Contact
Menu
Get in contact
travel 4

What is the difference between Domicile and Residence?

November 5, 2018
Read: 4 minutes
If you are reading this article, then you have almost made up your mind to take up a second residence.
 
One of the many queries that not only you but many others have when moving abroad is ...
 
"What is the difference between Domicile and Residence?"
 
It is often considered to be the same, but in fact are very different.
 
It is crucial to understand both for income tax purposes.
 
Making presumptions about your residency status can have serious financial consequences. But understanding whether you are domiciled or resident is not straightforward.
 
It is essential for you to seek advice about your residency and tax status from a qualified tax adviser.
 
Our team of well-qualified Tax advisors can help you at every step of the way to ensure you are not evading tax - whether accidentally or otherwise.
 

In this article we will focus on the following:

  1. What does Domicile mean?
  2. Why is your domicile important?
  3. Changing your domicile
  4. What is Non-domiciled (non-dom) status?
  5. What does Residency mean?
  6. Tax Residency Certificate
  7. Malta Tax Status
  8. What is Ordinary Residency?
  9. Taxes for Expats in Malta
  10. Frequently Asked Questions (FAQs')

What does Domicile mean?

Domicile means the country where you officially have a permanent home or have a substantial connection with.
 
If you aren’t living there right now, then it’s the place to which you intend to return and make your home indefinitely.
 
In simple words, your domicile is your home — the state you consider to be your primary residence. You can have more than one residence, but only one domicile.
 
When you are born, you are automatically assigned to the same domicile as your parents. This is your domicile of origin.
 
If your parents were not married at the time of your birth, your domicile status will be the same as that of your mother. This may vary depending on each individual's circumstances.
 
Your domicile of origin continues until a new domicile is acquired by you. Even if you move abroad, it is unlikely that your domicile will change.
 
What is the difference between Domicile and Residence?

Why is your domicile important?

With many things, it is important to determine your domicile for tax purposes.
 
Your tax liabilities can be divided into three main areas:
 
  1. Your Income Tax (from investment or employment),
  2. Capital Gains Tax, and
  3. Inheritance Tax.
Your domicile is of particular importance if you were to own property or financial assets in foreign jurisdictions. It is also an important factor when determining how your individual estate should be passed on in the event of your demise.
 
The actual management of your estate will vary depending on each situation, but it's important to have an understanding of whether you live abroad, or have assets located abroad.
 
We assume that now you are fully aware of what it means and why is it important. But another important question which cannot be ignored is ‘Can you change your domicile?
 
Let us explain to you how;
 
 Why is your domicile important?

Changing your domicile

After the age of 18, you can change your domicile.
 
For this, you will be required to satisfy several criteria with evidence of each one.
 
The criteria for changing your domicile are varied and each case will be judged on its merit combining with the evidence provided.
 
The basic principles for changing your domicile will typically include as an absolute minimum:
 
  • Leaving the country in which you are domiciled and settle in another country.
  • Provide strong evidence that you intend to live in your new location permanently or indefinitely.
If we talk about Maltese jurisdiction, it is very difficult to get domicile status in Malta.
 
You are required to break all ties with other countries in order to be domiciled in Malta.
 
Once you get the status, you will be taxable on a worldwide basis.
 
Under the Maltese jurisdiction, you can have multiple residences but only ONE domicile.
 
Also, Malta does not have any deemed domicile rules.
 
It is very important to mention that if you are a third country national and have taken up Maltese citizenship by investment (IIP), you will still remain domiciled in your native country.
 

IIP does not grant you domicile.

Changing your domicile

What is Non-domiciled (non-dom) status?

To be a non-domiciled (non-dom), you will typically be a foreign national living in Malta. Which means you or your parents are not of Maltese origin.
 
While you may be considered a tax resident, your domicile will typically remain as your country of birth. If you are considered as a "non-dom" you cannot live in Malta indefinitely.
 
We hope that by now you know everything related to domicile,
 
Let us move forward and answer another question,
 
What is Non-domiciled (non-dom) status?

