Introduction The budget for 2024 was presented by the Minister of Finance and Employment yesterday evening. In his introduction the Minister indicated that notwithstanding the global turmoil the Government was committed to maintain the energy subsidies to curb inflation. Cereals will also be subsidised. The Economy Despite the global challenges, the Government is forecasting an increase in the GDP in real terms of 4.1% for 2023 and 4.2% for 2024. The annual inflation for the current year is expected to reach 5.7% and then to fall to 3.7% in 2024. The unemployment rate is expected to be around 2.7%. The national debt as a percentage of the GDP is expected to be 52.8% for 2023 and 55.3% for 2024 and therefore below the 60% threshold required by the EU. The deficit is set to decrease from 5% in 2023 to 4.5% in 2024 and further down to 3% by 2027 in compliance with EU regulations. COLA The Cost-of-Living Adjustment (COLA) announced for 2024 for employees, pensioners and those on social benefits amounts to €12.81 per week. Students’ stipends will also be increased pro-rata. As from 2024, the national minimum wage will be increasing gradually up to 2027 and is set to increase to €213.54 per week including COLA for 2024. Income Tax Measures The main income tax measures include:
[vc_row][vc_column][vc_column_text]Taxand launched their latest Economic Employer survey 2022. This survey explores the attitudes of tax advisors across global tax jurisdictions in their engagement with the concept, as well as what nuances apply to corporates engaging with local tax authorities. The administrative burden and complexity of tax reporting will always be viewed as a necessary evil to businesses, especially those who operate across multi-market jurisdictions. One of the most labour intensive is perhaps the Economic Employer concept, due to its reliance on granular, non-conformative employee data and nuanced interpretation across the different borders in which it applies. Read the full survey here.[/vc_column_text][vc_empty_space][/vc_column][/vc_row]
Malta will be introducing transfer pricing rules with effect from 1 January 2024 following the publication of Legal Notice 284 of 2022 on 18 November 2022.
The rules apply to cross-border arrangements entered between associated enterprises. The term associated enterprises includes the relationship between a permanent establishment and the company. In terms of the Rules, bodies of persons will be considered associated enterprises when there is direct or indirect control through a holding of more than 75% of the voting rights or ordinary share capital. However, in the case of a MNE group which is subject to the CbCR obligations, the threshold for voting rights or ordinary share capital is 50% and not 75%.
Cross-border arrangements entered on or after 1 January 2024 or any arrangements which were entered into before 2024 but materially altered after 1 January 2024 are all subject to the TP Rules. However, the Rules are not applicable to:
Entities subject to the TP Rules must ensure that the income accrued and/or received from cross border arrangements with associated enterprises are all at arm’s length. If the income received under such arrangement is lower than arm’s length income, the entity is required to account for notional income to top up any discrepancy between the arm’s length amount and amount accounted for by the entity. The Rules do not define or delve into the concept of arm’s length but simply state that the arm’s length amount shall be determined based on such methodologies as shall be designated by the Commissioner in guidelines (which are yet to be issued).
Entities will have the option to request a unilateral transfer pricing ruling from the Commissioner for Revenue against a non-refundable fee of €3,000 or an advance pricing arrangement against a non-refundable fee of €5,000. Both will be valid for a period of five years. A unilateral transfer pricing ruling may be renewed but the renewal must be made six months before the expiry and subject to a non-refundable fee of €1,000.
The Rules set out that a company, in relation to an arrangement to which the Rules apply, is to prepare on a timely basis and retain such records as may be reasonably be required. Further guidance on documentation requirements is expected to be included in the guidelines.
[vc_row][vc_column][vc_column_text]Taxand published its annual Global Guide to M&A Tax. This edition of the Taxand Global Guide to M&A Tax has been designed as a desktop reference book covering various countries around the globe and to provide at a glance insight into the tax treatment of global mergers and acquisitions. [/vc_column_text][vc_empty_space][/vc_column][/vc_row]
Following the introduction of Article 51A of Income Tax Act as an enabling provision for the introduction of the transfer pricing and Advance Pricing Agreements, the Office of the Commissioner for Revenue published the draft Transfer Pricing Rules for public consultation.
The following are the highlights of the draft Transfer Pricing Rules:
The Transfer Pricing Rules were issued on the 18 November 2022.
On 8 October 2021, the Organisation for Economic Co-Operation and Development (OECD) announced that a landmark reform in the international taxation sphere was agreed between 136 countries, including Malta, out of the 140 members of the OECD/G20 Inclusive Framework on BEPs. Effective from 2023, certain Multinational Enterprises (MNEs) with revenue exceeding €750 million will be subject to a minimum tax rate of 15%. The proposed approach does not seek to eliminate tax competition but rather addresses the tax challenges arising from digitalisation ensuring that the largest MNEs pay a fair share of tax to the countries in which they operate and generate profits. A multilateral convention is expected to be signed during 2022 to be effectively implemented in 2023.
