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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.

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Economic Stimulus following COVID-19

Since the start of the COVID-19 pandemic, the Maltese Government launched €900 million worth of fiscal incentives to stimulate the economy and mitigate as much as possible the negative impact of this pandemic on the local economy.   The incentives are primarily aimed at reducing business costs and to incentivise consumption in view of the reduced influx of tourists. 

 

The following are the incentives announced on the 8 June 2020:

 

  • Extension of COVID-19 Wage Supplement until the end of September 2020. As from 1 July 2020, the benefit rate of €800 for full-timers and €500 for part-timers will be maintained in areas involved with tourist accommodation, travel agencies, language schools, event organisation and air transport.  Those who up to June 2020 were assisted under Annex A but do not feature in the categories listed above shall be kept within the parameters of Annex A but will however move to a tapered aid of €600 for full-timers and €375 for part-timers. Students and pensioners who are in employment shall fall within this new category.  Personal services and other businesses/self-employed who depend on local consumption will benefit from the partial supplement under Annex B. Companies and self-employed who were being assisted under the partial supplement (Annex B) will retain this aid until 30 September 2020;

 

  • A grant of up to €2,500 to cover rental costs  for businesses eligible for a wage supplement (click here for further information);

 

 

  • Business eligible for the Micro Invest Credit may opt to receive up to 30% of the Micro Invest tax credits during 2020 in form of a grant which is however capped at €2,000 or €2,500 for undertakings operating in Gozo and for female-owned undertakings;

 

 

 

  • Further funds will be allocated to the Skills Development Scheme for the benefit of businesses employing less than 50 employees. This will provide assistance to businesses wishing to further develop the skills of their employees;

 

 

  • Reduction of stamp duty due upon the purchase of immovable property by the end of the current year. The stamp duty rate will be reduced from 5% to 1.5% on contracts to be signed between 9 June 2020 and 31 March 2021;

 

  • The final tax due upon the sale of immovable property under development or those contracts made between 1 June 2020 and March 31 March 2021 will be reduced from 8% to 5%;

 

  • The first time buyers scheme will be modified for all contracts taking place from 9 June 2020, unless a person has benefitted from the scheme since 2013;

 

  • €100 worth of vouchers per person aged 16 and over that can be used in a licensed accommodation, restaurant or business that had to close during the pandemic;

 

  • With effect from 15 June 2020, petrol and diesel prices will be reduced by 7 cents per litre;

 

  • The tax payment deferral scheme will be retained until September 2020, with the deferred payments to be settled over a period of 12 months. As from 1 July 2020 no deferral will be allowed for the settlement of FSS tax and social security contributions withheld from wages and salaries;

 

  • Refund of 33% in port charges for those ships that bring cargo to our country in order to support the supply chains of our economy;

 

  • A 10% refund will also be given on container discharge fees for import and export but not transhipment;

 

  • Support for export promotion. A budget of €400,000 has been allocated to Trade Malta to reimburse half of the costs involved, with a maximum of €10,000 for local businesses to invest in campaigns aimed at foreign markets;

 

  • Up to 80% refund of the costs incurred by businesses participating in international fairs which were cancelled;

 

  • A full refund of trade licence / permits paid during 2020 by businesses that were forced to close during the pandemic;

 

  • A new underwriting facility for private enterprise bonds will be set up through the Malta Development Bank;

 

  • €5 million to help Maltese and Gozitan businesses promote themselves and help will be provided for the production of local produce;

 

  • Improvement in the in-work benefit and a special supplement of €250 will be given for each family that benefits from the same scheme;

 

  • A grant (capped at €2,000 per couple) to fund certain forfeited deposits on wedding expenses;

 

  • Financial assistance to old people’s homes.

 

Most of the incentives are managed by Malta Enterprise and details of the incentives are still to be published. 

 

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COVID-19 – Additional support measures

As expected, the Government announced additional measures to alleviate the financial burden due to the COVID-19 pandemic.  These additional measures follow the order of the Superintendent of Public Health to close non-essential businesses as from Monday 23 March 2020.

 

The Government will provide for a monthly subsidy to employers consisting of:

 

  • €800 for each full time employee within the private sector who have been severely affected by the COVID-19 pandemic.  Employers are expected to top up the remaining part of the monthly wage up to a maximum of €400 for each employee.  Employers who are not in a position to pay the remaining wage must reach an agreement with the employees through the involvement of unions and the Department for Industrial and Employment Relations.  Pro-rata subsidies are also available to part time workers with a maximum subsidy of €500 per month.  The list of businesses that fall within this wage subsidy are listed here – Annex A.