What does Residency mean?

You will be considered a resident (for tax purposes at least) if you're present in a country for 183 days or more per tax year or if not, by visiting the country very frequently and have the intention to reside there.
 
It also means that you have the legal right to live, work, set up business, travel or even study in a particular country.
 
The Malta Residency programs like Malta Residency and Visa Program (MRVP) and Global Residence Program (GRP) give the opportunity to non-European Nationals and their families to settle in Malta.
 
If you are a resident in Malta it doesn't mean you are a tax resident as well.
 
 
Being a tax resident in Malta is very different from being a resident,
 
Let us explain to you how:
 
What does Residency mean?
 

Tax Residency It is a common misconception that Malta residency and Malta tax residency are the same. In general, individuals who spend more than six months in Malta in a calendar year are likely to be Maltese tax residents [the reference is made to Article 13 of the Income Tax Act].

Tax residency in Malta is a facts-based test and the following factors are usually taken into account to determine the residency of individuals:

  • Place of abode;
  • Physical presence, i.e. > 183 days;
  • Regularity and Frequency of visits;
  • Intention to reside in Malta;
  • Ties of birth;
  • Ties of the family; and
  • Business Ties.
Issues of dual residence are normally solved by tax treaties. In cases where the person cannot determine his/her tax residence, it is ideal to consult with a tax advisor.
 
Our team of Tax advisors can guide and resolve your every query.
 
Contact Now
 
 
We will take this opportunity and also explain you the difference between Tax Residency certificate and Tax Residency Status.
 
Tax Residency  in Malta

Tax Residency Certificate

Tax residency certificate can be applied for and issued to you by the Maltese tax authorities on a yearly basis.
 
Unlike residency through MRVP which can be obtained without being physically present in Malta; For Tax residency certificate you have to be physically present on the island.
 
For the issuance of this certificate several documents are required:
 
  • Proof of Utility Bills (water and electricity);
  • Bank Transactions (money spent in Malta);
  • Rental/Purchase agreements.
All these are required to prove that you were physically present in Malta.
 
In other words, we can say that you have actually been the tax resident in Malta for a particular year.
 
Tax Residency Certificate

Malta Tax Status

It is the tax status which is given to you when you take up residency through the Malta residency schemes like GRP (if you are a non-EU) and Residency program (if you are a European Union national).
 
It means that your income will now be treated under source and remittance basis of taxation.
 
Being a beneficiary of one of the programs, any income received in Malta. Capital gains arising outside Malta even if received in Malta would still not be taxed in Malta.
 
Our team of Tax experts can assist and resolve every doubt you may have. 
Reach out to us at info@wahaat.com or
 
Contact Now 
 
What is Ordinary Residency?
 
Moving on, let us now focus on another important question:

What is Ordinary Residency?

To be 'ordinary resident', the country has to be your ordinary home, where the definition of ordinary means that you spend the majority of your time there, every year and don't take major trips abroad.
 
It is common to be 'ordinary resident' but not 'resident' and is often where someone travels overseas for a period of time (include a full tax year).
 
If you are a foreigner, ordinary resident in Malta, then you would also be interested in knowing about the tax rates for expats in Malta.
 
Taxes for Expats in Malta

Taxes for Expats in Malta

In Malta the taxation of an individual's income is progressive; i.e. the higher an individual's income, the higher the tax paid.
 
To attract highly qualified personnel from abroad, Malta has introduced an incentive scheme targeting foreign executives.
 
Professionals in the financial services, gaming and aviation sectors can benefit from a flat personal income tax rate of 15% on income up to €5 million. Any income over that figure is tax-free.
 
To qualify for this tax incentive, the employee must earn a minimum of €85,016 per year among other criteria.
 
EU nationals can benefit from the reduced tax rate for an unlimited period, EEA and Swiss nationals for a period of ten years and third-country nationals for four consecutive years.
 
