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Closing of the Malta-US Pension Tax Loophole

“The IRS is actively examining taxpayers who have set up these arrangements and recognizes that other taxpayers may have filed tax returns claiming Treaty benefits as a result of their participation in these arrangements. These taxpayers should consult an independent tax advisor prior to filing their 2021 tax returns and take appropriate corrective actions on prior filings.”

The IRS, Statement IR-2021-253, December 21, 2021



The Financial Action Task Force monitors countries and makes lists of those most likely to be used for money laundering schemes. In 2021 Malta was placed on their “Grey List” - making it a country where “some attention to their financial services should be given”. Weeks later the IRS made the above announcement adding the use of the US - Malta tax treaty to provide an appealing tax option for pensions to Americans to their “Dirty Dozen” list of scams.

The IRS is aware that a large number of American citizens living both in America and abroad, as well as non-Americans resident in America, have been making use of the loophole in the US-Malta tax treaty. A loophole which is now closing.


Normally income gains are recognized when a sale of an asset is made and proceeds are distributed; but in the interpretation of the US-Malta tax treaty that had been used, Americans (and many non-Americans living in America) had been under the impression that they could contribute property tax free to Maltese pension plans, and have no tax consequences even when the properties were sold.


Now that Malta is placed on the international “Grey List”, the IRS have decided to ensure that the Maltese pension schemes are not being used to avoid paying US tax. Meanwhile Maltese authorities said they will look into tightening their own regulations in a bid to be removed from the “Grey List” and improve its international standing.


If you think you have been affected by the issues covered in this article, be in touch for a free initial consultation. We can help make sure that you report on your tax situation correctly and avoid the potentially hefty fines that the IRS will be looking to impose for non-compliance with this change in policy.




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