Skip to main content Skip to search

Archives for News

Malta signs a tax treaty with Kosovo

The tax treaty between Malta and the Republic of Kosovo has been published in Legal Notice 168 of 2019.

As most other tax treaties, this tax treaty is also modelled on the OECD model convention.  No withholding taxes apply on dividends paid by a company resident in Kosovo if the holding percentage of the Maltese tax resident exceeds 10% and the shares are held for more than a year.  In other cases, the withholding tax rate on dividends is 10%.   Withholding tax on interest paid in Kosovo is limited to 5% of the gross amount of interest whereas no withholding tax applies on royalty payments.

Elimination of double taxation is provided for under the credit method.   As with other tax treaties, the treaty also contains the standard articles with respect to the Mutual Agreement Procedure and Exchange of Information.

[/vc_column_text][/vc_column][/vc_row]

Read more

Malta signs a tax treaty with Monaco

Malta published the tax treaty with the Principality of Monaco by means of Legal notice 70 of 2019.

The tax treaty is modelled on the OECD model convention, but there are no withholding taxes on dividends, interest and royalties given that both countries do not levy any withholding taxes.   The residence state will have jurisdiction to tax such income according to the tax legislation.  The treaty also provides that the source state will have taxing rights with respect to capital gains on immovable property and capital gains on shares whose value is derived as to more than 50% from immovable property.

The tax treaty also contains ‘standard articles’ with respect to the elimination of double taxation (under the credit method), mutual agreement procedure (MAP) and exchange of information.

Read more

Malta implements ATAD

Malta implemented the EU Directive 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD) by means of Legal Notice 411 of 2018 EU ATAD Implementation Regulations, 2018.  The below provides an overview of the different new tax measures which will become applicable as from 1 January 2019, except for the exit taxation rule which will become applicable as from 1 January 2020.

 

Introduction

 

The aim of ATAD is to implement at EU level the BEPS (Base Erosion and Profit Shifting) recommendations made by the OECD and the G20 in October 2015. ATAD lays down anti-tax avoidance rules in the following fields:

  • Deductibility of interest payments,
  • General anti-abuse rule (“GAAR”),
  • Controlled foreign companies (“CFCs”), and
  • Exit taxation.

 

The regulations apply to taxpayers including companies as well as other entities such as trusts and similar arrangements that are subject to tax in Malta in the same manner as companies.  The definition also applies to entities that are not resident in Malta but have a permanent establishment (PE) in Malta provided these are subject to tax in Malta as companies.

 

Limitation to the Tax Deductibility of Interest Payments (Rule 4)

 

Regulation 4 of L.N. 411 aims at limiting the deductibility of interest payments as it was recommended in the Final Report on BEPS Action 4 (interest deductions and other financial payments) and included as a minimum standard in ATAD. The objective of this rule is to discourage multinational groups from reducing their overall tax base through financing group companies in high-tax jurisdictions with debt. Notably, the scope of the interest limitation rule encompasses both related party borrowing and third party borrowing.

 

As from 1 January 2019, subject to certain conditions and limitations, “exceeding borrowing costs” shall be deductible only up to 30% of the corporate taxpayers’ earnings before interest, tax and amortization (“EBITDA”) or up to an amount of EUR 3 million, whichever is higher. Corporate taxpayers who can demonstrate that the ratio of their equity over their total assets is equal to or higher than the equivalent ratio of the group can fully deduct their exceeding borrowing costs (so called “escape clause”).

 

“Exceeding borrowing costs” correspond to the amount by which the deductible “borrowing costs” of a taxpayer exceed taxable “interest revenues and other economically equivalent taxable revenues” that the taxpayer receives. Thus, in order to determine the amount of exceeding borrowing costs, it is necessary to understand which costs fall within the scope of borrowing costs and what is considered as interest revenues and other economically equivalent taxable revenues.

