New VAT e-Commerce rules
As from 1 July 2021, a number of amendments to Directive 2006/112/EC (the VAT Directive) will start to apply affecting the VAT rules applicable to cross-border business-to-consumer (B2C) e-commerce activities.
The changes are aimed at addressing challenges arising from the VAT regimes for distance sales of goods and for the importation of low value consignments, namely:
- To reduce the administrative burden imposed on EU businesses selling goods online to final consumers located in other Member States when their sales exceed the distance sales threshold;
- To reduce abusive practices resulting from the VAT exemption granted for the import of low value goods;
- To remove the commercial advantage for non-EU businesses selling goods from 3rd countries to consumers in the EU.
The EU have issued Explanatory Notes on VAT e-commerce rules and Importation and exportation of low value consignments – VAT E-Commerce Package – “Guidance for MSs and Trade” to provide further guidance on the implantation of these changes. These changes have been incorporated in the Maltese VAT legislation through the publication of various legal notices.
Foreign Direct Investment Screening Office
Malta has established the National Foreign Direct Investment Screening Office as required by the EU. The purpose of the FDI Screening Office is to screen foreign direct investment into the EU on grounds of security or public order. Foreign direct investors and their service providers are now required to inform the Office when;
- there is an ultimate beneficial owner, whether existing or new, holding more than 10% of a Maltese company; and
- the activity is one as described in the Schedule to the Act; and
- there is a foreign direct investment of any kind by a foreign investor from a third country aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta.
Foreign investors and all people involved in the foreign direct investment are obliged, prior to carrying out the investment, to notify the Office by submitting a notification form providing various information to obtain the necessary approval from the Office before the investment is made.
The Commissioner for Revenue published guidelines on the Mandatory Automatic Exchange of Information in relation to Cross-Border Arrangements to compliment Subsidiary Legislation 123.127, Cooperation with Other Jurisdictions on Tax Matters Regulations which in return transposed the tax initiatives taken at an EU level for more tax transparency as detailed in the ‘Directive on Administrative Cooperation’ or ‘DAC’. The guidelines provide a further insight to intermediaries and taxpayers alike with clarifications on the implementing regulations. These guidelines will be reviewed and updated regularly with the revised version to be made available online.
The main objective of DAC6 is to discourage intermediaries and taxpayers from designing, marketing and implementing harmful tax structures. Under DAC6, cross-border arrangements involving at least one EU Member State, and which feature one or more ‘hallmarks’ which are considered to be indicative of potentially aggressive tax arrangements are to be identified and reported.
Reporting entities may now also register online for the DAC6 Reporting requirements.
Changes to ‘small undertaking’ for VAT purposes
In line with the announcement made during the Budget Speech for 2021, legal notice 463 of 2020 was published to amend the ‘small undertaking’ thresholds in Article 11 of the VAT Act. Once the legal notice becomes effective, the period to change from Article 10 registration to Article 11 registration will be reduced to 24 months (previously 36 months) with the possibility to request a change after 6 months. Furthermore, the sixth schedule will be amended with one of the categories defining the exit and entry threshold being removed. The entry threshold for economic activities consisting principally in the supply of services with a relatively low value added has been removed. Entry threshold for other economic activities has been amended to €30,000 and the exit threshold to €24,000.
Amendments to the DTA with Russia
By virtue of L.N. 428 of 2020, the Double Taxation Agreement (DTA) with the Russian Federation was amended and entered into force with effect from 1 January 2021. The changes relate to Article 10 on ‘Dividends’, Article 11 on ‘Interest’, Article 23 on ‘Non-Discrimination’ and Article 25 on ‘Exchange of Information’.
These changes include a change in the withholding tax applicable on dividend payments which increased to 15% (previously 10% with the possibility of a 5% if the holding exceeds 25%). The reduced rate of 5% has been limited to holdings exceeding 15% in a company registered under a registered stock exchange and payments made to insurance institutions, pension funds certain state bodies and to local central banks. Similar changes were made to withholding tax on interest