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John B. Lane, CPA, PA

August 10, 2026

The Malta Personal Retirement Scheme: Tax Haven or Tax Hell?

Painting of a rocky coastline at sunset with birds over the water

By John B. Lane, CPA

Published: August 10, 2026

Last reviewed: August 10, 2026

Estimated reading time: 7 minutes

Key Takeaways

  1. A Malta Personal Retirement Scheme is treated as a listed transaction under proposed regulation REG-106228-22 (Federal Register, June 7, 2023). Material advisors and participants face disclosure obligations and exposure to penalties under IRC § 6662, 6662A, 6677, 6694, and 6707A.
  2. The IRS placed Malta personal pension arrangements on its Dirty Dozen list of abusive tax schemes for multiple years starting in 2021.
  3. The U.S.-Malta Competent Authority Arrangement (signed November 30, 2021 by the U.S. and December 3, 2021 by Malta) clarifies that most Maltese personal retirement arrangements are not "pension funds" under the U.S.-Malta tax treaty, and the clarification applies retroactively to the treaty's signing date.
  4. For a Malta pension treated as a foreign grantor trust, the U.S. owner generally must file Form 3520 annually (contributions and distributions), Form 3520-A annually (the trust itself), and potentially FBAR and Form 8938 depending on account value and filing status.
  5. Reporting and taxation are separate questions. A clean treaty position can still trigger Form 3520 reporting. A valid reporting filing can still owe U.S. tax.

I recently sat down with a client who had moved their U.K. workplace pension into a Malta Personal Pension Scheme on the recommendation of an outside advisor. They came to me confident that the strategy was clean. Tax-free contributions, tax-free distributions under the U.S.-Malta treaty, full reporting handled abroad. When I told them what I saw in the structure, they pushed back. They had received the opposite advice from a promoter, and the promoter had told them what they wanted to hear.

Unfortunately for some folks, Malta pension arrangements are still being marketed to U.S. persons, and the marketing has not caught up with the tax law, but the IRS has. Below I'll detail out what you need to know before opening one of these accounts, and what to do if you already have one.

How Malta Got on the IRS Radar

Malta passed its Retirement Pensions Act in 2011, with implementing regulations in 2015. The structure of the Maltese personal pension scheme is in direct conflict with how U.S. law treats retirement contributions and distributions in several important ways:

  1. Contributions to a Malta pension are not capped at any meaningful annual limit. A U.S. 401(k) is capped, an IRA is capped, a SEP is capped. A Malta pension is not.
  2. Contributions can come from passive investment income, not just earned income. U.S. retirement plans require earned income.
  3. Appreciated property can be contributed in kind. U.S. retirement plans, with very limited exceptions, do not allow this.
  4. Malta permits a 30 percent tax-free lump-sum distribution at retirement, with a treaty position that argued this distribution should also be tax-free in the United States.

Put those pieces together and a promoter could pitch a U.S. person on the following hypothetical scenario: take cryptocurrency held offshore with a $10,000 basis and a $500,000 unrealized gain, contribute it to a Malta pension scheme as appreciated property, sell it inside the pension, and claim under the U.S.-Malta tax treaty that the gain is not taxable in the United States. Then take a 30 percent tax-free distribution and again claim treaty exemption.

On a literal reading of the treaty text, the structure appears defensible. In reality, it violates the basic architecture of how U.S. retirement plans are supposed to work and the IRS has taken notice.

What the IRS Did About It

The IRS placed Malta personal pension arrangements on its Dirty Dozen list of abusive tax schemes for multiple years starting in 2021, with continued attention in the 2023 list. (Sources: IRS Dirty Dozen index; The Tax Adviser, "IRS targets Malta pension plans: Compliance options," December 2023)

In late 2021, the U.S. and Maltese competent authorities signed an arrangement clarifying that many Maltese personal retirement arrangements are not "pension funds" within the meaning of the U.S.-Malta tax treaty. The arrangement was signed November 30, 2021 by the U.S. competent authority and December 3, 2021 by the Maltese competent authority, and was published in the Internal Revenue Bulletin on December 27, 2021. (Source: U.S.-Malta Competent Authority Arrangement on Pension Funds, IRS)

This is important for the timing question. A competent authority arrangement does not amend the treaty. It clarifies existing language. That means the clarification applies retroactively to the date the treaty was signed, not just prospectively from the date of the arrangement. If you took a Malta pension distribution in 2018 relying on the original treaty reading, the competent authority arrangement says you were wrong then, not just wrong going forward.

