Value-added tax (VAT)
Supplies of goods and services in Malta are typically subject to VAT at the standard rate of 18%. However, certain supplies may be subject to a reduced VAT rate, such as 7% on eligible accommodation and on entrance to sporting facilities, and 5% on other supplies like the supply of electricity, the importation of works of art, collector’s items and antiques, confectionery items, certain medical accessories, printed matter (including electronic publications with effect from 1 January 2019), and items for exclusive use by persons with a disability. As of the 4th May 2020, the reduced rate of 5% was extended to also include protective face masks and visors (but excluding diving equipment).
Exports of goods to countries outside the European Union, food for human consumption, and numerous financial services (as defined) are exempt from VAT. Some of these exempt supplies also give the supplier a right to claim an input tax credit of VAT incurred on purchases made during the course of such supplies.
For a number of years now, the place of supply of telecommunications, broadcasting, and electronic services to non-taxable persons is considered to be the place where that non-taxable person is established, has his/her permanent address, or where he/she usually resides. As of 1 January 2019, this will not be applicable if the supplier is only established in Malta, and the total value of the services supplied to a non-taxable person established in any other member state other than Malta, does not exceed 10,000 euros (EUR) in the same calendar year. As from 1 January 2021, this threshold shall include supplies of distance sales but which are elected to be treated as domestic supplies.
In line with an EU-wide initiative, as from 1 January 2020, a number of ‘quick fixes’ were incorporated into Maltese VAT legislation with the intention of improving the day-to-day functioning of the VAT system for EU cross-border B2B trade – particularly where goods are concerned. These ‘quick fixes’ :
- place an added emphasis on the need to include a client’s VAT number in relevant documentation, as well as having to submit a recapitulative statement, when applying the zero-rate for intra-Community supplies;
- shall not consider as a supply of goods certain transfers of call-off stock to a storage facility in a different Member State;
- shall help determine the allocation of transport (to determine which supply shall be taken as an exempt Intra-Community Supply / Acquisition) when goods are supplied successively across multiple Member States in the course of chain transactions; and
- as a result of the above, put in place additional requirements with respect to records that a taxable person must retain.
Recent amendments implement various provisions in line with Council Directive (EU) 2017/2455 as regards certain VAT obligations for supplies of services and distances sales of goods into Maltese legislation. As a result of these changes:
- taxable persons who facilitate certain supplies of small consignments of goods to end-customers through the use of an electronic interface (i.e. a marketplace, platform, portal or similar online means) may have to consider various changes to their respective VAT obligations - including being deemed to be receiving and onward supplying such goods themselves;
- the distance sales provisions have been extended to also capture goods that originate from a third country / territory - which also determines the manner in which the subsequent VAT obligations are to be handled by that taxable person.
Goods imported from outside the European Union may be subject to customs duties. A Customs Code provides for customs procedures and concepts, which are based on European Community requirements.
In 2019, the Malta Free Zones Act was issued to provide for the regulation and administration of the affairs of Free Zones in Malta and to determine and regulate the undertakings authorised to carry out activities within such free zones. The Act specifies the different activities that may be carried out within such Free Zones, including activities such as production, manufacture, assembly, testing, repair, logistics, packaging and warehousing. Furthermore, the Act provides for the relevant authority to issue guidelines to establish terms and conditions pertaining to eligibility to various schemes, incentives, tax exemptions, benefits and grants that may be issued by the relevant authority for undertakings operating within such Free Zones.
Excise duties are chargeable on certain energy products, certain alcoholic drinks, certain manufactured tobacco products, and mobile telephony services.
Maltese tax legislation does not contain any wealth taxes or other similar taxes on property, save for the property transfers tax outlined below.
Property transfer taxes
Transfers of immovable property situated in Malta are generally subject to a final withholding tax (WHT), which, in most cases, is charged on the transfer value of the property. In the case of transfers of Maltese immovable property made on or after 1 January 2015, the WHT on such transfer should, in general, be 8% or 10% (the latter rate applying in the case where the property was acquired before 1 January 2004). Certain other rates of WHT may apply in specific circumstances. In terms of recent updates, subject to certain conditions, a reduced tax rate of 5% will apply on the first EUR 400,000 of the transfer value of immovable property, while the remaining amount shall be taxed at 8% or 10% respectively according to the general rules.
