US Expat Taxes in Malta: How to File and Avoid Double Tax

Americans who move to Malta for its English-speaking courts, its Mediterranean climate, or its financial services and iGaming industry quickly learn that the Malta Tax and Customs Administration is not the only tax authority watching their income. The IRS is too. US citizens and green card holders owe a US return every year regardless of where they live, independent of whatever return Malta requires. US expat taxes in Malta come down to coordinating two filing systems, choosing correctly between the Foreign Earned Income Exclusion and the Foreign Tax Credit, and steering clear of a retirement scheme the IRS now treats as a red flag rather than a loophole.

Do US Citizens Living in Malta Have to File Both Malta and US Tax Returns?

Yes, in almost every case. The Malta Tax and Customs Administration taxes individuals who qualify as Maltese tax residents on their income, and on a completely separate track, the IRS taxes every US citizen and green card holder on worldwide income for as long as they hold that citizenship or status, wherever in the world they happen to live. Maltese residency status has no bearing on the US filing requirement. That obligation is tied to citizenship or immigration status alone, not geography.

The two systems run independently. Paying tax in Malta does not excuse an American from filing a US Form 1040, and filing in the US does not excuse the Maltese obligation either. The Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US-Malta tax treaty exist to prevent the same dollar of income from being taxed twice, not to eliminate either country's filing requirement on its own.

How Does Malta Tax Residents on Their Income?

Malta's individual income tax rules turn heavily on domicile, a concept separate from residence. A Maltese domiciled resident is generally taxed on worldwide income, similar to the US approach, while a resident who is not domiciled in Malta, a status many Americans arriving as expats or retirees can qualify for, is commonly taxed on a remittance basis: Malta-source income plus any foreign income actually brought into, or remitted to, Malta, rather than worldwide income as it is earned.

That remittance-basis treatment is qualitative and fact-dependent. It does not mean foreign income is tax-free in Malta, only that Maltese tax on it can depend on whether and when it is remitted, and the specific rules, including any minimum tax on non-domiciled residents, need to be confirmed with a Maltese adviser for the year in question. This structure is precisely why the FEIE-versus-FTC decision below has no single universal answer for every American in Malta.

Should You Claim the FEIE or the Foreign Tax Credit on Malta Income?

The right call hinges on how Malta is actually taxing your income in a given year. A non-domiciled resident whose foreign earned income, meaning wages or consulting fees for work performed outside the US, is not remitted to Malta may owe little or no Maltese tax on it, which leaves the Foreign Tax Credit with nothing to credit and makes the Foreign Earned Income Exclusion on Form 2555 the sharper tool. Under IRC Section 911, that exclusion shelters up to $130,000 of 2025 foreign earned income, a ceiling a mid-career professional in Malta's financial services or iGaming sector can bump against fast, though it only ever reaches wages and self-employment earnings, never the rental income from a let-out Maltese apartment or dividends from a Maltese brokerage account.

A resident taxed on the full amount of their income at Malta's standard rates, whether from domicile or from remitting the money, usually comes out ahead with the Foreign Tax Credit on Form 1116, computed by income category under IRC Sections 901 and 904. Unlike the FEIE, which does nothing for self-employment tax and can knock out the refundable Additional Child Tax Credit, the Foreign Tax Credit generally preserves that credit, with unused amounts carrying over per the table below. The FEIE also comes with a catch of its own: walk away from it once and the IRS locks you out for five years absent its consent. Our detailed FEIE versus Foreign Tax Credit comparison walks through the full decision, and the two elections can be combined across different income types in the same tax year.

What Does the US-Malta Tax Treaty Do for Double Taxation?

The United States and Malta signed a comprehensive income tax treaty in 2008 that entered into force in 2011, allocating taxing rights over categories of income between the two countries and reducing withholding on certain cross-border payments. As with nearly every US treaty, a saving clause claws most of that back for US citizens and green card holders, letting Washington tax them largely as if the treaty were not there, and the one carve-out that matters most for Americans in Malta is the treaty's own pension article, the same provision that was later twisted into the Malta pension plan scheme covered below. That single clause is why the treaty cannot be relied on to eliminate a US citizen's US filing obligation or US tax bill on Maltese income.

For most Americans in Malta, routine relief from double taxation still comes from the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above, not directly from the treaty text. Where the treaty matters most is narrower situations: tie-breaker rules when someone could be a tax resident of both countries in the same year, reduced withholding on certain investment income, and pension provisions that require the actual treaty article to be read before any position is taken. That pension article has also been at the center of one of the most aggressive tax-avoidance schemes the IRS has targeted in recent years, covered next.

