High-net-worth US taxpayers, working with professional advisers, have transferred assets into personal retirement plans established in Malta to limit and potentially eliminate tax on distributions. These so-called Malta pension plans rely on a specific interpretation of the US-Malta tax treaty.
This interpretation hasn’t been tested in the courts, but the IRS expressly rejected it in its clarification of the treaty in December 2021.
The Malta pension plan purportedly allows US taxpayers to transfer unlimited retirement funds and other assets—including appreciated assets—into a personal retirement plan established in Malta without triggering any recognition of gain. The plans are designed to defer tax on income earned within the plan, allow for distributions at age 50, and avoid tax on most distributions, all while providing asset protection.
In sum, the plans purport to offer the benefits of a US personal retirement plan with far fewer restrictions. It therefore should come as no surprise that the Malta pension plan landed on the IRS annual Dirty Dozen list.
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