Social Security contributions

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Social Security contributions

Postby peterj » Wed 23 Aug 2006 19:01

Hi all

A while ago I posted a question on another thread regarding social security contributions. It appears from the gov website that contributions of 15% are required on interest/dividends and other passive income.

I finally managed to get a reasonably full response from the MFSS after emailing to ask whether I would be require to make contributions if I received temporary residence and lived off foreign based investment proceeds. This is from the response:

A distinction must be made between a residence and a working permit in Malta. If you satisfy the eligiblity criteria and therefore be awarded a residence permit to live in Malta, this is in no way related to the permit to work and pay social security contributions in Malta. A person may reside in Malta and pay the taxes due to the Maltese government without being requested to pay any social security contributions in Malta. Social security contributions are only requested upon a gainful employment in Malta.

Therefore, if you intend to apply only for a residence permit in Malta, you will be requsted to pay the relative taxes due. If you would eventually consider taking up an economic activity in Malta you would then need to apply for a working permit in Malta and pay the relative social security contributions due.


I sent a follow up question:

Am I correct in interpreting your response as meaning that as long as my income is wholly sourced from investments based in foreign countries, that I am not required to make social security contributions? If so, if I receive income from interest on a Maltese bank account is this considered to be "taking up an economic activity"?


And received the following advice:

Yes, your interpretation is correct. As long as your earnings are derived from interests/dividends etc this will not considered to be an economic activity.


Hope this helps others,
Peter
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Postby engineer » Sun 03 Sep 2006 09:32

Hello Peterj,

I note your point about interest from a Maltese account. If you receive interest from such an account it is reportable to the tax authorities. As a temporary resident why not keep all assets offshore and receive interest tax free. Under the EU savings tax directive that is permissable as long as the income reported to the tax authorities of your country of residence. Living in Malta only money that is brought into the country is taxable and even then, I think I am correct in saying, you need to exceed the personal allowance before paying tax.

Cheers
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Postby gozomark » Wed 18 Oct 2006 14:02

just to clarify

A. the EU savings directive has three options

1. pay witholding tax
2. income reported to the tax authorities of your country of residence
3. you can sign a declaration with your bank to say you are exempt, which foreigners living in Malta are as you don't pay tax on income unless you bring it into Malta

B. social security contribs are only on employment income

C. whatever you do, keep your money offshore,as its tax free and the interest rates are much better offshore than in Malta

D. engineer, you are right on the personal allowance
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Postby peterj » Wed 18 Oct 2006 19:55

Agree with most points above, except that in my case I'm willing to trade a couple of %points of interest and potentially a small amount of tax for protection against what I perceive to be a high risk of unfavourable shift in exchange rate. My investments are mostly in Australia though so that won't probably be be the case to most here.

Mark, your comment that Social Security contributions are only on employment isn't quite right as far as I understand, based on reading some of the IRD web info

"Class 2 Contributions are payable when you earn income from trade, business, profession, vocation, any economic activity or from other income such as rents, investments etc."

Based on the answers I posted above, I assume that these only refer to these items based in Malta.
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Postby gozomark » Wed 18 Oct 2006 21:04

not sure what currency you are refering to when you wrote "a high risk of unfavourable shift in exchange rate" - in the Maltese £ ?? - it will join the Euro at the current fixed rate(or do you mean the A$). I meant £ offshore rates versus £ onshore rates in Malta, so no currency risk anyway

I stand corrected on the social security contributions http://www.ird.gov.mt/help/help_ssc.asp

(however, I'm not sure if it applies to foreigners, and even if it does, I beleive it would only be on income earnt in Malta, not on income brought into Malta)

ATB
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Postby peterj » Thu 19 Oct 2006 16:19

Hi Mark

The risk I see is in the current (over)value of the aussie $, hence my wish to hedge my bets by having enough Liri here to keep me going for at least 6 months or so. Once it's here I may as well earn some interest.

