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Malta Pension Funds Deemed Taxable in the U.S.

by | Jan 5, 2022 | International Tax Law, IRS |

Receive a pension distribution from a Malta pension fund? If you are a U.S. citizen, you will be unhappy to learn that the distribution is taxable for U.S. purposes, following the discovery of abuse by U.S. taxpayers with no prior connection to Malta.

Through a Competent Authority Arrangement, the U.S. and Malta have agreed that the joint Income Tax Treaty will not allow for the tax exclusion originally sought in the Malta pension scheme. Those familiar with the IRS’ “Dirty Dozen” tax scams know the Malta pension scheme was listed as a possible scam on the list. In 2011 when Malta and the United States established the tax treaty, investors in Malta Pension Plans were promised significant tax benefits that they could not get with U.S. tax strategies and retirement structures. Funds could be distributed as early as age 50, according to Malta law, and like Roth IRAs, there are no tax deductions for contributions. Soon thereafter, differences become apparent, including the span of assets that can be contributed. Through the Competent Authority Arrangement, the countries have agreed that U.S. taxpayers with no connection to Malta were misconstruing the pension provision of the tax treaty to avoid income tax on the earnings of, and distributions from, personal retirement schemes established in Malta. To review the complete Competent Authority Arrangement, click here.


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