Since the start of the COVID-19 pandemic, the Government announced additional measures to alleviate the financial burden brought about by this pandemic. Malta Enterprise has been entrusted with the processing of most of the applications related to various measures introduced to mitigate the impact COVID-19.
[vc_row][vc_column][vc_column_text]Taxand published its annual Global Guide to M&A Tax. This edition of the Taxand Global Guide to M&A Tax has been designed as a desktop reference book covering 30 countries and to provide at a glance insight into the tax treatment of global mergers and acquisitions. [/vc_column_text][vc_empty_space][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]A new article has been introduced in the Income Tax Act which paves the way to the introduction of transfer pricing rules in Malta. The new article empowers the Minister responsible for finance to make rules in relation to transfer pricing and may also provide for the determination of the arm’s length pricing of a transaction or a series of transactions and advance pricing agreements.
The Transfer Pricing Rules were issued on the 18 November 2022.
Article 12(1)(u) of the Income Tax Act has been amended to limit the applicability of the participation exemption to income received from a participating holding which is not in a company resident in a country listed in the EU list of non-cooperative jurisdictions. Indeed, the new proviso to Article 12(1(u) states that income derived from a participating holding in a body of persons resident for tax purposes in a jurisdiction that is included in the EU list of non-cooperative jurisdictions for a minimum period of three months during the year immediately preceding the year of assessment may not benefit from the participation exemption unless it proved to the satisfaction of the Commissioner that the said body of persons maintains sufficient significant people functions in that jurisdiction as is commensurate with the type and extent of the activity carried on in that jurisdiction and the income earned therefrom. The proviso further clarifies that where the three month period during which a participating holding is resident in an county which is listed in the EU list of non-cooperative jurisdictions are consecutive and fall in two subsequent consecutive basis years, the participation exemption will not apply for both years.
As from 1 January 2021, royalties received by an individual in his capacity as author of a qualifying literary work may be taxed at a final tax rate of 15%. If an individual opts to have such royalties taxed under Article 31F of the Income Tax Act, then the tax paid under this Article is final, meaning that no set-off or refund on such tax is granted, however it also means that this income is deemed to constitute separate chargeable income and will not form part of the total income of that individual.
The tax treaty between Malta and Poland will be amended and the main changes will include:
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:
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;
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.
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.
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
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.
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.
[vc_row][vc_column][vc_column_text]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.
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.
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:
Most of the incentives are managed by Malta Enterprise and details of the incentives are still to be published.
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.
[vc_row][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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.[/vc_column_text][vc_empty_space][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image="5743" img_size="medium" alignment="center"][/vc_column][/vc_row][vc_row][vc_column][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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:
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.
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]
[vc_row][vc_column][vc_column_text]Following the publication of the Consolidated Group (Income Tax) Rules by means of Legal Notice 110 of 2019, Malta introduced fiscal unity rules providing for a consolidated tax group. As a result, certain groups of companies may, from the year of assessment 2020 (basis year 2019), opt to be treated as one single taxpayer. Unlike the group relief provisions already contained in the Income Tax Act which provide for the surrendering of tax losses to other members of the same group, the fiscal unity rules provide for a consolidated tax group. Also, the definition of a group in these rules is different and much wider than the definition contained in the Income Tax Act allowing both Maltese companies as well as foreign entities that fall within the definition of a company to form part of the consolidated group. The foreign entities need not be tax resident in Malta to form part of the fiscal unit, but it is necessary that they are tax registered in Malta. It is interesting to note that certain trust arrangements as well as certain foundations may also form part of the consolidated tax group. This will give flexibility to certain structures. On the other hand, the rules exclude certain types of foundations, securitisation vehicles and finance leasing companies. Requirements for the Formation of a Fiscal Unit A parent company, as the principal taxpayer, may make an election for itself and its one or more subsidiaries to form a fiscal unit provided that in the year prior to the year of assessment it holds at least 95% of two of the following rights in each subsidiary (hereinafter refer to as 95% subsidiary):
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.