 

Borrowing costs to take into account are interest expenses on all forms of debt, other costs economically equivalent to interest and expenses incurred in connection with the raising of finance, including, without being limited to:

 

  • payments under profit participating loans,
  • imputed interest on instruments such as convertible bonds and zero coupon bonds,
  • amounts under alternative financing arrangements, such as Islamic finance,
  • the finance cost element of finance lease payments,
  • capitalised interest included in the balance sheet value of a related asset, or the amortisation of capitalised interest,
  • amounts measured by reference to a funding return under transfer pricing rules where applicable,
  • notional interest amounts under derivative instruments or hedging arrangements related to an entity’s borrowings,
  • certain foreign exchange gains and losses on borrowings and instruments connected with the raising of finance,
  • guarantee fees for financing arrangements, and
  • arrangement fees and similar costs related to the borrowing of funds.

 

As far as interest revenues and other economically equivalent taxable revenues are concerned, neither ATAD nor the LN 411 of 2018 clarifies what is to be considered as revenues which are economically equivalent to interest. However, since the definition of borrowing costs also refers to “other costs economically equivalent to interest”, there should be a symmetry in the interpretation of the two concepts.

 

The optional provision of ATAD according to which EBITDA and exceeding borrowing costs can be determined at the level of the consolidated group (in case of tax consolidation) has also been introduced in this regulation.

 

Entities which are out of the scope of the rule

 

Financial undertakings are out of the scope of the interest limitation rule. Financial undertakings are the ones regulated by the EU Directives and Regulations and include among others credit institutions, investments firms, insurance and reinsurance companies, certain pension institutions, alternative investment funds (“AIF”), undertakings for collective investment in transferable securities (“UCITS”), as well as central counterparties and central securities depositories.

 

In addition, standalone entities, i.e. entities that are not part of a consolidated group for financial accounting purposes and have no associated enterprise or PE are able to fully deduct their exceeding borrowing costs. In other words, these entities are not subject to the new interest limitation rule.

 

Loans which are out of the scope of the rule 

 

Malta chose to limit the scope of the new rule through the inclusion of the following two optional provisions under ATAD:

 

  • loans which were concluded before 17 June 2016 (i.e. a grandfathering rule) are excluded. However, the exclusion does not apply to any subsequent modification of such loans. Accordingly, when the nominal amount of a loan granted before 17 June 2016 is increased after this date, the interest in relation to the increased amount would be subject to the interest deduction limitation rule. Likewise, when the interest rate applicable on a loan granted before 17 June 2016 is increased thereafter, only the original interest rate would benefit from the grandfathering rule. Nevertheless, when companies are financed by a loan facility that determines a maximum loan amount and an interest rate, the entire loan amount should be excluded from the scope of the interest deduction limitation rule, irrespective of when the drawdowns have been made;
  • loans used to fund long-term public infrastructure projects (where the project operator, borrowing costs, assets and income are all in the EU) are also excluded.

 

Carry forward of unused exceeding borrowing costs and unused interest capacity 

 

Exceeding borrowing costs which cannot be deducted in one tax period because they exceed the limit set in the rule, can be carried forward in whole or in part without any time limitation.

In addition, unused interest capacity can be carried forward over 5 tax years.  The regulations do not define what falls under unused interest capacity.

 

Exit Taxation Rules (Rule 5)

 

As from 1 January 2020, re-domiciliation’s and shift of tax residency to other jurisdictions will trigger exit taxes.  The aim is to even out discrepancies in the valuation of assets in the country of origin and the valuation of assets in the country of destination.

 

The exit rules transposed through rule 5 of L.N. 411, provide for tax on capital gains which are triggered when a taxpayer:

  • transfers assets from its head office in Malta to a PE in another country;
  • transfers assets from its PE in Malta to its head office or another PE in another country;
  • transfers its tax residence from Malta to another country, or
  • transfers its activities made through a PE in Malta to another country.

