Overseas Pensions Double Taxation Agreements 

Individuals, resident in Malta, who have resided and or worked abroad for a period of time may be entitled to receive a foreign pension. When taxpayers receive a foreign pension, it is important that they ensure that they meet all their tax compliance obligations, both in Malta and abroad, including keeping all documents relating to such pensions. In Malta, all taxpayers in receipt of a pension are to ensure that they review any double taxation agreement. ​Individuals receiving an overseas pension must submit a tax return and attach a statement for each separate foreign pension income received unless that pension is specifically exempt from tax in Malta.

Malta presently has over 80 double taxation agreements with countries across the globe including the United States of America, Australia and the United Kingdom. The taxation of pensionable income is considered in all treaties presently in force with Malta. This ensures certainty and clarity for taxpayers in receipt of foreign pensions, both for those presently residing in Malta and those who may decide to make Malta their retirement home in the near future. Although the treatment of pension income is different depending on the country from which the pension income is being received, the below is a summary of some of the most requested treaties for which questions about the taxability of pensionable income have been received by the MTCA.

Australia-Malta Double Taxation Treaty

L.N. 41 of 1985, and synthesised text outlines the tax position of Malta resident individuals in receipt of pensions arising from Australia. In accordance with Article 18 of the said treaty, pensions including government pensions received from Australia by a resident of Malta are only taxable in Malta. The State of residence of an individual, in this case Malta, will than decide if that pension is taxable or not.

It is important to note that in most circumstances pensions from Australia are received because an individual used to live in Australia and not necessarily due to past employment. In such cases, as also applies to other taxpayers in Malta, these pensions cannot be computed separately using the single rates in case of married individuals/pensioners. For pensions to be computed on the separate single rates for married individuals/pensioners, pensions received must arise from past employment in Australia. A Malta resident in receipt of pensions from Australia will therefore be subject to tax on that pension in Malta according to the progressive rates of tax applicable to that individual. It is to be noted that the Treaty provides specific provisions for any pension or allowance that is paid in respect of wounds, disabilities or death caused by war, or in respect of war service. The latter shall be considered as exempt from tax upon receipt of the pension.

Australian pensioners do not generally receive monthly or yearly statements reflecting their pension received. When this arises, taxpayers should use bank deposit statements to keep records of all pensions received. Pensions received from Australia by Maltese residents should be declared in their Malta tax returns. Copies of bank statements are to be attached to an individual’s tax return to reflect the total yearly pension received. Since tax is not withheld at source, there is no question of double taxation relief.

Canada-Malta Double Taxation Treaty

L.N. 12 of 1998, and synthesised text, refers to pensions and annuities in Article 18 of the Treaty. Pensions and annuities arising in Canada and received by a resident in Malta may be taxed in Malta according to the applicable tax rate. The pension may also be taxed in Canada. Thus, Canadian pensions are taxable in Malta, but tax may also be withheld in Canada at source. When pensions arise in Canada and are taxable in the latter, the tax so charged shall not exceed the lesser of:

(a) 15% of the gross amount of the payment, and

(b) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the periodic pension payments received by him in the year if he were resident in the Canada in which the payment arises and if such total amount were his only income in that year.

The above shall only apply if the pension received is a periodic pension payment. Where the pension does not qualify as a periodic pension than no restriction of taxing rights shall apply.

Thus, annuities received by Malta residents may also be taxed in Canada but the tax so charged shall not exceed 15%. No limitation will apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an income-averaging annuity contract.

Special provisions apply in the case of war veterans’ pensions or allowances or war disability benefits received from Canada by Malta resident taxpayers. Malta residents in receipt of such pensions are exempt from tax on the condition that no tax was charged in Canada on those pensions.

When pensions are received by residents of Malta, they should be declared in Malta. Upon declaration, an individual will be eligible for double taxation relief. In order to qualify for relief of tax paid on Canadian pensions, taxpayers should attach to their tax return a copy of the pension slip showing the amount of pension received and the amount of tax deducted from their pension.