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]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:
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]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 -
[vc_row][vc_column][vc_column_text][/vc_column_text][vc_column_text]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: [wpdatatable id=42 table_view=regular]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text][/vc_column_text][vc_column_text]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:
[vc_row][vc_column][vc_column_text][/vc_column_text][vc_column_text]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:
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]Following the approval by Maltese Parliament of the cryptocurrency related bills on the 4th July 2018, through Legal Notice 250 of 2018 the Minister for the Digital Economy has established the 15th July 2018 as the date on which the provisions of the Malta Digital Innovation Authority (MDIA) Act shall be deemed to have come into force and hence the MDIA is now officially set-up. The Authority shall now commence the process of staff on-boarding and regulatory functions in terms of the MDIA Act.[/vc_column_text][/vc_column][/vc_row]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]On 4 July 2018, the Maltese Parliament has unanimously approved a trio of cryptocurrency related bills as follows:
[vc_row][vc_column][vc_empty_space][vc_column_text]Financial institutions who deduct the final withholding tax (FWT) of 15% on payment of interest and other investment income are now obliged to disclose the recipient’s name, address and the income tax registration number together with the amount of investment income paid and tax paid on such income to the tax authorities. Such information may not be requested by the tax authorities after the lapse of nine years. Such disclosure is to be made by financial institutions with effect from year of assessment 2019. The FWT of 15% has been extended and now also applies to income from ground rents related to urban and rural tenements.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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:
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]A tax deduction has been introduced on the exploitation of qualifying intellectual property (such as royalties) based on a percentage of qualifying income. The deduction has been introduced with effect from 29 March 2018 however further details are expected to be issued in this regard to clarify when such deductions made be availed of. The legislation has been also amended so that it is in line with the guidelines issued by the tax authorities on expenditure of a capital nature on intellectual property or any intellectual property rights. It is now clear that such expenditure may be amortised over a period of at least three years which shall not be less than a minimum period of three consecutive years, the first year being that in which the said expenditure has been incurred or the year in which the intellectual property or intellectual property rights is / are first used or employed in producing the income. Such change is effective from year of assessment 2017.[/vc_column_text][/vc_column][/vc_row]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]The applicability of the participation exemption on dividend income and capital gains from participating holding investments has been widened by reducing the ‘qualifying’ percentage or minimum equity threshold from 10% to 5%. The type of entities in which the ‘participating holding’ is held has also been widened and now includes not only companies, partnerships, collective investment schemes (CIS) or other bodies of persons but also EEIGs (European Economic Interest Grouping). These amendments make the participation exemption for Maltese companies more accessible especially when one considers that there are various other conditions which may be satisfied apart from the minimum 5% equity investment. These changes are effective from 29 March 2018.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_empty_space][vc_column_text]Individuals who are ordinarily residents but non-domiciled will, as from year of assessment 2019 or basis year 2018, be subject to a minimum tax of €5,000 per annum before any double taxation relief. The minimum tax is applicable to individuals and married couples whose foreign income exceeds €35,000. This minimum tax is not applicable to individuals who are tax residents under The Residence Programme, the Global Residence Programme, the Malta Retirement Programme and the Residents Scheme Regulations. Therefore, the minimum tax of €5,000 introduced earlier on this year will primarily apply to EU citizens who are tax resident in Malta and do not enjoy a special tax status under any programme. Also, long-term residents or permanent residents who have a permanent residence certificate or a permanent residence card in terms of the Status of Long-Term Residents (Third Country Nationals) Regulations and the Free Movement of European Union Nationals and their Family Members Order, are not eligible to benefit from the remittance basis of taxation.[/vc_column_text][/vc_column][/vc_row]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]The Maltese Government published the three bills which will be implementing a framework for DLT. These legislative initiatives will make Malta one of the first countries in the world regulating this technology thereby providing a level of certainty to the industry and attracting businesses to ‘The Blockchain Island’. The Innovative Technology Arrangements and Service Bill shall provide for the regulation of designated innovative technology arrangements as well as of designated innovative technology services, and for the exercise by or on behalf of the Malta Digital Innovation Authority of regulatory functions in that regard. The Virtual Financial Assets Bill shall regulate the field of Initial Virtual Financial Asset Offerings, or as more commonly referred to Initial Coin Offerings, Virtual Financial Assets and cryptocurrency currency exchanges. The Bill shall outline the licensing requirements, the application, granting and cancellation of such licenses and provide for other matters ancillary thereto or connected therewith. The Malta Digital Innovation Authority Bill shall provide for the establishment of an Authority to be known as the Malta Digital Innovation Authority, to support the development and implementation of the guiding principles and to promote consistent principles for the development of visions, skills, and other qualities relating to technology innovation, and for the exercise by or on behalf of that Authority of regulatory functions regarding innovative technology arrangements including distributed or decentralised ledger technology, and related services and to make provision with respect to matters ancillary thereto or connected therewith.[/vc_column_text][/vc_column][/vc_row]
[vc_row equal_height="yes" content_placement="top"][vc_column][vc_column_text]Following the announcement made by the Minister of Finance during the budget speech in October 2015, a legal notice (L.N. 162 of 2018) was finally published to introduce VAT Grouping. However, this new concept is not being made available to all groups which may exist for other purposes, such as the Income Tax Act. VAT Grouping is quite common in other EU Member States however, it appears that Malta is reluctant to introduce this concept across the board and therefore the new regulations are only applicable to groups wherein at least one member is a licensed or regulated entity within the gaming sector or the financial services industry such as banks, financial institutions, insurance, investment services, securitisation etc, the services of which are usually exempt without credit. To form a VAT Group, the following conditions must be satisfied:
[vc_row][vc_column][vc_column_text]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 20th 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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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:
[vc_row][vc_column][vc_column_text]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. [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2=""]Download our Budget 2018 newsletter[/vc_cta][/vc_column][/vc_row]
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.[/vc_column_text][/vc_column][/vc_row]
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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The Taxand Global Survey 2014 provides insight into the outlook and concerns of multinationals in relation to corporate taxation.[/vc_column_text][vc_empty_space][vc_cta h2="Download survey" add_icon="right" i_icon_fontawesome="fa fa-download" i_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fwp-content%2Fuploads%2F2018%2F05%2FTaxand-Global-Survey-2014.pdf|title:http%3A%2F%2Fwww.avanzia.com.mt%2Fwp-content%2Fuploads%2F2018%2F05%2FTaxand-Global-Survey-2014.pdf||"][/vc_cta][/vc_column][/vc_row]
[vc_row][vc_column][vc_empty_space][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
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.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
Legal Notice 282 of 2013 entitled JOINT COUNCIL OF EUROPE/OECD CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS ORDER, 2013 brings into force the Joint Convention on Mutual Assistance ratified by Malta on May 23.