 

  • One day’s salary per month based on a monthly salary of €800 per employee for adversely affected businesses.  Pro-rata subsidies are also available to part-time workers with a maximum subsidy of €100 per month.   In the case of Gozo based businesses, this will increase to two days’ salary per week equivalent to €320 per month for full time employees, and €200 per month for part time employees.  The list of businesses that fall within the ambit of this wage subsidy are listed here –  Annex B. 

 

The above measures apply also to self-employed persons working within the applicable sectors.  All measures are subject to the approval of the Malta Enterprise.

 

Apart from the above, the Government will also be providing business guarantees from the National Development and Social Fund and EU funds for operational loans with low interest rates and longer repayment periods whilst commercial banks are processing a three-month moratorium on business or personal loans.

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COVID-19

The COVID-19 pandemic continues to spread in various countries around the globe and Malta is no exception.   The hit on the economy is expected to be significant given that one of the main drivers of the Maltese economy, tourism, is currently at a standstill and it is still unknown how long this situation will prevail.

 

Last week, the Government announced a Tax Deferral Scheme to postpone the payment of taxes payable in March and April 2020 by submitting an application before the 15 April 2020 to Malta Enterprise.  The taxes due must however be paid within the end of August 2020.  Whilst this may alleviate some of the cash burden on taxpayers and particularly employers for the months of March and April 2020, it is unlikely that businesses will be in a better cash position in the months to follow given the effects of this pandemic will continue to be felt for various months.  Full details are available online.  https://cfr.gov.mt/en/News/Pages/2020/Fiscal-Assistance-Postponement-of-Payment-of-Certain-Taxes.aspx 

 

Following the closure of various outlets as well as a number of offices, various employers felt the need to strengthen their resources to ensure that their employees may continue working remotely.  The Government recognised that this resulted in additional costs for employers and therefore Malta Enterprise launched a call under the Business Development and Continuity Scheme which may provide a cash grant of up to €500 per teleworking agreement with a limit of €4,000 per undertaking.  The grant shall be awarded against 45% of the eligible cost which must be incurred after the 1st of March 2020.  Applications must be submitted by 30 March 2020.  Full details are available on https://www.maltaenterprise.com/sites/default/files/Call%20for%20the%20Facilitation%20of%20Teleworking%20Activities%2015-03-2020_0.pdf.

 

Earlier this month, the Government also announced the introduction of quarantine leave which adds additional paid leave days to the employee should mandatory quarantine be imposed on the employee.  This adds to the financial burden most businesses are facing and therefore it was announced that a €350 cash grant will be given for each employee on Quarantine leave.  An application for such grant is to be launched online through the Malta Enterprise website as from 25 March 2020.

 

The Malta Financial Services Authorities have informed regulated entities that they will consider extending the deadlines for the submission of regulatory reporting falling due in March and April 2020.  This extension will be made by case by case basis and therefore regulated entities must contact the appropriate unit within the Authority to submit their request for an extension.  Full details are available on https://www.mfsa.mt/news-item/mfsa-extends-regulatory-reporting-deadlines-for-firms-due-to-outbreak-of-covid-19/.

 

Malta Enterprise has extended the deadline for the submission of the Mirco Invest Applications for self-employed persons to 30 April 2020 due to the disruptions caused by the COVID-19.  Full details are available on https://www.maltaenterprise.com/extension-microinvest-submission-deadline-self-employed.

 

It is expected that other support measures will be announced in the coming weeks due to the disruptions caused by the pandemic.

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Malta signs a tax treaty with Armenia

Malta signed a tax treaty with Armenia and provides for the following withholding tax rates in the case of payors resident in Armenia:

Dividends – 10% reduced to 5% if the investment in the Armenian entity exceeds 10%

Interest and Royalties– 5%

The treaty provides for the usual articles related to Mutual Agreement Procedures and Exchange of Information.

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Malta signs a tax treaty with Ghana

Malta signed a tax treaty with Ghana and provides for the following withholding tax rates in the case of payors resident in Ghana:

 

Dividends – 6%

Interest – 7%

Royalties – 8%

Services fees – 12%

 

Malta does not impose any withholding taxes.  Elimination of double taxation is under the credit method.

