New rules for QROPS in Malta

Regulatory and technical updates

Following the introduction of the New Pension Freedom rules in UK effective 6 April, and as previously explained SI673/2015, Malta decided to mirror these rules for UK tax relieved transfers, or what are generically known as “relevant transfer funds”.

The good news for clients and their intermediaries is that, whilst we initially thought that we would have to wait until our Pension Schemes had been re-registered under the Retirement Pensions Act, an agreement was reached last week with the Regulator the Malta Financial Services Authority (MFSA) which allowed us to amend our Trust Deed and Rules with immediate effect.

What does this mean? 

Effective immediately:

  • ‘Benefits’ payable to a member under the Melita International Retirement Scheme (MIRS), consisting of a member’s ‘Relevant Transfer Fund’ shall not be paid before age 55.
  • Pension Commencement Lump Sum (PCLS) is restricted to 25%.
  • Programmed Withdrawal Arrangements referred to under the Standard Operating Conditions Part B.1.7 issued under the Special Funds (Regulations) Act shall not apply to benefits payable to a member in MIRS, to the extent that they consist of the member’s ‘Relevant Transfer Fund’ (being a transfer from a UK tax relieved fund as registered with HMRC) to a Retirement Scheme registered under the Act which qualify as a Qualifying Recognised Overseas Pension Scheme (QROPS) under rules issued by HMRC. The withdrawal of such benefits will be subject to UK HMRC rules.

Reminder of tax rules

  • Establish whether a treaty is in force between Malta and the State of tax residence of the beneficiary. 
  • Where there is no treaty, the pension income should be subject to tax in Malta.
  • The retirement scheme administrator should withhold tax at 25% on the gross payment and forward such tax to the Revenue within the prescribed time frame in terms of Article 73 of the ITA. Such tax is of a provisional nature and will be available as a credit against the tax liability of the beneficiary as reflected in his/ her Maltese tax return. 
  • Where a treaty between Malta and the State where the beneficiary is tax resident is in force:  
    • Consider whether the ‘pensions’ article of the Treaty is applicable.
    • All of Malta’s treaties have an article which specifically deals with the taxation of pensions. The majority of the treaties however restrict the applicability of this article to pensions or other similar remuneration linked to past employment. The ‘pensions’ article should only be relevant for retirement scheme administrators in those other instances where pension income is included within its scope, or where the ‘pensions’ article is not applicable, reference should be made to the ‘other income’ article.

Access a full list of tax treaties here.               

Read more about International Pensions.

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