Germany-Malta Double Taxation Treaty

L.N. 383 of 2010 outlines the taxability of pensions and annuity received from Germany by a resident in Malta. Article 18 of the double taxation treaty between Malta and Germany states that pensions   and similar payments or annuities paid to a resident of Malta from Germany shall be taxable only in Malta. Notwithstanding this, an exception to this is where a Malta resident is in receipt of pensions from Germany that arise from statutory social insurance payments made in Germany. In the latter case the pension shall only be taxable in Germany.

Special provisions apply with respect to pensions received for damages sustained as a result of war or political persecution or of military of civil service (including restitution payments). Whether received in the form of recurrent or non-recurrent payments, the receipt of the pension by a Malta resident shall only be taxable in Germany. 

With respect to pensions paid by the State of Germany, a land, a political subdivision or a local authority thereof or some other legal entity under public law of that State to an individual in respect of services rendered to that State, a land, a political subdivision or a local authority thereof or some other legal   entity under public law shall be taxable only in Malta if the  individual is a resident and national of Malta.

Ireland-Malta Double Taxation Treaty

L.N. 62 of 2009, and synthesised text provides the opportunity for taxpayers in receipt of pensions or similar payments from Ireland to establish their Malta tax position. Article 18 of the Double Tax Convention between Ireland and Malta states that pensions and other similar remuneration paid in consideration of past employment, or any annuity paid, to an individual who is a resident of Malta is only taxable in Malta. However, it is important to note that pensions paid, and other payments made under the social security legislation in Ireland shall be taxable only in Ireland.

Special provisions govern pensions arising from previous government services. Salaries, wages and other similar remuneration, other than a pension, paid by the government of Malta or Ireland to an individual in respect of services rendered thereto shall be taxable only in that Country. However, such salaries, wages and other similar remuneration shall be taxable only in the other country if the services are rendered in that country and the individual is a resident of that country and is a national of that country; or did not become a resident of that State solely for the purpose of rendering the services. Any pension paid by, or out of funds created by, a country to an individual in respect of services rendered to that country shall be taxable only in that State. However, such pension shall be taxable only in the other country if the individual is a resident of, and a national of, that country.

British Pensions – United Kingdom-Malta Double Taxation Treaty

L.N. 105 of 1999, and synthesised text states in Article 18 that pensions and other similar remuneration paid in consideration of past employment, or any annuity paid, to an individual who is a resident of a Malta shall be taxable only in Malta. Thus, individuals residing in Malta in receipt of pensions or annuities arising from funds in the United Kingdom are taxable solely in Malta.

Special provisions apply with respect to pensions received for past government services rendered in the UK. In this case, such pensions shall be taxable only in the UK. However, there is an exception which stipulates that if the individual is a resident and national of Malta then they shall only be taxable in Malta on such pensions. This is on condition that that individual did not become a resident of Malta solely for the purpose of rendering the service.

All other pensions received from the UK by a resident of Malta are taxable only in Malta. UK Tax Authorities will not be required to withhold, nor charge, any tax on such pension payments to Malta. Thus, pensions are exempt from tax in the UK. As a result, a British Pension received by a Malta resident individual must be declared for tax purposes in Malta. Where tax is however withheld in the U.K., the individual concerned cannot claim double taxation relief (DTR) in their Malta tax return as such income should have been exempt from tax. Therefore, should taxes be withheld in the UK, the individual taxpayer is encouraged to contact the UK tax authorities and request that such pension payments be exempted from any U.K. withholding tax. In this regard, taxpayers will be required to complete an exemption form and submit this to the relevant authorities. A refund claim may also be submitted for tax incorrectly withheld in the UK.