The money I'm bringing in at present is from sale of shares so I believe capital and hence tax exempt, I think I'm not taxable this financial year anyway as I won't have lived here for 180 days this Maltese FY, we probably won't hit the (now even more generous) tax threshold and the double tax agreement with Australia should ensure that I'm not worse off anyway if I'm wrong on any of these assumptions.

I'm only planning on ever bringing in enough money to live on for 6 months or so at a time, as I'm very comfortable with my Aussie investments, and the tax/ssc position in Australia is quite favourable (Approx 6 - 7% total for a couple earning about $50,000au or approx mL12500).

The other reason for bringing money into Malta in lumps is the fairly high bank charges for foreign currency ATM transactions from my otherwise excellent Australian bank.

I am pretty sure that SS contributions do apply equally to foriegners (see my first post), but I believe you are correct on the assumption that they are not levied on income earned overseas.

Cheers
Peter
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Postby peterj » Fri 20 Oct 2006 09:13

Just a very quick clarification on Australian tax rates I mentioned above. The rate mentioned is based on our own situation where a high % of our income is concessionally taxed capital gains and fully franked dividends. If we had 100% taxable income of $au50k the rate would be approx 12.5%.

Just thought I should clarify before everyone started buying tickets to Sydney.....................................
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Postby adam777 » Tue 09 Jan 2007 19:19

Assuming that a person does qualify to pay SS contributions in Malta what is the current rate?
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Postby peterj » Tue 09 Jan 2007 21:37

There's a calculator here

http://www.ird.gov.mt/help/help_ssc.asp



Rates vary widely according to category of earner and income.


Hope this helps.

the above link is the help page - the actual calculator is here

http://www.ird.gov.mt/services/ssc/sscmain.aspx
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Postby gozomark » Sat 17 Mar 2007 18:15

my wife has started earning a bit in Malta - it appears that as long as she earns less than Lm 390 per annum, she pays no social security contributions, but if she earns more than this she has to pay Lm 450-500 in SS contribs - ie she could earn Lm 400, and end up paying it all, plus some more in contributions !! Hopefully one of you will explain why I'm wrong.......
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Postby peterj » Sat 17 Mar 2007 20:05

Hi Mark

As usual I can't provide a definitive answer, but I did have a play with the calculator on the IRD web page. 2007 doesn't seem valid yet, but if you plug numbers in for self-employed contributions (this seems to be a self-employed issue as low paid employed can elect to pay 10% and get pro rata benefits), use 2006, married and the threshold seems to be Lm630. Earnings of Lm631 attract a contrubution of Lm530.40. Still pretty hefty!

I have the direct email address of someone helpful (ie at least answers emails) at the MFSS who answered some questions on ssc for me last year. Let me know if you want it, but I probably shouldn't post it here.
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Postby gozomark » Sat 17 Mar 2007 20:15

Hi Peter
I missed out the fact my wife is self employed :oops: - I've got our accountant looking into it, but would appreciate a PM with the email address (or perhaps we meet up and I buy it for a cisk ! - who knows we may know each other anyway ! )

I had a go at the calculator, and I get the threshold as Lm 391, and you pay Lm 530
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Postby gozomark » Sun 18 Mar 2007 06:51

the difference is whether she is

Trade, Business, Profession, Vocation or other economic activity

or

Investments, Rents, Capital Gains, other

threshold is 630 for the second, but 391 for the first, and unfortunately I think she will be under the first[/u]
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Postby peterj » Sun 18 Mar 2007 11:25

Hi Mark

I've pm'd you with the address, hope it helps.

Bizarre little set up it appears to be doesn't it? SSC contributions at over 100%! You get an increased threshold for being married if your income is passive, but not if you actually work for it! Love to know the logic there.

On the other hand, the somewhat wonky nature of the IRD website in general makes me gravely suspicious that the whole story is not being told.

Just for interest, did your wife have to apply for a new residence permit, now that she's moved into a new category (economic self-sufficient to self-employment?)?

Best of luck with it.
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Postby gozomark » Sun 18 Mar 2007 11:29

shes done nothing yet, just checking her options - hopefully our accountant will find a solution, and if so I'll post it here
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