Linked long term contracts of insurance in Malta : an analysis of the direct tax implications

Abstract

Purpose: The purpose of this study is to analyse the direct tax implications of LLTCIs under the Maltese income tax regime. This study also intends to understand any issues arising when interpreting the income tax legislation applicable to LLTCIs. Design The objectives of this study were achieved through semi-structured interviews with tax professionals in the area of LLTCIs, supported by case studies, Maltese legislation, books, journals and websites. Findings This study indicates the issues which may arise from both lack of clarity and specific provisions within the ITA. In particular, this study examines the tax treatment of LLTCIs whose benefits are less than eighty-five percent (85%) linked to units in CISs and the income tax implications of partial surrenders of LLTCIs. Conclusion This study concludes that although the income tax legislation with respect to LLTCIs might be unclear, any lacunas present tend to be harmonised since tax professionals are likely to adopt a homogenous approach towards a particular tax situation. Moreover, it is a fact that the lack of clarity is not causing any major problems both within the business of insurance and the income tax system in Malta and thus cannot be considered as hindering investment in Malta. ii Value It is sincerely hoped that this study will encourage further improvement in relation to the income tax implications of LLTCIs, mainly with respect to the study's recommendations which included the need to clearly classify LLTCIs and for the introduction of new guidelines, particularly those related to partial surrenders of LLTCIs. The study also recommends the enhancement of knowledge with respect to LLTCIs.