Persons eligible for registration under Article 11 of the VAT Act has been widened by means of Legal Notice 163 of 2018 whereby the provisions of Council Implementation Decision (EU) 2018/279 of the 20^th February 2018 have been implemented.

Article 11 exempts taxable persons carrying on a small undertaking from charging VAT thus reducing the VAT compliance and costs associated with normal registration under Article 10.   However, Persons registered under Article 11 may not claim any input tax incurred.

By way of an EU derogation, taxable persons whose economic activity consists principally of supplies of services with high value added, thus, with relatively low-cost base, may register under Article 11 if their annual turnover does not exceed €20,000.  The entry and exit threshold in Schedule 6 has been updated to reflect the revised entry and exit threshold (now revised to €17,000) for such undertakings.

Such derogation is applicable from 1 July 2018 until 31 December 2020.

Malta has very recently introduced the concept of a notional interest deduction (NID).  The recently published rules come into effect from year of assessment 2018 (basis year 2017) and they are aimed at mitigating the differences in the tax treatment between equity and debt financing.  Before the introduction of these rules, debt financed entities could claim a tax deduction equivalent to the interest however no similar deduction was available for equity financed companies.  These new rules entitle companies with an option to claim a tax deduction equivalent to the notional interest calculated on its equity thus making equity financing on the same level playing field as debt financing for taxation purposes.

Salient features of these rules:

• NID is optional and may only be claimed if all shareholders of an undertaking approve the claim for such a deduction.
• These rules are applicable to Malta registered companies, permanent establishments situated in Malta as well as partnerships.
• NID is determined by multiplying the reference rate by the invested risk capital.  The reference rate is the risk-free rate set by reference to the current yield to maturity on the Malta Government Stocks with a remaining term of approximately 20 years plus a premium of 5%, and the invested risk capital of the undertaking is the share capital, share premium, positive retained earnings, non-interest bearing loans an any contributions made by the shareholder/s.  Any capital directly employed in the production of income which is exempt from tax does not fall part of the invested risk capital.
• NID is limited to 90% of chargeable income.  Any excess above the capped amount may be carried forward for deduction in future years.
• When an undertaking claims NID, the shareholder / partner is deemed to have received income equal to the NID and the provisions relating to the taxation of interest income shall apply with the option to apply NID against the deemed interest brought to charge.
• An amount equal to 110% of the profits relieved from tax through the NID shall be allocated to the undertaking’s final tax account.  The amount allocated to the final tax account is limited to the total profits of the undertaking an any such excess shall be ignored for allocation of tax profits.

Undertakings are advised to seek for professional tax advice in determining whether these rules would result in the most optimal scenario for the said undertaking and shareholders / partners.

Update to the NID news item

The NID must be calculated before taking into account any adjustments for the Flat Rate Foreign Tax Credit (FRFTC).  This clarification was embedded in Act VII of 2018 and is applicable from year of assessment 2018.

On 9 October 2017, the Honourable Minister of Finance, Professor Edward Scicluna, presented the Budget for 2018. As has become customary, the introductory part of the budget speech was dedicated to the salient features of the Maltese economy, highlighting the achievements for 2016 and those underway for 2017 and the projections for the current year and 2018.

The Budget for 2018 contains the introduction of no new taxes for 2018, whilst aiming to assist vulnerable people in the Maltese society, especially due to the increase in the rent of immovable property which has increased substantially in the last few years.

The budget lacks incentives aimed at increasing investments.  The budget only targets new employments in Gozo and small enterprises who may avail themselves from better tax credits under the MicroInvest scheme.

On 15 October 2014 Malta signed a tax treaty with Mauritius.  The treaty was published by means of legal notice 409 of 2014.

The tax treaty is modelled on the OECD model convention.  However, it is interesting to note that no withholding tax is levied on dividends, interest and royalties and therefore the source state will not tax dividend income, interest or royalties and the residence state will have exclusive jurisdiction to tax such income.  The treaty provides that the source state will have taxing rights with respect to capital gains on immovable property and movable property.

The tax treaty also contains ‘standard articles’ with respect to the elimination of double taxation (under the credit method), mutual agreement procedure, exchange of information and a rather detailed article with respect to assistance in the collection of taxes.

Malta and Moldova signed a double taxation agreement.  The agreement was signed on 10 April 2014 between Foreign Minister George Vella and his Moldovian counterpart Natalia Gherman.

Malta and Moldova also signed a joint declaration on European Integration.  Malta promises to offer Moldova its assistance in many areas including tourism, education, and ICT based on its own experience of recent European integration.

The Taxand Global Survey 2014 provides insight into the outlook and concerns of multinationals in relation to corporate taxation.

Malta signed intergovernmental agreements with the US Treasury Department to implement the Foreign Account Tax Compliance Act (FATCA).  Malta signed the Model 1A agreements.  Under these agreements, Foreign Financial Institutions (FFIs) will report the information required under FATCA about US accounts to their home governments, which in turn will report the information to the IRS.  These agreements are reciprocal, meaning that the United States will also provide similar tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

Malta and Macau agreed to work together to prevent tax evasion and tax avoidance.  Macau’s Secretary for Economy and Finance Francis Tam Pak Yuen and the Maltese ambassador to China, Joseph Cassar, signed a tax treaty in Beijing on May 30.

All the legal arrangements between both jurisdictions have been completed and the treaty is likely to come into force in January 2014.

The treaty allows the authorities in Macau and Malta access to other’s data on the financial position and income of their citizens that owe tax, and may reveal undeclared assets and earnings.  Such data will include information relevant “to the determination, assessment and collection of taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters”, the treaty says.  The authorities may share information held by banks or other financial institutions.  They may share information about the direct or indirect ownership of companies, trusts and foundations, and about partnerships.

Malta signed a tax information exchange agreement with the Cayman Islands.  The two countries are Global Forum members and the TIEA was completed ahead of the Joint Ministerial Conference meeting of British Overseas Territories in London.