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 the 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.
VAT treatment of reimbursement of employee cost
The VAT treatment on reimbursements has always presented challenges as to whether reimbursements are subject to VAT or whether these fall outside the scope of VAT since this matter is not directly addressed in the VAT Act.
Recently, the Court of Justice of the EU (CJEU) issued its decision in case C-94/19, San Domenico Vetraria SpA v Agenzia delle Entrate, providing guidelines on the VAT treatment on the reimbursement of employee costs. In its judgement, the CJEU essentially confirmed that the lending or secondment of staff by a parent company to its subsidiary, carried out in return for the mere reimbursement of the related costs, generally constitutes a taxable supply for consideration falling within the scope of VAT. Case C-94/19 concerned the secondment of an employee by one company (Avir) to a subsidiary (San Domenico Vetraria). The secondment was carried out on the basis of a legal relationship of a contractual nature between Avir and San Domenico Vetraria, in the context of which there was reciprocal performance, namely the secondment of an employee (a Director) from Avir to San Domenico Vetraria, on the one hand, and the payment by San Domenico Vetraria to Avir of the amounts invoiced to it, on the other. This was considered as being a transaction to be carried out for consideration, thus deemed a supply of a service which was subject to VAT.
It is understood that unless staff (employee or holder of an office) are in effect jointly employed by two or more companies forming part of the same corporate group where employee costs are being shared on a pure cost basis, reimbursement of staff costs is regarded as giving rise to a supply of service for Malta VAT purposes and therefore subject to VAT in Malta.
Register of Beneficial Owners
The Malta Business Registry (MBR) issued a guidance document with respect to the Register of Beneficial Owners (RBO) to assist with the identification of the Beneficial Owner/s (BO) or Senior Management Officials (SMO).
Please be informed that any changes in the BO or SMO of a company must be notified to the MBR within 14 days. It is therefore of paramount importance that you keep us informed of any changes in the structure which affects the BO or SMO of the Maltese company. Heavy fines and penalties are imposed by the MBR for failure to notify the MBR within the stipulated time period.
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.
- 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.
- 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.
- 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%.
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.
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.
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.
Guidelines in relation to ATAD
Following the implementation of the EU Directive 2016/1164 (ATAD1) by means of Subsidiary Legislation 123.187, the Maltese tax authorities issued official guidelines with respect to the Interest Deduction Limitations, CFC and Exit Tax.
The guidelines also include examples and illustrations with respect to Interest Deduction Limitations and CFC provisions. As regards Exit Tax, the guidelines make it clear that this new concept has to be interpreted by keeping in mind local tax provisions such as certain capital gains exemptions.
The guidelines are available on the website of the Office of the Commissioner for Revenue.