Additional Comments

Data from British Pensions regarding pensions received by residents in Malta is no longer available to the Commission for Revenue. Up to year of assessment 2011, amounts received from the UK were reported through the FSS system. As a result, up to year of assessment 2011 non-filer statements for such pensioners were possible. However as of year of assessment 2012, non-filer individual pensioners who in previous years had income from British Pensions (PE740008) started receiving a mismatch notification. As of YA2012 such individual/pensioners have the possibility of sending this British pension “FS3” with an adjustment form (AF) in which they can insert the amount of pension received, without the need of sending a tax return. A return will have to be sent, however, if this “FS3” is not available. If this type of statement is not available, then a self-assessment return should be filed by the taxpayer accompanied by whatever documents the individual pensioner deems adequate to confirm the amount of pension received (e.g., bank statements). Individual pensioners who are in receipt of a UK pension and have received their Pension Statement, are to await their tax statements (mismatch letter)/returns as usual. There is no need for them to send their British Pension statements to the Office of the Commissioner for Malta Tax and Customs beforehand.

United States of America-Malta Double Taxation Convention

L.N. 560 of 2010, outlines the tax treatment of pensions from the USA in Articles 17, 18 and 19 of the Treaty. Maltese residents in receipt of USA based pensions, social security or annuities beneficially owned by a resident of Malta shall be taxable only in Malta.

Any exemption applicable to the beneficial owner resident in Malta would continue to apply if he would also have been exempt in the USA on such income.

Pensions paid by a fund created by the State or its political subdivision or a local authority to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State. They may however only be taxable in the other State if the individual is a resident of, and a national of that State.

Payments related to the provisions of social security or similar legislation, to a resident of Malta or citizen of the USA shall continue to be taxable only in the USA whilst annuities received by a resident of Malta shall be taxable only in Malta.

All other pensions received by a resident of Malta are taxable in Malta only.

With respect to U.S. citizens and residents that are establishing personal retirement schemes in Malta under the Retirement Pensions Act of 2011 with no limitation based on earnings from employment or self-employment, the competent authorities of Malta and the United States have entered into Competent Authority Arrangement. The competent authorities therefore confirm that distributions from this type of fund, scheme or arrangement are not “pensions or other similar remuneration” in consideration of past employment for purposes of paragraph 1(b) of Article 17 of the Treaty. Accordingly, U.S. citizens and residents may not claim benefits under paragraph 1(b) of Article 17 and Article 18 of the Treaty with respect to the type of fund, scheme or arrangement described in the paragraph immediately above, including a personal retirement scheme established in Malta under the Retirement Pensions Act of 2011. Additionally, these funds, schemes or arrangements may not apply paragraph 2(e) of Article 22 of the Treaty to be treated as a qualified resident and may not claim the benefits of paragraph 3 of Article 10 of the Treaty.

Pensions from the United Nations

The United Nations Pensions Programme Rules, 2015 (UNPP) contemplate the granting of “special tax status” to individuals in receipt of pensions from the United Nations and who satisfy a number of conditions.

Pension from other countries

Although the treatment regarding the tax liability of foreign pensions received in Malta is found to be similar in different treaties, it is important to refer to the specific treaty in each and every case.  Some important divergencies arise for instance in the case of pensions received from certain EU countries. For example, according to some treaties, a pension issued from an EU country under its Social Security system is taxable only in that country, and not taxable at all in Malta, even if the recipient is resident in Malta. Therefore, as a general rule pensions received by a resident of Malta from another EU country or from any other country with which Malta has a Double Taxation Relief (DTR) Treaty, are largely taxed in the country where they arise and not in Malta. Therefore, pensions received from a country, a political sub-division or a local authority thereof in respect of services rendered to that country, political sub-division or local authority, shall be taxable in that country. An exception arises where the recipient of the pension is a national and resident of Malta, in which case the pension would be taxable only in Malta.

It is therefore important to consult with the relative Treaty to confirm all annual tax compliance requirements.

Pensions from a country with which Malta does not have a DTR Treaty that are received in Malta by an individual resident in Malta are taxable in Malta.

It is important to note that EU and other pensioners living in Malta may also benefit from the special Tax Rebates given to pensioners, as long as these pensioners are subject to tax at the rates prescribed in Article 56(1)(a) and 56(1)(b) of the Income Tax Act, that is, at the single, married or parent rates of tax.