The following are some of the more significant developments that were introduced in Maltese tax law during 2020:
- The possibility of setting up protected/segregated cell companies in the aviation and shipping sectors has been introduced in Maltese law. Such cell companies allow for the possibility of segregating vessels or aircraft portfolios within the same corporate entity, thus segregating the risks and benefits attributable to the particular cell, without affecting the risks and benefits attributable to other cells within the same cell company.
- Malta Enterprise has had a crucial role in the implementation of measures of various financial aid measures and incentives as well as other employment-related measures in order to assist during the COVID-19 pandemic.
- By means of the Consolidated Group Income Tax Rules, a parent company and its 95% subsidiary can form a fiscal unit for income tax consolidation, provided certain conditions are satisfied. These Rules come into force with effect from year of assessment 2020 in relation to accounting periods commencing in calendar year 2019 and subsequent years. The Maltese Commissioner for Revenue has supplemented these Rules with a set of Guidelines, with the last update issued on 28 September 2020.
- The Patent Box Regime Deduction Rules provide for new deductibility rules applicable to income derived from qualifying intellectual property (IP).
- Further tax incentives have been introduced for occupational pension schemes.
- The minimum shareholding requirement of a ‘participating holding’ under the Maltese Income Tax Act has been reduced from 10% to 5%. This enables Maltese companies holding at least 5% of the equity shares, rather than 10%, to claim a participation exemption (subject to the satisfaction of other conditions) on dividend income and gains derived by a Maltese company from a qualifying ‘participating holding’ or from the disposal of such holding (apart from this 5% minimum equity holding, there may be other alternative conditions to qualify for the participation exemption).
- A notional interest deduction (NID) system, aiming to approximate the tax treatment of equity with that of debt, has been introduced.
- Double Taxation Agreements (DTAs) with the governments of the Republic of Armenia and the Republic of Ghana have come into effect during the course of 2020 and the Double Taxation Agreement with Russia was amended in November 2020, with the introduced amendments applying provisionally from 1 January 2021.
- Malta has transposed the provisions of European Union (EU) Directive 2016/1164 of 12 July 2016 adopted by the Council of the European Union laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD I) into local legislation. Anti-hybrid legislation was introduced in Malta (in terms of ATAD II) as of 1 January 2020. The Maltese Commissioner for Revenue has supplemented ATAD I and ATAD II with a set of Guidelines issued on 31 August 2020.
- Malta ratified the Organisation for Economic Co-operation and Development (OECD) Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (MLI). Therefore, the double tax treaties (DTTs) between Malta and such other states that have acceded to the MLI should be read in conjunction with the MLI. The MLI shall, in general, be effective with respect to taxable periods beginning on or after 1 January 2020.
- By virtue of a number of schemes, such as the Investment Aid for Energy Efficiency Projects Regulations and a number of Research and Development schemes, undertakings operating in various industries may qualify for assistance by the Malta Enterprise.
- In line with DAC6, information on any reportable cross-border arrangements must be filed with the Maltese Tax Authorities. The reporting of cross-border arrangements was extended to 28 February 2021, while for reportable cross-border arrangements where the triggering event for the reporting took place between 1 July 2020 and 31 December 2020, the period of 30 days for filing information commenced as of 1 January 2021.
- Recent amendments implement various provisions in line with Council Directive (EU) 2017/2455 as regards certain value-added tax (VAT) obligations for supplies of services and distance sales of goods into Maltese legislation.