【From CFTInet, Beijing 09/26/2001】　INDIVIDUAL TAXES SIGNIFICANT DEVELOPMENTS 1. VAT at the standard rate of 15% has been introduced with effect from January 1,1999. 2. Employee social security contributions have been increased to 9% from 1999 and to 10% from January 3000. 3. Exchange controls have been further liberalized. TERRITORIALITY AND RESIDENCE Malta taxes individuals who are both domiciled and ordinarily resident in Malta on their worldwide income. Any person who is not ordinarily resident or not domiciled in Malta is taxable only on income arising in Malta and on any foreign income remitted to Malta. There are few specific rules relating to residence, ordinary residence, domicile, locality of income, or the remittance of income to Malta. Persons are usually held to be domiciled in a country where they actually have their permanent home. The locality where income arises is determined in accordance with the category of income concerned; different criteria may apply to different sources of income. Person are considered to be ordinarily resident in Malta when they are so resident in the ordinary or regular course of their life. The remittance of income to Malta is a question of fact. GROSS INCOME Employee gross income/Gains or profits from employment with a Maltese employer are usually fully taxable, including the value of ＂quarters, board and residence.＂ Remuneration received for services rendered outside Malta by persons not domiciled or not ordinarily resident in Malta should not be liable to tax in Malta. Apportionment is resorted to where necessary. All rewards for services rendered, including fringe benefits and benefits-in-kind, are taxable, although certain exemptions are provided for expatriates providing services to or employed with Maltese-licensed investment services companies or Maltese-licensed insurance companies. Taxable benefits include living allowances, housing allowances, tax reimbursements(grossed up ), use of car, paid vacation trips, stock options, and luncheon vouchers. The reimbursement of expenses incurred on behalf of the employer, contributions by the employer to social security or approved pension schemes, reimbursement of employment-related moving expenses, special clothing, and transportation to and from work are usually not taxable. Capital gains and investment income/Tax on capital gains is imposed on any gains realized on the transfer of immovable property (real estate), shares and other securities (excluding securities listed on the Malta Stock Exchange and investments that yield a fixed rate of return), business goodwill, copyright, patents, patents, trade names, and trademarks. Gains from the transfer of other assets fall outside the scope of the tax. The rate of tax applicable is the marginal rate of tax applicable to the particular taxpayer. Gains arising outside Malta and derived by a person who is either not domiciled or not ordinarily resident in Malta or is a returned migrant who qualifies for a reduced rate of income tax are not subject to tax. Subject to the applicable statutory requirements, nonresidents are exempted from tax on any interest, royalties and capital gains from specified sources, e. g., disposal of units in collective investment schemes and of shares or securities in companies satisfying certain conditions. A final withholding tax system operates for certain types of investment income (see ＂Tax administration, Payment of tax＂ below), paid by certain payers to specified categories of (Maltese-resident) recipients. DEDUCTIONS Business deductions/Certain allowances are available for business-related expenses in the case of persons exercising a trade, business, profession, or vocation. These include, inter alia, scientific research, bad debts and losses carried forward. To be deductible,Expenses of an employee must be incurred wholly and exclusively in the production of the income and must be necessarily incurred. Where employees are reimbursed by the employer for expenses incurred on the employer's behalf, no tax liability should arise in the hands of the recipients unless a gain or profit accrues to them for the arrangement. Nonbusiness expense/Alimony payments determined by the Maltese Courts and paid by a taxpayer to an estranged spouse are allowed as a deduction. No other nonbusiness expenses are allowed. Personal allowances/As from year of assessment 1997( year of income 1996) all tax credits and personal deductions have been removed after the broad widening of the bands of income that apply to tax rates lower than the 35% maximum. TAX CREDITS There are no special credits for short-term residents. Income taxes paid abroad on income that becomes taxable in Malta may qualify for a credit if a double taxation treaty has been concluded with the relevant country or under the unilateral relief provisions of Maltese law. OTHER TAXES Social security