The final tax rate on transfers of regenerated immovable property situated in urban conservation areas is set at 5% of the transfer value, subject to the satisfaction of a number of conditions.
Prior to recent changes, specific provisions required that transfers of immovable property acquired through causa mortis or donation be taxed at 12% FWT on the difference between Transfer Value and Acquisition Value. With the recent changes introduced, taxpayers can now enjoy the flexibility of opting out of this provision and having the transfer taxed at the default rate.
As of 1 January 2020, the first €100,000 of any profits or gains arising on the assignment or cessation of any rights acquired under a promise of transfer of immovable property or any rights thereon will be subject to a tax at the rate of 15%. Any profits or gains exceeding €100,000 will continue to be subject to tax at 35%.
Stamp duty is charged on, among other transactions, transfers of immovable property (5% for both residents and non-residents; a reduced rate of 2% in respect of transfers of immovable property situated in Gozo) and marketable securities (2%; 5% in the case of transfers of shares in property companies). Persons who are subject to duty in terms of Maltese law should now be registered with the Commissioner for Revenue.
In the case of the transfer by gratuitous title of (i) marketable securities owned by individuals and of (ii) commercial tenements (i.e. business property) that had been used in a family business for a minimum period of three years preceding the transfer, to the transferor’s spouse, descendants, and ascendants in the direct line and their spouses, or in the absence of descendants to such transferor’s brothers or sisters and their descendants, stamp duty is chargeable at a reduced rate of 1.5%. The 1.5% reduction in the stamp duty rate only applies if the donation is made by public deed and is made prior to 1 January 2021. Once this reduced rate is applied, no other exemption or duty relief will apply to such transfers.
Immovable property subject to stamp duty and which is transferred causa mortis and where the declaration of the said transfer is made more than one year after the happening of the transfer causa mortis, the rate of interest applicable was reduced from 8% per annum to 4% per annum, with effect from 1st January 2020.
In the event that the market value of shares held by a person is reduced following a change in the company’s issued share capital or voting rights and the value shifts onto the other shareholders, the transferor would be deemed to have transferred the said value to the transferee(s) and such value shifting may be subject to a stamp duty liability (although certain exceptions/exemptions may apply).
Maltese legislation also provides for the possibility of a stamp duty exemption in a number of instances, subject to the satisfaction of certain conditions. Some of the more commonly availed of exemptions include the acquisition or disposal of marketable securities by or in the following: (i) licensed collective investment schemes; (ii) licensed persons providing management, administration, safekeeping, or investment advice to collective investment schemes; (iii) companies being owned more than 50% by non-Maltese residents and satisfying certain other conditions; and (iv) a company being owned more than 50% by non-Maltese residents and that carries on or intends to carry on more than 90% of its business outside of Malta.
With effect from 28th June 2019 a stamp duty exemption should also apply (subject to certain conditions) in instances where there is a transfer of partnership interest.
In terms of the Final Settlement System (FSS) rules, an employer is required to withhold income tax and social security contributions (see below) at source from the employees’ salaries. Such deductions of tax/social security should be forwarded by the employer to the Maltese Commissioner for Revenue within specific time-frames.
Employer's social security contributions
Employers are required to pay social security contributions at the rate of 10% of the individual employee’s salary and at fixed rates, for calendar year 2020, of EUR 48.05 per week for annual salaries exceeding EUR 24,985, in the case where the employee is born on or after 1 January 1962 (It should be noted that the employee is also required to pay an equivalent weekly amount).
The rates of social security generally increase annually and take effect from the commencement of the calendar year in question.
Social security contributions amount to 10% of the employee’s basic weekly wage, payable by both the employee and the employer subject to a minimum and maximum contribution. The maximum contribution varies depending on the age of the insured person - for employees born before 1 January 1962, the current maximum weekly contribution is €36.57 and for employees born on or after 1 January 1962, the current maximum weekly contribution is €48.05.
Social security contributions amount to 15% of the self-employed/ self-occupied person’s annual net income earned during the previous year and are also subject to a minimum and maximum contribution. The maximum contribution varies depending on the age of the person - for persons born before 1 January 1962, the current maximum weekly contribution is €54.85 and for persons born on or after 1 January 1962, the current maximum weekly contribution is €72.08.