The Convention provides that state parties to the Convention must provide each other with administrative assistance in tax matters. Administrative assistance comprises exchange of information, assistance in recovery including measures of conservancy and service of documents.
The Convention applies to taxes on profits and capital gains, taxes on wealth, compulsory social security contributions. It provides for exchange of information on request, automatic exchange of information and spontaneous exchange of information. It also provides for simultaneous tax examinations, tax examinations abroad, assistance in recovery measures of conservancy, time-limits and service of documents.[/vc_column_text][/vc_column][/vc_row]
Malta and the USA concluded negotiations with respect to an Intergovernmental Agreement (IGA) in relation to US Foreign Account Tax Compliance Act Regulations (FATCA).
FATCA was enacted in 2010 by the US Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires non-US financial institutions to report to the US Internal Revenue Service (IRS) information about financial accounts held by US taxpayers, or by non-US entities in which US taxpayers hold a substantial ownership interest.
The IGA has been negotiated on the basis of the latest Model 1 IGA (reciprocal version) issued by the US. The basic purpose of this IGA is to ensure that financial institutions which are resident (or carrying on business) in Malta or the US, will comply with certain prescribed reporting obligations. The IGA will require financial institutions in both Malta and the US to submit the required information to their own tax authorities, which in turn will automatically share such information with the other tax authority. Such shared information will be used by the tax authorities to ensure that the relevant tax laws of the two countries are being complied with.
As a consequence of compliance with the IGA, financial institutions that are resident or operating in Malta and that comply with the terms of the IGA will benefit in that they will not be subject to the FATCA 30 per cent withholding tax on the payments they receive. The IGA is also intended to reduce the administrative burden of complying with the FATCA regulations as well as to provide a mechanism for Malta financial institutions to comply with their obligations without breaching the data protection laws.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]An income tax treaty for the avoidance of double taxation between Malta and Turkey, which was signed in 2011, come into force on 13 June 2013. The treaty provides for a 10% withholding tax on dividends paid by a Turkish resident company to a Maltese company in which it has at least a 25% stake. In all other cases a maximum withholding tax of 15% will be applied. Malta will not tax dividends paid by a Maltese resident company to a Turkish resident company. A maximum Turkish withholding tax of 10% will apply to interest and royalties paid by a Turkish resident to a Maltese resident beneficial owner of the interest or royalties.[/vc_column_text][/vc_column][/vc_row]
Liechtenstein's Foreign Minister Aurelia Frick and the Maltese counterpart George Vella signed a bilateral double taxation agreement (DTA) between the two countries in respect of taxes on income and on wealth. The DTA was signed in New York.
The treaty is based on the Organisation for Economic Cooperation and Development's (OECD) Model Convention.
Both countries have agreed to waive withholding taxes on dividends, interest, and royalties. The treaty also contains provisions clarifying and governing the entitlement to tax treaty benefits of Liechtenstein pension funds, charitable organisations, and investment funds. In addition, the treaty guarantees national taxing rights for the taxation of natural persons, and includes an information exchange clause. The residency of trusts is regulated separately. Finally, the DTA makes provision for an arbitration clause to ensure that within the framework of a specified process, a binding solution is achieved for both treaty partner states in the event of an interpretation or application dispute.
The treaty requires the parliamentary approval of both jurisdictions and is expected to apply from January 1, 2014.[/vc_column_text][/vc_column][/vc_row]