 

The treaty provides for the usual articles related to Mutual Agreement Procedures and Exchange of Information.

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Reduction in interest rate

By virtue of two separate legal notices, the interest on late payments of income tax and VAT has been reduced from 0.54% to 0.33% per month.  The change is effective from 1 January 2020.

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WORLD TAX 2020 Edition

Avanzia Taxand is pleased to announce that The World Tax 2020 edition ranked the firm as Tier 1 in Private Client and Tier 2 in General Corporate Tax. The details of these rankings may be accessed through the following link: https://www.itrworldtax.com/Firm/Avanzia-Taxand-Malta/Profile/1075#rankings

The World Tax 2020 is a comprehensive guide to the world’s leading tax firms covering more than 60 jurisdictions and is produced in association with the International Tax Review.

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Budget Newsletter 2020

On 14 October 2019, the Honourable Minister for Finance, Professor Edward Scicluna, presented the Budget for the coming year. In his introduction, he summarised the most salient features in relation to the performance of the Maltese economy with the main points being the following:

  • The economic growth for the first six months of 2019 was 4.7% in real terms and 7.3% in nominal terms;
  • GDP increase in real terms is expected to be 4.3% for 2020;
  • Unemployment stood at 3.3% in August 2019 and it is expected to be around 3.5% in 2020;
  • Inflation rate is expected to be 1.6% for 2020;
  • Government debt as a percentage of GDP is expected to be 43.1% at end of 2019 and this should go down to 40.4% in 2020.

The Cost of Living Adjustment (COLA) for 2020 will amount to €3.49 per week which will be given in full to pensioners and persons on social benefits. Employees will also be entitled to an additional day of vacation leave which is added to their annual leave entitlement.

 

Fiscal measures

  • 15% tax rate on the first 100 hours of overtime for persons earning less than €20,000 per annum;
  • The maximum tax-free pension income will be increased to €13,798 whilst the maximum tax-free income for retired couples earning only one pension will increase to €15,798;
  • A tax refund to employees will be granted and will be based on the employee’s income. The tax refund varies between €40 and €68;
  • Tax incentives under the Voluntary Occupational Pension Scheme are being extended;
  • VAT exemption on education related services;
  • VAT refund (capped to €1,000) granted to persons with disabilities who purchase medical equipment.

 

Tax Administration

  • Registration and deregistration of VAT numbers and PE applications may now be done online;
  • Married couples may now opt for separate tax returns and assessment;
  • The Inland Revenue Department will generate provisional assessments in lieu of the tax return to reduce the need for individuals filing of an income tax return;
  • The Inland Revenue Department will issue tax statements and refunds within a period of six months from the submission date.

 

Property Related Measures

  • The existing reduction in duty on documents (to 1.5%) upon the transfer of business to family members is being extended by another year;
  • Extension of the current schemes for the reduction of duty on documents for first time buyers, second time buyers, purchase of property in UCA and purchase of property in Gozo. The first €175,000 (previously €150,000) of the value of property bought by first time buyers is now exempt from duty on documents;
  • Duty on documents on residential property acquired through causa mortis will be taxed at the rate of 3.5% (instead of 5%) on the first €175,000;
  • Gains made on the sale of a promise of sale agreement will be subject to tax at the rate of 15% on the first €100,000. This tax is a final tax and the gain made from the transfer of the promise of sale agreement will not form part of the chargeable income of the person.

 

Social Measures

  • Various tax refund to low income earners;
  • Increase in pension income for persons opting to work after retirement age;
  • Increase in social security payments to persons and pensioners suffering from disabilities;
  • Assistance to parents whose children suffer from rare diseases, persons suffering from certain conditions and persons under cancer treatment;
  • Assistance to persons under the age of 40 who do not have enough funds for the deposit on the purchase of residential property;
  • The subsidy for low income earners to assist in the payment of rent on residential property is being extended and the criteria to qualify for such subsidies will be widened.

