If you are a U.S. citizen you are obligated to continue to file a tax return with the IRS every year no matter where you live in the world. Here are a few basics to discuss with your accountant. 

As an American citizen living in Gozo, chances are that you will be able to fully offset the low income taxes you will pay in Malta as a foreign tax credit against the federal tax the IRS will demand of you regardless of where in the world you live. You and a tax professional who specializes in expatriate tax issues should carefully consider your individual tax situation and Malta's tax and residency laws in order to best arrange your affairs. If you will be liable for the equivalent of more than Lm1,800 per year in federal tax to the IRS it may make sense for you to apply for permanent residence in Malta so that you can use some of your tax money to enjoy the additional benefits offered to foreigners in Malta who have permanent residence, such as free state health care.

Here are some specific tax considerations for American citizens:

Foreign Earned Income Exclusion: If you live abroad full time and have earned (not rental or interest) income from work or services you may be able to exclude up to $80,000 per year from your taxable income. A tax return including the appropriate forms must be filed. While it is difficult to get an employment permit to work in Malta, as a permanent resident you are permitted to freelance or telecommute for non-Maltese individuals and companies using Malta as your base. Consult a tax professional.

Foreign Tax Credits: You should be able to claim credits for the income tax you pay to Malta against the income tax you must pay on your income to the IRS. Again, discuss this with your tax accountant.

State Income Tax Considerations: Every state has different rules about who is or is not liable to pay state taxes. Depending upon the rules of the state you reside in before becoming a full-time resident of Malta, you may have to go so far as to sever all residential ties such as your driver's license, bank accounts, property holdings, and so on to make sure that you will not be liable to pay state income taxes. Discuss this with a professional to be sure.

Social Security and Self-Employment: If you are employed by a U.S. company while you reside in Malta or if you are self-employed you need to discuss your potential obligations to pay Social Security, Medicare, and Self-Employment taxes with a tax professional specializing in expatriate tax issues.

Important Update:  A double taxation agreement between Malta and the United States was signed on Friday, 8th August at the Auberge de Castille.  This is a very significant  for US residents who are considering a move here.