taxes/For employees who do not earn more than Lm6,410 per annum, the social security tax is 9%(10% from January 1,2000) of salary. The employer is required to pay an amount equivalent to 10% of salary. Employees earning in excess of Lm6,410 contribute Lm11.09 per week. The employer is required to pay Lm12.33 per week. Self-employed persons pay at scale rates starting from Lm7.94 per week on annual income not exceeding Lm2,989, and Lm15.94 per week on annual income exceeding Lm5,319. Local taxes on income/There are no local or municipal taxes in Malta. Other taxes/Other taxes imposed include customs and excise duties on certain goods; a tax on air travel; value-added tax on the importation and purchase of most goods and services; and stamp duty on certain documents and transfers, including transfers of immovable property and marketable securities, assignments of debts and other rights, sions by death of immovable property and shares in Maltese companies. TAX ADMINISTRATION Returns/Returns are filed on a calendar-year basis. With effect from year of assessment 1997(year of income 1996), husband and wife are jointly responsible for filing tax returns and spouses must choose which of them is to be registered as the taxpayer. The election of a ＂responsible spouse＂remains effective for five years. The responsible spouse may elect to have the tax on the other spouse's earned income computed separately. All of the other spouse's unearned income remains assessable in the hands of the responsible spouse. If a separate computation is chosen, husband and wife are assessed separately at the single person's rates of tax. Payment of tax/As from January 1,1998 income tax is withheld from salaries under the Final Settlement System. The switch from PAYE to the Final Settlement System (FSS) will eventually render the withholding tax a final tax, possibly also avoiding the filing of returns. In the case of sizable income not subject to withholding, the taxpayer is required to make payments three a year under the provisional tax system, based on the last assessment raised. Provisional tax is also payable at 7% on the selling price of certain assets disposed of on account of tax imposed on capital gains. A withholding tax of 15% is imposed on specified types of investment income (e. g., banking interest paid to Maltese residents), and this withholding tax has been extended to most part-time work with effect from year of assessment 1997(year of income 1996). This is a final tax except where the taxpayer elects for the withholding tax to be credited against the taxpayer's tax liability. TAX RATES Income is taxable at graduated rates. As from year of assessment 1997(year of income 1996), in the case of single individuals,(including married individuals opting for separate computation) there is a tax liability of Lm1,175 on the first Lm8,000 income. Married individuals, single parents, widows/widowers and separated parents satisfying certain conditions are liable to Lm1,350 tax on the first Lm10,000 income. For amounts exceeding these thresholds, the tax rate is 35% for both single and married individuals. Tax rates for 1999 are as follows. Married resident taxpayers TAXABLE INCOME TAX ON PERCENTAGE OVER NOT OVER COLUMN 1 ON EXCESS (COLUMN 1) 0 Lm 4,000……………………… － 0 Lm 4,000 5,500……………………… － 15 5,500 7,000………………………Lm 225 20 7,000 9,500……………………… 525 25 9,500 11,000……………………… 900 30 11,000……………………………………… 1,350 35 Single resident taxpayers TAXABLE INCOME TAX ON PERCENTAGE OVER NOT OVER COLUMN 1 ON EXCESS (COLUMN 1) 0 Lm 3,000……………………… － 0 Lm 3,000 4,000……………………… － 15 4,000 5,000………………………Lm 150 20 5,000 6,500……………………… 350 25 6,500 8,000……………………… 725 30 8,000……………………………………… 1,175 35 Nonresident individuals TAXABLE INCOME TAX ON PERCENTAGE OVER NOT OVER COLUMN 1 ON EXCESS (COLUMN 1) 0 Lm 300……………………… － 0 Lm 300 1,800……………………… － 20 1,800 3,300………………………Lm 150 25 3,300 4,800……………………… 350 30 4,800 8,000……………………… 725 35 Residence permit holders and returned migrants are taxed at 15% on income over Lm2,500 for married taxpayers, and 15% on income over Lm1,800 for single taxpayers. INDIVIDUAL TAX CALCULATION Year of assessment 1999 (year of income 1998) Assumptions Resident married expatriate employed by a Maltese company. Tax computation Gross income: Salary …………………………………………………………Lm 29,500 Foreign bank interest remitted ……………………………2,000 Capital gains………………………………………………… 2,500 Total gross income…………………………………………… 34,000 Less-Expenditure incurred in producing the income……3,500 Total taxable income………………………………………… Lm 30,500 Tax thereon: On the first 10,000………………………………1,350 On balance at 35% ………………………………7,175 Total liability……………………………………………………… Lm 8,525 Less: Tax withheld by deduction from salary…………6,000 Provisional capital gains tax……………………700 (6,700) Net tax payable ……………………………………………………Lm 1,825 Note: Exchange rate of the lira at December 1998: US$=Lm0.3766