 

Environment Friendly Measures

  • A Commission will be set up to determine the date after which no polluting engine cars may be imported;
  • Reduction in the electricity tariff for persons opting to charge their electric car at home;
  • Introduction of the Beverage Container Recycling Scheme for the collection of certain waste;
  • Abolition of single use plastic as from 1 January 2022;
  • Grants will be available to persons in the construction industry who opt to replace their polluting machines with environmentally friendly ones. The grant is capped to €200,000;
  • A Grant of €1,000 for persons purchasing batteries for the storage of electricity generated by photovoltaic panels. This is only available to persons who no longer benefit from feed-in tariffs;
  • Extension of the exemption from registration taxes on electric and hybrid cars;
  • Extension of the VAT refund upon purchase of bicycles and electric motors, scooters and bicycles;
  • Extension of the current grant of a maximum of €1,500 given to persons opting to change their car to one which is more environment friendly.

 

Investments

  • Additional investments allocated to Artificial Intelligence (AI) which will place Malta with the top 10 countries in this field. Such investments include educational programmes, the inauguration of an AI Innovation Hub, implementation of pilot projects in the public sector utilising AI and additional technological infrastructure;
  • The Government will be implementing assistance measures for sectors such as digital arts, games programming and production media in order to attract additional foreign investments relating to the game productions;
  • To further diversify the Maltese economy, a legislative framework for the space industry is planned to be introduced. A consultation document will be drafted as a basis for a national strategy which will also tackle research and development in this field;
  • Malta will also explore a new economic sector in the aviation industry relating to Drones (Remotely Piloted Aircraft Systems) in order to attract foreign investors for research, technological experiments and education in this area;
  • Schemes such as the Micro Invest, Business START and Start-Up Finance will be extended;
  • Malta Enterprise will be introducing incentives for businesses to employ people with special needs;
  • Additional investment in the gas pipeline between Malta and Sicily of €400 million till 2024;
  • Consultation for the revision of the current aviation rules to incentivise further investment in the sector.

 

Gozo

  • Introduction of the Film Fund during 2019 to incentivise cinema productions;
  • A new fund will be launched so that Gozo may become a destination for Meetings, Conferences and Events;
  • The Gozo Business Scheme will continue. This scheme assists start-ups in Gozo;
  • Fiscal incentives for companies to relocate to Gozo;
  • A tendering process for the forth ferry will start to enable the Gozo Channel to acquire a new ferry;
  • Studies such as the preliminary designs and environmental impact assessment in connection to the bridge between Malta and Gozo are to be concluded in the coming months.

 

Strategy against fiscal evasion and money laundering

The Minister announced that a report issued by the European Commission’s Directorate General for Taxation and Customs (TAXUD) noted that Malta is the fourth country within the EU Member States with the least evasion in VAT collection.

Following the issuance of the Moneyval recommendations, the National Coordination Committee is coordinating a detailed plan for the implementation of these recommendations.

The Minister further announced that a new agency known as the ‘Financial Organised Crimes Agency’ will be set up and will be complimentary to the Economic Crimes Unit.

As from next year, cash payments exceeding €10,000 for the purchase of property, cars, boats, yachts, diamonds, precious stones and works of arts will not be allowed.

 

Conclusion

During the budget speech, the Minister noted that Malta’s success is being recognised by international agencies. Indeed, The World Economic Forum rated Malta in the first place for two consecutive years. Furthermore, he noted that this is the third budget in a row with no increase in taxes and based on the Government’s estimates, the year 2020 will be the fifth year with a budget surplus.

Rather than introducing new measures, this budget was an extension of existing measures focusing on the social aspect and low-income earners, property related measures and environment friendly measures. The Minister made references to plans to develop new areas like Artificial Intelligence and Digital Arts in order to attract further foreign direct investment.

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The Patent Box Regime

As from year of assessment 2020, any person incurring qualifying IP expenditure and from which qualifying IP income is derived, may claim a deduction which may reduce the chargeable income from qualifying IP by 95%.  The assets that are considered as qualifying IP are defined in the Rules and include registered patents and assets covered by protection rights, however, exclude brands, trademarks and trade names.  Every item of qualifying IP in relation to which income is derived and against which the Patent Box Regime Deduction is claimed, need to be vetted and approved by the Malta Enterprise.  The deduction is aimed for assets which are developed by the person rather than for acquired assets.  The deduction is however not limited to assets developed in Malta but require that the beneficiary maintains sufficient substance as is commensurate with the type and extent of activity being carried out.    The Rules also require that the income brought to charge is in line with the Transfer Pricing Method in terms of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

 

The introduction of the Patent Box Regime is particularly interesting for persons investing in the development of patents or other innovative products from which income or gains arise.  Indeed, this regime may drastically reduce the taxable income of the person and may also be applied upon the disposal of the relevant asset.

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