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, certain confectionery items, certain medical accessories, certain printed matter (including electronic publications), and certain items for exclusive use by persons with a disability. 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 (as defined) 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 one's permanent address, or where one 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 of 1 January 2021, this threshold shall include supplies of distance sales made in other EU member state (see eCommerce changes below).
In line with an EU-wide initiative, a number of ‘quick fixes’ are incorporated into Maltese VAT legislation with the intention of improving the day-to-day functioning of the VAT system for EU cross-border business-to-business (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.
As part of the eCommerce changes, new VAT regulations for business-to-consumer (B2C) eCommerce apply. These regulations will impact online sellers (particularly if they would be selling more than EUR 10,000 of goods in an EU member state other than the one in which they are established), operators of online market platforms, couriers, and the end consumers themselves (as there may be changes to the VAT that would need to be levied on a given transaction). These changes also include a number of provisions that concern distance sales, such as the following:
- Taxable persons who facilitate distance sales (including of small value consignments of goods originating from outside the European Union) 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.
Certain rules make it more feasible for a small undertaking to avail of a simplified VAT registration (referred to as an Article 11 VAT Registration) with a reduced compliance burden. These mainly consist of:
- a reduction in the period that must elapse before someone under the standard VAT registration can change their type of VAT registration to an Article 11 registration
- a proviso for when such a change can happen even before the elapse of the said period (in certain limited circumstances), and
- an increase in the relevant thresholds to once again make it easier to fall within this simplified registration.
As of 1 July 2021, the relevant thresholds for small undertakings were increased slightly, making it easier for an entity to qualify as a small undertaking.
Following the agreement of the Brexit deal, the Maltese VAT Act has been updated in line with the said deal to take into account that Northern Ireland is to be considered as a territory of a member state for VAT purposes. Similar treatment is also extended to the UK Sovereign Base Areas of Akrotiri and Dhekelia and the Principality of Monaco.
Other recent changes
Pursuant to a decision of the Court of Justice of the European Union (CJEU), the local VAT authorities have reiterated that, where a company is being remunerated for making available to another company the services of a Director, this would, in fact, constitute an economic activity that falls within the scope of VAT.
There has also been a renewed focus (including an increase in late-filing penalties) on compliance with filing obligations for ancillary declarations, such as with the timely submissions of recapitulative statements (referred to as EC Sales Lists in some jurisdictions). A similar focus is being placed by the authorities on the timely submission of IntraStat declarations.
Likewise, there has also been an increase in late-payment interest to 0.6% per month (or part thereof) that a VAT payable balance remains outstanding.
In accordance with recent VAT updates, payment service providers are required to keep sufficiently detailed information in accordance with the specification set out in the said regulations, of at least 25 separate cross-border transactions and the payees making such payments. Furthermore, such records are to be submitted to the VAT Commissioner, in accordance with the provisions of Title V of Council Directive 2006/112/EC, thus enabling the Maltese VAT authorities to monitor the supply of goods and services and combat VAT fraud
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. 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, and the said reduction of property transfer tax on the sale of property from 8% to 5% shall also apply in respect of promises of sale being signed by not later than 31 December 2021. The remaining amount shall be taxed at a rate of 8% or 10%, respectively, according to the general rules.
The final tax rate on transfers of immovable property situated in urban conservation areas whereby the transferor had declared that he has carried out works on that property in compliance with a permit issued by MEPA providing for the restoration and, or rehabilitation of that property, is set at 5% of the transfer value, subject to the satisfaction of a number of conditions.
Transfers of immovable property acquired through causa mortis or donation may be taxed at 12% WHT on the difference between transfer value and acquisition value. Taxpayers can opt out of this mechanism and have the transfer taxed at the default rate on the transfer value as set out above.
The first EUR 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%.
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 Tax and Customs.
The exemption from duty on the restructuring of holdings through mergers, demergers, amalgamations, and re-organisations within a group of companies also applies to partnerships. As a result, no duty should be chargeable on the exchange of a partnership interest for shares from one company to another where the transferor and the transferee form part of the same group of companies. In addition, no duty shall be chargeable on the transfer of a partnership interest for consideration from a company or partnership to another company or partnership. This shall apply where the transferor and the transferee form part of the same group of companies, or where any or both of them are partnerships, and they would have been considered to form part of the same group if they had been a company or companies.
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% reduced stamp duty rate only applies if the donation is made by public deed and is made prior to 1 January 2025. Once this reduced rate is applied, no other exemption or duty relief will apply to such transfers.
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.
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 Malta Tax and Customs Administration 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 2024, of EUR 53.23 per week for annual salaries exceeding EUR 27,679.08 , 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 as follows:
- For employees born before 1 January 1962, the current maximum weekly contribution is EUR 42.31.
- For employees born on or after 1 January 1962, the current maximum weekly contribution is EUR 53.23
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 as follows:
- For persons born before 1 January 1962, the current maximum weekly contribution is EUR 63.46.
- For persons born on or after 1 January 1962, the current maximum weekly contribution is EUR 79.84.