The IRS then went further. Proposed Regulation REG-106228-22 expressly identifies certain Malta Personal Retirement Scheme arrangements that rely on the U.S.-Malta treaty as a "listed transaction" under the reportable transaction rules. (Source: Federal Register: Malta Personal Retirement Scheme Listed Transaction, June 7, 2023)

When that regulation is finalized, taxpayers and their advisors who participated in these arrangements will face additional reporting obligations and exposure to penalties under IRC § 6662, 6662A, 6677, 6694, and 6707A. Some of those are taxpayer penalties. Some are preparer penalties. The 6707A penalty for failing to report a listed transaction starts at $5,000 for an individual and increases sharply from there.

Taxation and Reporting Are Two Different Problems

This is the conversation I had to walk my client through carefully, because the two rules do not move together.

Reporting is the requirement to disclose the existence of the foreign arrangement to the IRS. For a Malta pension treated as a foreign grantor trust, the U.S. owner generally must file Form 3520 annually to report contributions and distributions, and Form 3520-A annually for the trust itself. Other filings, including FBAR (FinCEN Form 114) and Form 8938, can apply depending on the value of the account and the U.S. person's filing status.

Taxation is the question of whether U.S. income tax is owed on the income earned inside the arrangement or the distributions taken out. For a Malta pension treated as a grantor trust, the U.S. owner is generally taxed currently on the trust's income, regardless of whether anything is distributed.

It is possible to have a Form 3520 reporting obligation with no additional U.S. tax owed because of a valid treaty position on a particular cash flow. It is also possible to have a hefty U.S. tax bill on income earned inside the trust, with reporting that is straightforward. The two issues are separate, they are governed by different rules, and they need to be analyzed separately.

Whether the trust is treated as a "pension" for treaty purposes depends on the actual terms of the trust document, not just the label. Two trusts called "Malta Personal Retirement Scheme" can have different tax outcomes if the operative terms differ. Digging into the trust document is required. The label is not enough.

Three Steps If You Already Have a Malta Pension

If you have already moved retirement assets into a Malta personal pension scheme as a U.S. person, three steps:

  1. Get the trust document and bring it to a CPA who handles international filings. Not a promoter or the firm that sold you the structure. Make sure to work with an independent CPA whose job is to read the document and tell you what the U.S. treatment is.
  2. Check your past filings. If you have not filed Form 3520 and Form 3520-A for the years the arrangement has been in place, the penalty exposure is real and grows every year you do not file. The IRS has voluntary disclosure procedures and reasonable-cause options that work better when you raise them rather than when the IRS raises them.
  3. Decide whether to unwind. Some Malta pension holders have been able to unwind the arrangement, take the contributed assets back, and report the contribution as a recognition event for U.S. tax purposes, getting back to a clean position. This is not painless, but it is usually less painful than continuing to hold the position and hoping the IRS doesn't come find you.

If a Promoter Is Pitching You Now

Walk away. The treaty position the marketing relies on has been clarified against the taxpayer by the competent authority. The IRS has listed the transaction in proposed regulations. The penalty regime under § 6662A, 6677, 6694, and 6707A is designed specifically for arrangements like this. There is NO version of the Malta personal pension scheme that is a sensible tax planning tool for a U.S. person in 2026.

If you are looking for legitimate cross-border retirement planning as a U.S. person, talk with a CPA who handles international filings. Effective tools exist for the situations that come up most often, and the Malta personal pension scheme is not currently one of them.

Frequently Asked Questions

Is a Malta Personal Retirement Scheme a Listed Transaction for U.S. Tax Purposes?

Yes, under proposed regulation REG-106228-22, published in the Federal Register on June 7, 2023, certain Malta Personal Retirement Scheme arrangements that rely on the U.S.-Malta tax treaty are identified as listed transactions under the reportable transaction rules. When the regulation is finalized, participants and material advisors face disclosure obligations and potential penalties under IRC § 6662, 6662A, 6677, 6694, and 6707A.

Do I Have to File Form 3520 for a Malta Pension?

If the Malta arrangement is treated as a foreign grantor trust, the U.S. owner is generally required to file Form 3520 annually to report contributions and distributions, and Form 3520-A annually for the trust itself. FBAR (FinCEN Form 114) and Form 8938 can also apply depending on account value and filing status. Reporting obligations are independent of whether U.S. tax is owed on the income.

What Did the U.S.-Malta Competent Authority Arrangement Clarify?

The arrangement, signed November 30, 2021 (U.S.) and December 3, 2021 (Malta) and published in the Internal Revenue Bulletin on December 27, 2021, clarifies that many Maltese personal retirement arrangements are not "pension funds" within the meaning of the U.S.-Malta tax treaty. Because a competent authority arrangement clarifies rather than amends a treaty, the interpretation applies retroactively to the treaty's signing date.

John B. Lane is a licensed CPA in South Carolina and the founder of John B. Lane CPA, PA. He has been helping small business owners, including business owners with foreign tax exposure, since 1981.

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Disclaimer: This article is for general informational purposes only and is not tax, legal, or accounting advice. Consult a qualified tax professional regarding your specific situation.