AOW, pension and tax in Malta: what remitting really means

Malta has the reputation of a tax haven on the Mediterranean, and there is a kernel of truth in it: whoever lives there but is not domiciled there pays tax only on income that is transferred to Malta. But for Dutch citizens the 1977 treaty contains a provision that most brochures skip — and that fundamentally changes the sum. This article makes it honest.

The remittance basis: what Malta itself does

As a Dutch citizen moving to Malta you become a tax resident there, but almost always keep your Dutch domicile of origin. You are then "resident non-dom", and Malta taxes you on Maltese income plus the foreign income you transfer to Malta or receive there. Foreign capital gains remain untaxed even on transfer. There is, however, a minimum tax of € 5,000 for anyone with at least € 35,000 of foreign income that does not come to Malta in full.

The provision that changes everything: article 2(5)

The reasoning "I leave my pension in the Netherlands, Malta doesn't tax it, so I pay zero" founders on article 2, paragraph 5 of the treaty. It says — in summary — that where the Netherlands must grant exemption under the treaty on income Malta taxes only on remittance, that exemption applies only to the part actually transferred to or received in Malta.

In concrete terms: your company pension is taxable under article 19 in the state of residence, Malta. But if you don't remit it, it is untaxed in Malta — and then the Dutch exemption lapses, and the Netherlands simply keeps taxing. The Belastingdienst issues the exemption statement for wage tax withholding correspondingly limited. There is no way round it: either Maltese tax on what you transfer, or Dutch tax on what you leave behind.

What stays Dutch anyway

Two incomes don't take part in this game. Your AOW (the Dutch state pension) falls under article 19(3): payments under a social security system may be taxed by the paying country, and the Netherlands does so. And a pension from government service — ABP years as a civil servant, teacher, police officer or soldier — remains taxed in the Netherlands via article 20, unless you become a Maltese citizen. Lump-sum surrenders the Netherlands may likewise tax under article 19(2).

The Maltese rates, and the 15% programme

What you do transfer, Malta taxes at the ordinary brackets — with a zero rate at the bottom and 35% at the top — or, for those who opt for it, under The Residence Programme: a flat rate of 15% on remitted foreign income, with a minimum tax of € 15,000 per year, a property requirement (buying or renting above set thresholds) and a compulsory application through an authorised registered mandatory, with application costs running to thousands of euros. The sum is simple: below roughly a hundred thousand in annual remittances the ordinary system is cheaper. Have this worked out once before you incur the costs.

The administration that makes it possible

The remittance basis only works with separate accounts: capital from before your Maltese years of residence (transferable tax-free) apart from income after that (taxed on transfer). Set up those accounts before the move — pots that have merged can no longer be untangled at the return, and that costs you precisely the advantage you came for.

What else the Netherlands doesn't let go of

Your AOW accrual stops on the day of departure; the part built up goes with you in full within the EU. An annuity, pension entitlement or substantial shareholding travels with a protective assessment: do nothing odd for ten years and it lapses. And the year of departure itself goes with an M return. What the rules together mean for you — remit or not, TRP or not — is the work of a tax adviser who knows both countries; with this article you know exactly what to ask him.