Residence status and tax implications

Permanent Residency, Ordinary Residency or Temporary Residency? It depends on your financial circumstances, not on how much time you will spend in Malta. Getting it wrong could cost you dearly!

Postby gozomark » Thu 06 Aug 2009 14:40

OK, found Tims post (from 2006) - without putting words into his mouth, when he wrote

I think that if you transfer money into a personal current bank account in Malta, they will regard that as income unless you can clearly show it being transferred into an investment vehicle.

I think he meant

I think that if you transfer money into a personal current bank account in Malta, they will regard that as income unless you can clearly show it being transferred from an investment vehicle.

this then makes more sense - ie whether its taxable is dependent not where its going, but where its come from
gozomark
Site Admin
 
Posts: 14215
Joined: Sun 20 Aug 2006 18:35
Location: Republic of Gozo

Postby peterj » Fri 07 Aug 2009 19:20

Mark, I think the context was possibly in relation to bringing in capital for investment purposes, similar to bringing in capital for house purchase. Isn't it the case that the money brought in for those purposes are not taxed as income? Presumably if this is correct you would as Tim said, have to demonstrate that that is what the money was used for.

There's a tax case available on line somewhere relating to money brought in for a house purchase which fell through, and then sent overseas again. If I remember correctly the poor sod was hit with income tax for the full amount.
peterj
Free member
 
Posts: 383
Joined: Mon 08 May 2006 06:49
Location: Goowa, South Oz

Postby gozomark » Fri 07 Aug 2009 19:27

yep you could well be correct on Tim's intention - I should have said

whether its taxable is dependent on where its going, and where its come from

not

whether its taxable is dependent not where its going, but where its come from


peterj wrote:.There's a tax case available on line somewhere relating to money brought in for a house purchase which fell through, and then sent overseas again. If I remember correctly the poor sod was hit with income tax for the full amount.
ouch...
gozomark
Site Admin
 
Posts: 14215
Joined: Sun 20 Aug 2006 18:35
Location: Republic of Gozo

Postby doc » Fri 07 Aug 2009 20:01

gozomark wrote:yep you could well be correct on Tim's intention - I should have said

whether its taxable is dependent on where its going, and where its come from

not

whether its taxable is dependent not where its going, but where its come from


Must be being dim I dont follow. According to the accountant as I understood its more what you said first, ie:

whether its taxable is depending solely on where its come from

(ie whether it is capital or income before being remitted to Malta).

What the accountant said was that this was a right guaranteed by european law, freedom to spend your capital anyway you want.

Maybe I misunderstood him or him me but I took him to mean you could bring in all the capital you want and use it to spend on food, flights, school fees, rent, restaurants, clothes (non investment, non capital things) as well as house, car, investments of shares, bonds, etc. Ie basically absolutely anything with no restriction!

-doc
doc
Supporter
 
Posts: 113
Joined: Fri 26 Dec 2008 12:00
Location: Sliema

Postby gozomark » Fri 07 Aug 2009 20:04

bring in capital - no tax
bring in income to buy a house - no tax

hence it depends on both what you bring in, and what you spend it on - get either side right, and there is no tax
gozomark
Site Admin
 
Posts: 14215
Joined: Sun 20 Aug 2006 18:35
Location: Republic of Gozo

Postby doc » Fri 07 Aug 2009 20:40

gozomark wrote:bring in capital - no tax
bring in income to buy a house - no tax

hence it depends on both what you bring in, and what you spend it on - get either side right, and there is no tax


Got it thanks for the clarification - I learn something new everyday about tax rules here! (And they are very friendly rules in general and for my scenario, just have to learn all the details).

So this court case you mentioned, that guy must have bought in income. (Must have a lot of income to buy a property out of one years income! Or maybe he didnt get taxed on it all, but on the proportion that was income. Ouch indeed for him either way!)


Another thing I was pondering the other day (didnt get around to asking the accountant) was what about debt. Could one borrow money offshore and bring that in as if it is capital?

There would be various ways the borrowed money could be secured:

- borrow against offshore investments
- borrow against a property purchased in malta (mortgage outside malta, on house in malta)
- borrow against offshore property (eg remortgage)
- unsecured borrowing (bank overdraft, friend, family member offshore)

and various ways to pay (or not the interest):

- pay the interest from other capital
- pay the interest from income
- dont pay the interest let it compound the debt

I wonder which if any of those ways of raising capital would be taxable if remitted to Malta.


Maybe to avoid the case peterj mentioned, part of purchase funds are income, one should prefer an offshore mortgage, and/or offshore lawyer, then the money will not be remitted by your offshore lawyer until it completes.

Or insist the seller or his lawyer provide an offshore account to receive the purchase money.

(All of which doesnt matter to people buying purely with capital).


Anyway my reason for pondering about whether remitted debt would be considered capital was I was thinking it might be quite an interesting tax planning tool. No use to me, but it amuses me to hack things, looking at loopholes:

- you have no savings, but an offshore income,
- take out an unsecured offshore loan on 1st jan,
- remit the loan amount to malta as capital,
- pay loan interest with your offshore income so you pay it off by 31 dec,
- and repeat next year.

qed no need to have loads of capital to benefit from capital remittance :)

No point doing that until you used up your tax free allowance of course.

Also it might be cheaper to pay the tax than the interest depending on the respective tax/interest rates.

-doc
doc
Supporter
 
Posts: 113
Joined: Fri 26 Dec 2008 12:00
Location: Sliema

Postby gozomark » Fri 07 Aug 2009 20:49

given the conversion of income into capital is based on practice not law, I suspect your cunning plan would fail on the "taking the piss" test.......
gozomark
Site Admin
 
Posts: 14215
Joined: Sun 20 Aug 2006 18:35
Location: Republic of Gozo

Postby doc » Fri 07 Aug 2009 21:02

gozomark wrote:given the conversion of income into capital is based on practice not law, I suspect your cunning plan would fail on the "taking the piss" test.......


lol :D

I got some advice like that from a good accountant in the uk - outlined a property investment capital gains minimization plan and he said fine good, that'll work, but the optional extra bit, dont do that last bit, it's technically legal but they might not like it (basically "taking the piss test"). The "penalty" would probably be a tax audit raking over the details to see if there is anyway they could catch you out on a technicality. So I took the advice and didnt do that last bit - it wasnt even necessary to minimize the the CGT I was just curious as to the limits :)

I guess you know about it but the UK has some kind of anti-avoidance rule requiring you to disclose to HMRC any scheme you use to reduce tax. So if you invent a new one, they can close it next budget. I mean this is aimed at the tax avoidance departments at barclays, kpmg et al who have whole departments of expert tax avoidance people cooking up schemes.

Still chuckling about the taking the piss test :)

-doc
doc
Supporter
 
Posts: 113
Joined: Fri 26 Dec 2008 12:00
Location: Sliema

Previous

Return to Residency status and immigration issues



Who is online

Users browsing this forum: No registered users and 1 guest

cron