Last month, India and Malta signed a revised Double Taxation Treaty which now makes Malta the favoured jurisdiction of choice for Indian residents wishing to transfer their UK pension in to an overseas QROPS scheme.
The Double taxation Relief (Taxes on Income) (Republic of India) Order 2014 (L.N. 448 of 2013) came into force on 7 February.
Normally, where a Malta based QROPS scheme pays a pension income to a non-resident of Malta, the pension will be taxable in Malta at the prevailing non-resident rates of income tax.
However, Malta tax will not apply where there is a Double Taxation Agreement (“DTA”) which gives exclusive right to tax pension income to the country of tax residence of the scheme member.
Of particular note for Indian residents who are considering transferring their UK pension into an overseas QROPS scheme, the revised DTA does give exclusive taxing rights on pension income to India. Previously, these rights were shared, which in effect meant that the Maltese tax authorities could have imposed a withholding tax on QROPS pension income of up to 35%.
As of now, all pension income will be able to be received free of any tax in Malta, and the scheme member will just be liable to pay any tax in India.
Before this new DTA was signed, the QROPS jurisdiction of choice for Indian residents was Gibraltar, which imposed a fixed rate of income tax of 2.5% on all QROPS pension income withdrawals. Unfortunately, because Gibraltar does not have any double taxation agreements in place, this income was not able to be offset against any tax paid in India, so the scheme member would have had to be taxed twice on their pension income.
Malta has therefore significantly strengthened its position as a leading QROPS jurisdiction, especially amongst Indian residents and citizens who have returned to India to work or retire, including residents who want to transfer their NHS pension to India. Malta is already the leading jurisdiction of choice for residents of countries which have a double taxation agreement in place with Malta, as a result of a highly favourable pension regime, which includes the ability to draw down a 30% tax free lump sum at age 55, and the ability to invest in a wide range of investments, and no restrictions to purchase an annuity with a member’s pension fund.
In addition, Malta has a very high level of financial services regulation, highly educated workforce, and a wide selection of professional service providers available.
Now, as a result of this new double taxation agreement, it has become the QROPS jurisdiction of choice for Indian residents and citizens wishing to transfer their UK pension into an overseas QROPS scheme.