Related

 

Our professional team of Tax advisors can guide and resolve your every query. 
Get in Touch
 

malta residency by investment

Frequently Asked Questions (FAQs')

Below we have listed some of the very frequently asked questions.
If a person is not a Tax Resident anywhere, does it mean he/she is not obliged to pay Tax anywhere?
Answer: Most of the countries Tax income on a resident basis, so it is possible that he/she is not taxed anywhere.
But if you want to open a bank account, then the bank might ask for a tax number in order to receive the income. So being a tax nomad would not get you anywhere.
 
For this purpose, Malta has programs like Global Residence Program (GRP) and Residence Program to give you a tax status.
What is the double taxation system?
Answer:
 
  • Malta has over 70 double tax treaties in force.
  • Double taxation system helps to reduce withholding taxes when a foreign company is paying a dividend to Malta.
  • As per the Domestic Legislation, if a Maltese company is paying dividends outside of Malta, there will be no withholding tax even if there is no agreement.
  • Treaties help to reduce the withholding tax on inbound dividends, interests and royalties.
  • It also solves dual residence status conflicts where income is taxed twice.
  • Malta has different types of double taxation reliefs.
  • If foreign income is received in Malta and the treaty allocates right to Malta, Malta will give relief on the tax suffered in another country, subject to a sealing which is usually the Malta Tax.
What does Capital Gains Tax (CGT) mean?
Answer: Capital gains are the profits made on the disposal of certain assets like:
 
  • Immovable property (subject to final tax),
  • Securities and shares (but excluding those quoted on the Malta Stock exchange),
  • Beneficial interest in a trust
  • Business, Goodwill, Trademarks, Trade names, Patents and Copyrights.
Capital gains are recorded in the tax return of the individual. The tax year is hence the calendar year.
 
For the majority of transfers, provisional tax payment of 7% of the transfer value is payable upon transfer, with the resultant tax due, if any, to be paid by the 30th June of the following year. Immovable property is taxed at a final tax rate on the transfer value, which will depend on the year of acquisition of the property and whether the property forms part of a project or not.
 
In Malta, there is no distinction between Short-term capital gains tax and Long-term capital gains tax.
 
Capital Gains Tax Rates - Capital gains, with the exception of transfers of immovable property which are subject to a Final Property Transfer Tax system, are recorded in the individual's tax return for the year and added to other income. The applicable tax rate will then apply to the total income.
 
Capital Losses - They are set off only against any capital gains made during that year. Immovable property is however still taxed at the applicable final tax rate. Underutilized capital losses can be carried forward indefinitely, to be set off against future capital gains.
 
Our team of Tax experts can help and resolve every query you have. 
Reach out to us at info@wahaat.com or
 
Get in Touch
 
 

wahaat_factsheets

Conclusion

Domicile and Residency usually go together but for certain taxation purposes (eg. Income Tax or Inheritance Tax Malta) your particular mix of residency, ordinary residence, domicile and domicile of origin will make a difference to what tax you have to pay.
 
If you are unsure about your Residency or Domicile status and would like to clarify your situation.
 
We can help you understand your tax situation and offer suggestions for how you could reduce any unnecessary tax liabilities.
 
Contact Now
 

Interested? Get in contact

We provide a personalised service that is tailor-made to the needs of our clients. With relevant experience and competencies across various areas, we provide a holistic service that is tailor-made to the needs of our clients.

Get in contact

What you may also like

List of 183 Visa-Free countries with Malta Passport

List of 182 Visa-Free countries with Malta Passport

Read about the updated and ever-growing list of the Malta passport visa-free countries for 2019.

Learn More →

Malta Tax Structure

Malta Tax Structure

Tax in Malta on the basis of residence is charged on income & capital gains. Businesses set up in Malta enjoy full imputation system & refundable tax credit.

Learn More →
Malta Residency and Visa Program

Malta Residency and Visa Program (MRVP)

The MRVP can grant you and your family the right to reside, settle and stay indefinitely in Malta. It is done by issuing you with a lifetime Permanent Residency Certificate together with a Malta residence card.

Learn More →