 

The capital gain will be equivalent to the difference between the market value of the assets at the time of the exit and their value for tax purposes.  The capital gain will be subject to the provisions of the Income Tax Act.    The income tax on the capital gain becomes payable by not later than the taxpayer’s subsequent tax return date.  In case of transfers within the EU or European Economic Area (“EEA”), the taxpayer may request to defer the payment of exit tax by paying in equal installments over 5 years.

 

Exit taxes do not apply if the assets are set to revert back to Malta within a period of 12 months and the assets relate to the financing of securities, assets posted as collateral or an asset transfer that takes place in order to meet prudential capital requirements or for the purpose of liquidity management.

 

General Anti-Abuse Rule (Rule 6)

 

Any arrangements put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law shall be disregarded. Arrangements are considered as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

 

Article 51 of the Income Tax Act already includes general anti abuse provisions which explicitly states that any series of arrangements which are put up solely for taking benefit of any tax advantage is ignored for tax purposes.  The GAAR transposed in regulation 6 of L.N. 411 prescribes that, for the purposes of calculating the corporate tax liability, there shall be ignored an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement or a series thereof is regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

 

CFC Rule (Rule 7)

 

ATAD provides for CFC rules to discourage the attribution of income in a low-taxed jurisdiction.  Malta opted to adopt the non -genuine arrangement CFC rule, thus, as from 1 January 2019, Malta will tax the non-distributed income of an entity or PE which qualifies as a CFC.

 

The income of a CFC will be taxed in Malta if, and to the extent that, the activities of the CFC that generate this income are managed by the Maltese corporate taxpayer as the people functions in relation to the activities of the CFC are performed by the Maltese corporate taxpayer.

 

An entity or a PE will qualify as a CFC if the following conditions are met:

  • The taxpayer by itself, or together with its associated enterprises, holds directly or indirectly more than 50% in the entity.  Holding includes equity holding, voting rights and right to profit; and
  • The actual corporate tax paid by the entity or PE is lower than the difference between the tax that would have been charged on the entity or PE computed in accordance with the Maltese Income Tax Act and the actual corporate tax paid on its profits.

 

If an entity or PE is deemed to be a CFC, then the non-distributed income arising from non-genuine arrangements of a CFC which are put in place for the purpose of gaining a tax advantage shall be included in the tax base of the taxpayer and hence will be brought to charge in Malta.    The CFC rule applies only if:

  • The CFC’s accounting profits exceed €750,000 and non-trading income exceeds €75,000, or
  • The CFC’s accounting profits amount to more than 10% of its’ operating costs.

 

Allocation rules and methods to avoid double taxation

 

The income of the CFC to be included in the tax base of the Maltese taxpayer shall be limited to amounts generated through assets and risks which are linked to significant people functions carried out by the controlling Maltese corporate taxpayer. The attribution of CFC income shall be calculated in accordance with the arm’s length principle.   The income to be included in the tax base shall be computed in proportion to the taxpayer’s participation in the CFC and is included in the tax period of the Maltese taxpayer in which the tax year of the CFC ends.   Any tax paid by the CFC is allowed as a tax credit to the taxpayer in accordance with the provisions of articles 77 and 82 of the Act.  Whilst the legislation provides for general guidelines as to how the income to be brought to charge will be calculated, in practice, various issues may arise which may require further clarifications from the tax department.

 

Conclusion

 

Following the launch of the BEPS recommendations by the OECD and the G20 in 2015,  Malta has now implemented the EU directive to address tax avoidance schemes though ATAD.  This follows the implementation of the MLI and the end of the single malt structures.

 

Most measures introduced through ATAD are new concepts to the Maltese tax framework.  For the first time, Malta has interest deduction limitations, CFC rules and within two years, exit taxes.  Being a new tax framework, various clarifications will be necessary to ensure that the rules are properly adhered to.  It is indeed unfortunate that these rules have been released only a few days before these enter into effect as this gives very little time to taxpayers to assess the impact of these rules on current structures and assess whether changes are needed to mitigate the impact of these rules.

