequate and specific competence;
- He must prove to the satisfaction of the competent authority that he is in possession of professional qualifications, attested by evidence of educational qualifications or, if applicable, five years of professional experience relevant to the sector, and that he performs activities of an eligible office;
- He must have a minimum annual income of €75,000 (exlcuding fringe benefits and bonuses) not having benefited from deductions available to investment services expatriates for relocation costs and other deductions.
The HQP Rules also impose other, more generic requirements on prospective beneficiaries, such as showing to the satisfaction of the competent authority that he/she receives a stable income, resides in accommodation regarded as normal for a comparable family in Malta, possesses a valid travel document, covered by a health insurance and is not domiciled in Malta.
If all of these requisites are satisfied, a person may exercise the option to be taxed at a rate of 15% up to a maximum income of €5,000,000, beyond which the excess is tax exempt. This applies for a consecutive period of five years with respect to EEA and Swiss nationals and four years for third country nationals.
The benefit must be applied for on a yearly basis, but may not be enjoyed by any person who was employed for a period exceeding two years preceding the 1st January, 2010, under a contract of employment requiring the performance of his duties in Malta. Moreover:
- An EEA or Swiss national who, up to two years before the 1st January 2010, was employed under a contract requiring the performance of his duties in Malta, may only enjoy the benefits deriving from the HQPR for not more than three consecutive years commencing from the year of assessment 2011. Where such an EEA or Swiss national would have been employed as aforesaid for up to one year, such person may benefit under the HQPR for not more than four consecutive years commencing from the year of assessment 2011.
- A third-country national who up to two years before the 1st January 2010 was employed under a contract requiring the performance of his duties in Malta, shall may only enjoy the benefits deriving from the HQPR for not more than two consecutive years commencing from the year of assessment 2011. Where such a person would have been employed as aforesaid for up to one year, that person may benefit under the HQPR for not more than three consecutive years commencing from the year of assessment 2011.
Finally, the HQP Rules contain anti-avoidance provisions supplementing the general rules forming part of Maltese tax law. Indeed, the Commissioner of Inland Revenue is required, by order in writing, to determine the liability to tax of any person who makes use of artificial arrangements in order to enjoy the benefits set out by the Rules. The liability to tax must be such as to nullify any benefits obtained under the HQPR, and may be supplemented by penalties and additional tax payments in certain circumstances. It must be noted that the Rules allow a right of appeal in this regard.
All things considered, this relatively new regime is well-constructed and is mindful of the importance of incentivizing growth in two very competitive sectors – financial services and gaming. The extension of the HQP Rules to the latter has, together with rapid developments in the gaming industry based in Malta, makes it much easier for Malta-based gaming companies to tap into the international pool of talent and attract internationally recognized leaders and experts to Malta, cementing Malta’s reputation as a particularly attractive jurisdiction for remote gaming operators.
Karl Gonzi, (firstname.lastname@example.org )
First Published in:
EGL(European Gaming Lawyer), Spring 2012