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Archives for October 2020

Budget Newsletter 2021

Introduction and the economy

The Minister of Finance, Economic Development and Planning announced that this year the GDP is expected to decrease by 7.4%.  However, the government is anticipating a recovery next year of 5% in real terms and 6.4% in nominal terms.  The growth is expected to be generated from a 7.5% growth in investment and 3.7% in private consumption. Exports are expected to increase by 5.5%.  These forecasts mean an increase of 2.3% in jobs next year with unemployment to remain around 4%.  Inflation rates should remain very low.  Deficit is expected to be 9.4% this year but it will go down to 5.9% of GDP in 2021 while debt will be 55% of GDP this year and increase to 58.6% of GDP in 2021.

 

COLA and Vacation Leave

  • The Cost of Living Adjustment (COLA) for 2021 will be €1.75 per week which will be given to all employees, pensioners as well as those on social benefits. Students receiving a stipend will receive a pro-rata COLA.  Pensioners will also receive an increase of €3.25 so that the total increase received by pensioners will amount to €5 per week.
  • Vacation leave will increase by an additional day.

 

Income Tax

  • Tax free bracket for pensioners will increase to €14,058 so that pensioners will not be subject to income tax even after the increase.
  • Tax exemption for third pillar pensions will be increased by €1,000 to €3,000.
  • Tax refunds ranging between €45 to €95 will be given to all taxpayers earning less than €60,000.
  • Royalties received by publishers will be subject to a final tax of 15%.
  • Tax on gains arising upon the assignment or cessation of any rights acquired under a promise of sale agreement is subject to tax at 15%.
  • Extension of the reduction of property transfer tax to 5% if the promise of sale agreement is signed by 31 March 2021 and the final deed is signed by 31 December 2021.

 

Duty on Documents

  • The property value eligible for a reduced duty is being increased from the current €175,000 to €200,000 for first time buyers.
  • Reduction in the stamp duty upon the purchase of a residential home in Gozo to 2% and on property located in an Urban Conservation Areas to 2.5%.
  • Reduction in stamp duty rate on the first €200,000 for non-first-time buyers upon the purchase of a residential home to 3.5% and on inherited immovable residential property.
  • Extension of the reduction of stamp duty upon the acquisition of immovable property to 1.5% on the first €400,000 if the promise of sale is signed by 31 March 2021 and the deed is signed by 31 December 2021.
  • The exemption from duty on documents on property donations to descendants is being increased from €200,000 to €250,000. The property must be used by the descendants for residential purposes.
  • The reduced stamp duty of 1.5% on the transfer of a business by parents to their children is being extended by another year.
  • Extension of duty refunds of €3,000 (or €5,000 for persons with special needs) for individuals who sell their first residential property to acquire another residential property during 2021.

 

Value Added Tax (VAT)

  • The only new VAT measure announced in the budget is the VAT exemption threshold which is being increased from €20,000 to €30,000.
  • The VAT refund scheme on the purchase of bicycles, e-bikes, electric motorcycles and scooters will be retained. The refund is capped to €400.

 

Social Measures

  • The COVID-19 wage supplement will be extended to at least 31 March 2021 but the eligibility criteria will be revised.
  • Tax deferrals, moratoriums and guarantees are all being extended to 31 March 2021.
  • All residents over 16 years of age will receive vouchers totalling €100 with €60 may be used on accommodation and entertainment whereas €40 may be used in retail outlets and services.
  • Children’s Allowance will increase by €70 per child per annum if the household income is less than €25,318 per annum. If the annual income exceeds the stipulated amount, the children’s allowance will increase by €50 per child per annum.
  • The threshold for the eligibility of the in-work benefit will increase to €35,000 for working couples, €23,000 for single working parents and €26,000 for couples with a single working parent.
  • Foster care allowance will increase by €520 to €5,720.
  • Definition of widow and widower will be amended to cater for those who in civil unions or are cohabitating.
  • The grant to couples adopting a local child will increase up to a maximum of €1,000.
  • The annual subsidy for expenses incurred by the elderly who employ a full-time or part-time carer will increase from €5,291 to €6,000.
  • Free public transport for those over 70 years (reduced from 75 years).
  • People aged 62 years and over will be able to subscribe to Government savings bonds yielding a more favourable return than traditional bank deposits.

 

Environment

  • Single use plastics will no longer be imported after 1 January 2021 and cannot be sold after 1 January 2022.
  • Extension of the exemption from registration tax and annual licence fees for the first five years on electric vehicles (EVs).
  • Extension of vehicle scrappage scheme with the maximum grant amounting to €7,000.
  • Revision to registration tax and licences on motor vehicles such that there are no increases due to the revision introduced by EU on emission tests.
  • A grant of €400 for those who convert their car to run on gas provided the emissions are reduced by at least 25%.

 

Innovation

 Malta Enterprise will introduce a new scheme to enterprises with less than 50 employees who undertake ‘transformation projects’. The scheme will cover a maximum of 50% of the investment and capped at €200,000.

 

Conclusion

This year’s budget has been drawn up in extraordinary circumstances. The COVID-19 pandemic strained the world’s economy and Malta is no exception.  Before the start of the pandemic, the Maltese economy was doing well, with low unemployment, a budget surplus and decreasing debt.  This allowed the Maltese government to avoid the introduction of new or increased taxes and focus on social measures as well as the extension of the COVID-19 measures introduced in the Economic Regeneration Plan. However, the budget did not introduce any incentives for corporate investment other than the incentives to invest in digitalisation.  Nor are there any ideas or incentives to diversify the local economy which is heavily dependent on tourism and to a lesser extent, on financial services.

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WORLD TAX 2021 Edition

The Management of Avanzia Taxand is pleased to announce that for the second consecutive year, The World Tax ranked the firm as Tier 1 for Private Clients.  The firm is also ranked as a Tier 2 firm in Tax and Tax Controversy.  Details of the 2021 rankings may be accessed through the following link: www.itrworldtax.com/Firm/Avanzia-Taxand/Profile/1075#rankings

The World Tax 2021 is a comprehensive guide to the world’s leading tax firms covering almost 90 jurisdictions located in every continent and is produced in association with the International Tax Review.

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