Read more

Multilateral Instrument (MLI)

On 18 December 2018 Malta ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, more commonly referred to as the Multilateral Instrument (MLI).  Malta has expressed a number of reservations and these may be viewed by accessing  http://www.oecd.org/tax/treaties/beps-mli-position-malta.pdf

 

The MLI is an OECD initiative with the objective of providing concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide.  The MLI covers topics from transparent entities, dual resident entities, methods for elimination of double taxation as well as treaty abuse.

 

As a result of Malta’s implementation of the MLI, double taxation treaties must now be interpreted in light of the MLI provisions.  Counties adhering to the MLI provisions will have greater powers in ensuring that treaty abuse is limited and double non-taxation avoided.

Read more

The end of Single Malt structures

On the 27 November 2018, it was announced that an agreement was reached between Malta and Ireland which ends the Single Malt structures.  These were being used through the transfer of the management and control of Irish incorporated entities to Malta.   Through a Competent Authority Agreement, Malta and Ireland agreed that the purpose of the Double Taxation Convention (DTC) is to eliminate double taxation and not create the opportunity for double non-taxation.  Thus, deeming a company incorporated in Ireland but managed and controlled in Malta to be tax resident only in Malta, does not serve the purposes of the Double Taxation Convention as income was not being brought to charge in neither Malta nor Ireland when the income was not remitted to Malta.  Accordingly, such an Irish-incorporated company will be tax resident in Ireland and the relevant payments to it will come within the charge to Irish corporation tax.

 

The agreement will come into force with effect from taxable periods beginning on or after the expiration of a period of six months from the later of the dates on which the Multilateral Instrument (MLI) enters into force in Ireland and Malta.  Malta endorsed its agreement with reservations to the MLI through Subsidiary Legislation 123.183 and ratified the MLI on the 18th December 2018.

 

The Agreement provides the following:

From the coming into effect of the MLI with respect to the DTC between Ireland and Malta (the “Contracting States” in relation to that DTC), where – 

  • for the purpose of avoiding double taxation, under paragraph 3 of Article 4 of the Ireland-Malta DTC a company would be deemed to be only resident in one of the Contracting States, but
  • in the circumstances concerned – 
    • there is no double taxation to be avoided, and
    • it is reasonable to conclude that an opportunity for double non-taxation would otherwise arise,

then any such deeming of the company to be resident only in one of the Contracting States shall not be for the purposes of the Ireland-Malta DTC – as it would serve no such purposes.  It would be superfluous to, and redundant for, those purposes.  

The Competent Authorities shall notify each other in a timely manner where they become aware of circumstances to which this Competent Authority Agreement refers.

Read more

Taxation of DLT Assets

The Maltese Tax Authorities issued guidelines in connection with the income tax, VAT and duty on documents implications arising from transactions or arrangements involving DLT assets.

 

The following is a list of definitions included in the guidelines:

 

Taxation

The general income tax principles contained in the Income Tax Act apply to transactions involving DLT assets.  The guidelines serve to provide clarifications regarding the income tax treatment of a number of transactions or arrangements involving DLT assets.

The following is a summary of the tax treatment of transactions involving DLT Assets:

 

The following is a summary of the income tax treatment of transactions in coins:

 

Coins fall outside scope of Article 5 of the Income Tax Act and therefore they are not considered to give rise to any capital gain for income tax purposes.

 

The following summarises the tax treatment for the return on financial tokens:

 

The following outlines the tax treatment arising from the transfers of financial and utility tokens:

 

The distinction between trading income and non-trading income may not always be evident.  It may therefore be necessary to refer to the badges of trade to determine whether the income received falls within the definition of trading income or not.  Such determination is crucial to assess the tax treatment of transferred tokens.

