The Institute of Financial Services Practitioners (IFSP), in a recent release, set out its understanding of the tax treatment of remuneration derived by non-Maltese resident members of an Investment Committee (‘IC’) of a Maltese licensed collective investment scheme (‘CIS’). The release is based on discussions held with the Inland Revenue.
In terms of the Standard Licence Conditions in the Investment Services Rules for Professional Investors Funds issued by the Malta Financial Services Authority (MFSA), a self-managed CIS must establish an in-house IC’ in lieu of an investment fund manager. Furthermore, the majority of the IC meetings must be physically held in Malta.
In terms of general rules enshrined in Malta tax legislation, non-residents are generally taxable in Malta on Malta-source income and capital gains.
Remuneration consisting of income derived from the holding of an office by a member of the IC, akin to directors’ fees, would be taxable in the country where the company’s effective management is situated.
With regards to remuneration for services rendered to the relevant collective investment scheme, such income would be taxable where the services are performed (bar any double taxation treaty protection).
The Maltese tax authorities have clarified that an IC’s member remuneration for providing advice in such role should be regarded as income derived from the rendering of services. Consequently, non-resident investment committee members should be taxable in Malta on the portion of the remuneration they receive and that is attributable to the services that are physically performed in Malta.
The Inland Revenue deems that the remuneration arising in Malta (and which would therefore be taxable in Malta), would consist of the amount corresponding to the higher of:
- The actual number of days of presence in Malta in a given calendar year; and
- One-twelfth of the IC member’s compensation as such for a given calendar year.
One must also consider the pertinent tax treaty dynamics arising from the applicable tax treaty between Malta and the country of residence of the non-resident IC member, particularly with regard to the allocation of taxing rights arising therefrom. The pertinent tax treaty may allocate exclusive taxing rights to the country of residence of the non-resident IC member, in which case Malta would have no jurisdiction to tax the remuneration received. Currently, Malta has over 70 tax treaties in force.
In conclusion, it is fundamental to note that the Inland Revenue would apply the above considerations in relation to professional investor funds and the members of their ICs. Consequently, it should not be inferred that similar treatment would be afforded in any other circumstance.