Why the "Malta Pension Plan" Loophole Is Now a Listed Transaction

For roughly a decade, promoters marketed a structure often called the Malta pension plan, or Malta Personal Retirement Scheme, to US taxpayers as a way to contribute appreciated property or cash into a Maltese retirement arrangement and later take distributions that promoters claimed were entirely tax-free under the pension article of the US-Malta treaty. It was pitched as a legal loophole that let wealthy Americans convert taxable gains into tax-free retirement income with no genuine retirement purpose behind it.

The United States and Malta rejected that reading. In a Competent Authority Arrangement signed in December 2021, the two governments agreed that most of these arrangements do not qualify as a pension fund under the treaty at all, because they were not established or regulated primarily to provide retirement benefits under Maltese law. Then, in June 2023, the IRS went further and, through proposed regulations (REG-106228-22), designated the Malta personal retirement scheme structure a listed transaction, its category for a specific, identified abusive transaction that carries mandatory reporting.

Anyone currently holding one of these arrangements should get a professional review of the actual filings and disclosure obligations involved before taking any further action, rather than assuming the original marketing pitch still holds up.

Are Malta Investment Funds Taxed as PFICs?

Generally, yes, and it blindsides plenty of Americans who walk into a Maltese bank branch or a local brokerage and buy what looks like an ordinary fund. Malta-domiciled collective investment schemes, along with the EU-domiciled UCITS funds and ETFs that Maltese brokerages routinely push to retail clients, almost always meet the IRS definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 setting the tax treatment. That classification runs on US tax law alone; how generously or harshly Malta taxes the same fund domestically has no bearing on it.

The default PFIC treatment is deliberately harsh: without a timely qualified electing fund or mark-to-market election, the excess-distribution regime spreads gains and certain distributions across the full holding period, taxes the whole thing at the highest rate in effect for each of those years, and tacks on an interest charge for good measure. Every PFIC needs its own Form 8621, even in a quiet year with no distribution and no tax owed, layered on top of the FBAR and Form 8938 reporting that already apply to the Maltese account holding the fund. It is why most advisors steer Americans in Malta toward a US-domiciled brokerage instead of a locally purchased collective investment scheme or UCITS ETF.

How Are Malta Pensions and Retirement Accounts Taxed by the US?

It is tempting to assume that because Malta's state pension or a workplace retirement scheme grows tax-free at home, the IRS gives it the same pass, but that assumption is wrong more often than it is right. Setting the pension plan scheme aside entirely, an ordinary Maltese pension, whether the state social security pension, an employer-sponsored occupational scheme, or a private retirement arrangement, is not automatically shielded from current US tax just because Malta is generous with it. IRC Sections 401(a) and 402(b) set the default: income accruing inside a foreign retirement arrangement is taxable to a US person as it accrues unless a specific treaty provision says otherwise, which means each plan has to be checked on its own terms rather than assumed exempt because of how Malta classifies it.

Whether the treaty's pension article defers US tax on a particular Maltese plan, and how a distribution is ultimately characterized and taxed, depends on the plan's actual structure and the treaty text. Our foreign pension US tax treatment guide walks through the four questions that apply to any foreign retirement plan: whether growth is taxed as it accrues, whether a treaty article defers that tax, what has to be reported, and how distributions are taxed. Given the scrutiny the Malta personal retirement scheme has drawn, any Maltese-labeled retirement arrangement should be reviewed individually rather than assumed fully taxable or fully exempt.

Bottom Line

The single biggest trap for Americans in Malta is not the ordinary tax return, it is the retirement-plan sales pitch: anyone still holding a Malta pension plan structure is sitting on a listed transaction with real IRS penalties attached, and that needs to be dealt with before anything else on this list. Beyond that, Malta layers a second filing system on top of the US one, running on its own domicile and remittance-basis rules that can make either the Foreign Earned Income Exclusion or the Foreign Tax Credit the better tool depending on how a given year's income is actually taxed. The treaty between the two countries is legitimate and useful for residency tie-breakers and certain withholding relief, but its saving clause means it was never a way around US filing. Investment funds, legitimate pensions, and foreign accounts each carry their own separate FBAR and Form 8938 reporting rules on top of the income tax analysis, and getting any one of them wrong tends to cost far more than the underlying tax ever would have.

Have questions about US expat taxes in Malta? Contact TS CPA for a free consultation. We respond within the same day.