The following portrays the tax treatment applicable for initial offerings:

 

Value Added Tax (VAT)

The general VAT principles applicable to taxable events also apply to transactions or arrangements involving DLT assets.  Maltese VAT rules apply only if the place of supply of a transaction or arrangement is deemed to be Malta.  Furthermore, the chargeable event would only arise where a supply of service is made for a consideration by a taxable person acting as such and there is a direct link between the consideration payable and the supply made and where there is reciprocal performance between the suppliers and the recipient of the service.

 

The following is a general overview of the VAT treatment of transactions involving DLT assets:

 

If a token contains features of both a financial and a utility token (also referred to as a hybrid token),  then the VAT treatment depends on the use of such token.  A hybrid token used as a utility token then it is to be treated as such, while if in another occasion the same token is used as a coin, then it needs to be treated as such.

 

When treated as a voucher, the consideration paid for a utility token shall be deemed to be gross of VAT due.  Another important issue to determine is when the token is subject to VAT:

 

The guidelines provide clarification as to whether initial offerings are subject to VAT or not:

 

In case of electronically supplied services rendered to non-taxable persons established in other Member States, the supplier may opt to register and account for VAT through the Mini-One-Stop-Shop system (MOSS) to facilitate the administration for the payment of the VAT within the EU.

 

Duty on Documents and Transfers Act (DDTA)

The following is a summary of the DDTA implications arising with respect to transactions involving DLT assets:

Read more

VFA and ITAS Acts come into force

Through Legal Notices 306 and 307 of 2018 the Minister for the Digital Economy has established the 1 November 2018 as the date on which the provisions of the Innovative Technology Arrangements and Services (ITAS)  Act and of the Virtual Financial Assets (VFA) Act, respectively, shall be deemed to have come into force.

Read more

Anti-Tax Avoidance Directive (ATAD)

During the Budget speech for 2019 presented on 22 October 2018, it was announced that Malta, like other EU Member States, will be implementing the EU Directive on Anti-Tax Avoidance, more commonly known as ATAD1.

 

Although no detailed provisions are available yet, the following is a brief summary of the expected changes which will be introduced with effect from 1 January 2019 as a result of ATAD1.

  

Interest Limitation

 

When interest and similar borrowing costs of a company exceed interest receivable, the maximum tax deduction that can be claimed in a tax period in respect of the excess costs will be 30% of EBITDA (that is, earnings before interest, tax, depreciation and amortisation). Unutilised costs may be carried forward (subject to any further limitations that may be applicable under the normal provisions of the Income Tax Act). The new restrictions will not apply in cases where the exceeding borrowing costs do not exceed €3,000,000 (three million Euros).

 

In line with the EU Directive, the regulations envisage the possibility of this limitation being calculated and applied at group level.

 

The limitation will not apply to financial undertakings. Nor will it apply to costs on loans used to fund long-term public infrastructure EU projects or loans concluded before 17 June 2016.

 

Exit Tax

 

A change of residence of a company, or the movement of its assets or of its business to another territory will be treated as a taxable exit event. In such a case, the company will become subject to tax in the same manner as if it has disposed of its assets. The accrued gains will be calculated by reference to the market value of the asset at the time of the exit. Where the country of the new residence of the taxpayer or of the new location of the assets is another EU Member State, the payment of the tax can be deferred.

 

No exit tax will be chargeable in the case of a temporary movement of assets that is linked to certain financial transactions as long as the assets are returned within 12 (twelve) months.

 

Controlled Foreign Company (CFC) Rules

 

An entity will be considered a CFC where it is subject to more than 50% (fifty per cent) control by a parent company that is tax resident in Malta and its associated enterprises and the tax paid on its profits is less than half the tax that would have been paid had the income been subject to tax in Malta.

 

The measure will not apply:

 

  • To a CFC with accounting profits of no more than €750,000 (seven hundred and fifty thousand Euros), and non-trading income of no more than €75,000 (seventy-five thousand Euros); or
  • To a CFC whose accounting profits amount to no more than 10% (ten per cent) of its operating costs for the tax period.

 

The parent company will be entitled to double taxation relief for the tax paid by the CFC on the included income. The regulations should also provide for the avoidance of double taxation that could arise if the CFC subsequently distributes its profits or the parent company disposes of its interest in the CFC.

 

General Anti-Abuse Rule (GAAR)

 

The Income Tax Act already contains a general anti-abuse provision (article 51) that empowers the Commissioner for Revenue to ignore tax avoidance schemes. The new regulations will add to this rule by applying the definition of tax avoidance schemes as used in the Directive. The measure will accordingly apply to arrangements which are not genuine, meaning that they are not put into place for valid commercial reasons that reflect economic reality, and which have been put in place with a main purpose of obtaining a tax advantage that defeats the object or purpose of tax law.

 

EU Dispute Resolution Mechanism (DRM)

 

The EU Directive on ERM will be implemented by the end of June 2019 and it will be instrumental in providing Maltese taxpayers with access to a new dispute resolution framework in relation to disputes with other EU tax authorities that may come about given the changes that are being implemented in the international tax arena.

 

EU Mandatory Disclosure Directive (DAC 6)  

 

Regulations for the transposition of DAC 6 are being prepared and will meet the implementation deadlines set out in the Directive but no further details are available yet.

 

ATAD 2 effective as of 1 January 2020 and 1 January 2022

 

Apart from ATAD1, Malta will also have to implement the provisions of ATAD2 although these will take place on 1 January 2020 and 1 January 2022.

 

ATAD 2 will replace the original anti-hybrid provisions of ATAD 1 by extending them to include mismatches involving third countries and expanding the definition of hybrid mismatches to include hybrid permanent establishment mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches.  It is still premature to make any further comments on ATAD2.

 

 Patent Box Regime

 

Malta will introduce a new patent box regime that complies with the EU Code of Conduct (Business Taxation) and the OECD proposals on preferential intellectual property regimes (the so-called Modified Nexus approach).  Once again, no further details are available at this stage.

 

Conclusion

 

ATAD will introduce new concepts into the Maltese tax legislation such as exit taxes and CFC rules.  However, the changes should not have a dramatic effect to the tax system especially the principles of the full imputation system and the tax refunds which shareholders may claim upon a distribution of certain taxed profits.  We expect no changes to the participation exemption regime and we’ll have to see whether the step-up provisions already contained in our tax legislation will be affected.  If not, the step-up provisions and the participation exemption should continue to provide interesting opportunities.

 

It will be interesting to see how the interest limitation provisions will ‘interact’ with the newly introduced rules on Notional Interest Deduction which had an extremely positive effect on a number of Maltese companies

 

Very limited amendments are expected for the implementation of GAAR as required by the Directive since it is very similar to that already included in the Maltese Income Tax Act.

Read more

Budget Newsletter 2019

On 22 October 2018, the Honourable Minister for Finance, Professor Edward Scicluna, presented the Budget for 2019.  The introductory part of the budget speech was dedicated to some features of the Maltese economy, which may be summarised as follows:

  • GDP increase in real terms – 6.7% in 2017 and an expected increase of 5.3% for 2018;
  • Unemployment stood at 3.8% in August 2018 and this is expected to be around 4.3% in 2019;
  • An expected budget surplus of 1.1% for 2018 and 1.3% for 2019;
  • Inflation rate of 1.9% for 2019;
  • Government debt as a percentage of GDP expected to be 46.8% at end of 2018 and this should go down to 43.8% in 2019.

 

The Cost of Living Increase (COLA) for 2019 will amount to €2.33 per week.  Social security pensions will be increased by an additional €2.17 per week and therefore the total weekly increase for pensioners will be €4.50.

 

Tax Incentives and Refunds

  • An increase in the tax deductibility / tax credit for Third Pillar Pension Plans and Voluntary Occupational Pension Plans.
  • Parents whose children attend private schools will benefit from an increase in tax credit of €300 per child. The revised tax deductions will be €1,600, €1,900 and €2,600 for each child attending kindergarten, primary school and secondary school respectively.
  • Employees earning less than €60,000 are entitled to a tax refund ranging between €40 and €68.
  • Non-Governmental Organisations (NGOs) whose annual income does not exceed €10,000 will be tax exempt.
  • Increase in the fiscal incentives to the film industry.
  • An extension to the reduction in the rate of Duty on Documents (Stamp Duty) from the normal 5% to 1.5% upon the transfer of shares and immovable business property from parents to their children.
  • The reduced VAT rate of 5% on books and other printed matter such as magazines and publications will now be extended to similar material which is made available electronically.
  • Individuals investing in a domestic Reverse Osmosis will benefit from a VAT refund capped at €70.
  • The refund capping on wedding expenses will be increased to €2,000.

 

International Taxation

  • Amendments to the tax legislation will be introduced on 1 January 2019 to implement Anti-Tax Avoidance Directive 1 (ATAD 1). These changes will introduce new concepts into our tax legislation such as interest deduction limitations, exit taxes and Controlled Foreign Company (CFC) rules.  Anti-Tax Avoidance Directive 2 (ATAD 2) will also require new legislative changes, however, these will come into effect on 1 January 2020 and 1 January 2022.  The focus of this EU Directive is to address hybrid mismatches.
  • Malta will be adopting the EU Mandatory Disclosure Directive (DAC 6) in relation to mandatory exchange of information and adoption of the EU Dispute Resolution Mechanism (DRM).
  • A patent box regime in line with the EU Code of Conduct on Business Taxation and the OECD BEPS standard will be introduced.
  • New rules will be published in relation to the taxation of the digital economy.

 

Social Measures

  • Low income earning families will benefit from an increase in the children’s allowance.
  • The minimum wage will be raised by €3 per week for employees in their second year of employment and by another €3 per week during their third year of employment.
  • Unemployment benefits will now be available to self-employed forced to close their business.
  • The maximum amount of exempt pension income will be raised to €13,434.
  • A grant of €300 per annum shall be provided to individuals over 75 years of age who continue to reside in their home.
  • Government Savings Bonds will be issued during the year for individuals over 62 years who wish to invest their savings at favourable interest rates.
  • Increase in maximum rent subsidy ranging from €3,000 and €5,000 per year will be granted to certain families.
  • The Government will also be assisting persons over 40 years of age wishing to buy their residence (for which they require financing for not more than 50% of the value of the property purchased) by paying the interest on such loan.

 

Gozo-related incentives

  • Gozitan employees employed in the private sector in Malta may apply for a refund of the ferry fare.
  • Gozitan government employees may also request a partial compensation of €1.50 per day when paying for pooled transportation.
  • The Government is also incentivising the creation of new jobs in Gozo by extending the partial refund of the wage paid to new employees with a three-year contract. The refund will amount to 30% of wage cost with a capping of €6,000 for every new employee.

 

Other non-financial measures

  • An additional day of leave entitlement will be added to the current 25 days of leave available to all full-time employees.
  • Following the publication of the White Paper to address issues in relation to renting of immovable property for residential purposes, it is now expected that the new law will address the current issues faced by various tenants and landlords alike.
  • Launching of the Fintech Accelerator by the Malta Stock Exchange with the objective of attracting further business within this sector to Malta.
  • Introduction of REITS (Real Estate Investment Trusts) to enable investors indirectly invest in real estate.
  • Further introduction of a legislative framework to attract additional investment in Digital Ledger Technology (DLT) and blockchain in connection to Artificial Intelligence (AI) and Internet of Things (IoT).
  • The setting up of a new entity, Tech.mt, to promote Malta’s potential within the Blockchain industry and the introduction of a legislative framework in connection with e-sports.
  • Introduction of a legislative framework to attract and assist foreign start-ups wishing to set up in Malta.

 

Immovable Property related measures

  • To incentivise affordable lease arrangements, the Government will introduce a reduction in the capital gains tax upon sale of immovable property if such property is rented out at affordable lease payments for a period of not less than 7 years. No details on such incentive were made available during the budget speech.
  • Further capital investments were announced for new social housing, the regeneration of government owned property that may be used for social housing and renovation of current social housing estates.
  • An extension to the reduction or exemption in the rate of Duty on Documents upon the purchase of immovable property for first time buyers, second time buyers, property situated in Urban Conservation Areas (UCA) and property bought in Gozo.
  • Property owners may also benefit from the extension of the scheme to claim back expenses in connection with restoration works.

 

Infrastructure and incentives to reduce traffic congestion issues

  • A further capital expenditure of €100 million on road infrastructure and another €1 million on soft landscaping and other embellishments.
  • The free public transport scheme for persons between 16 years and 20 years will be extended and full-time students aged 14 years of age and over may now benefit from free public transport.
  • Various schemes introduced during the last budget are being extended for another year. These include the VAT refund upon the purchase of bicycles and pedelec bicycles, the VAT refund upon purchase of motorbikes and scooters up to a maximum of €400, the grants available to companies and local councils upon the purchase of bicycle racks, the exemption from registration tax upon the purchase of eco-friendly cars and the car scrapping scheme and grant upon conversion of car from petrol to gas.

 

Conclusion

The Budget does not introduce any new taxes but the Minister’s commitment to implement the EU Anti-Tax Avoidance Directive (ATAD 1) with effect from 1 January 2019 is of interest to Maltese companies owned by non-resident shareholders or involved in cross border transactions since Malta will see the introduction of interest deduction limitations, exit taxes which may also apply on a change of tax residence of a company which is not temporary, and regulations with respect to anti-abuse provisions and the introduction of CFC rules.

During 2019, Malta will also implement the EU Directive on DRM and this should give Maltese taxpayers access to a new framework with respect to disputes involving other EU Member States.  Then in the year 2020, Malta will implement the DAC 6 as well as ATAD 2.  The provisions of ATAD 2 involving hybrid permanent establishment mismatches, hybrid transfers imported mismatches, reverse hybrid mismatches and dual resident mismatches will be introduced on 1 January 2020 and 1 January 2022 as set out in the directive.

These various measures will be dealt with in a separate newsletter since they may have a wide-ranging effect on foreign owned companies.  Although no detailed provisions are yet available, the information will highlight the expected changes particularly the ones coming into effect on 1 January 2019 as a result of ATAD 1.

Read more

Taxand Global Guide To M&A Tax: 2018 Edition

This week, Taxand published its annual Global Guide to M&A Tax. It provides insight into the tax treatment of global mergers and acquisitions in 33 countries and an introduction to M&A tax planning in each of the diverse fiscal environments in its scope.

 

The unprecedented M&A cycle in which we find ourselves shows no signs of slowing halfway through 2018. Although global economic strength clearly is providing fuel to this hot deal market, the following key factors are also fanning these flames, encouraging active market participants to continue engaging in M&A and those sitting on the sidelines to abandon their wait-and-see approaches. These are:

 

  • United States Tax Reform
  • Private Equity Dry Powder
  • Brexit and European Elections
  • Base Erosion Profit Shifting Initiative (“BEPS”)
  • Shareholder Activism

 

The strong global economy and the factors mentioned above should continue to fuel global M&A activity in the short term. Cross-border M&A should continue to expand at a faster pace than purely domestic M&A as developing countries participate to a greater extent than ever in global markets. All indicators point toward a strong 2018 in M&A activity.

Read more