The Budget Measures Implementation Act was enacted on 20th March 2020. Through the enactment of this legislation, amendments were made to the Income Tax Act (ITA), Income Tax Management Act (ITMA), Value Added Tax Act (VATA) and Duty on Documents and Transfers Act (DDTA).
Updates to the Income Tax Act
#1 Changes to the definition of ‘company’
The definition of the term ‘company’ in Article 2(1) of the ITA has been updated so that, with effect from 20th March 2020, cell companies engaged in the maritime and aviation industries and cells of SICAVs shall also be included in this definition.
#2 Profits derived from the transfer of promise of sale agreements
As from 1 January 2020, profit derived from the transfer of promise of sale agreements shall be subject to final tax at the rate of 15% on the first € 100,000. Profit exceeding €100,000 shall be taxable at the applicable tax rate of the assignor and subject to the payment of provisional tax at 7%.
#3 Applicability of the 5% Property Transfers Tax rate
With effect from 20th March 2020, the 5% property transfers tax rate shall no longer apply on the transfer of immovable property on which development works requiring a permit have been conducted, unless the property is the sole ordinary residence of the transferor.
#4 Amendment to deductible borrowing costs
Article 14(1)(a) of the ITA has been amended so that the deductibility of interest for tax purposes is aligned to the provisions of the Interest Limitation Rules recently introduced to meet the requirements of ATAD1.
#5 Removal of inflated deduction of expenditure on scientific research
With effect from 1 January 2019 the actual expenditure incurred on scientific research is deductible for tax purposes. Previously expenditure related to scientific research was inflated at 150% for the calculation of the tax deductible expense.
#6 Abatement of 15% tax on rental income derived from long private residential leases
A new proviso to Article 31D of the ITA has been introduced which allows for the abatement of the 15% tax on rental income derived from long private residential leases in circumstances and by such amounts as may be prescribed.
#7 Separate income tax returns for married couples
With effect from year of assessment 2021, married couples and living together can opt to file separate income tax returns if:
During the year in which the election is made, each of the spouses is in receipt of income from employment or trade (excluding director fees) or a pension from past employment;
In terms of a public deed concluded by the spouses, the property they acquired during their marriage is governed by the system of separate property or by the system of community of residue with separate administration as provided for in the Maltese Civil Code or in terms of a similar foreign law system.
The election covers the year in which the election is made and subsequent years until it is revoked. If the option is revoked, the option to file a separate income tax return will not be available for the couple for that year of assessment and the subsequent four years.
When electing to file separate tax returns, the income of each spouse will be charged to tax in the name of the respective spouse and each spouse will be responsible to adhere to compliance obligations. Moreover, the income of each spouse shall be levied to tax in the name of the same spouse irrespective of the right that the other spouse may have over the same income.
Following election to file separate returns, tax deductible expenses should be allowed as follows:
Deductions are allowed against the income of the spouse to whom the invoice/receipt is addressed;
When a receipt/invoice is issued to the spouses jointly, each spouse shall be allowed a deduction for half of the expense;
Any unabsorbed losses, capital allowances and tax credits brought forward shall be deductible against the income of the spouse in whose name the trading activity giving rise to these deductions is being performed;
Any unabsorbed capital losses arising from a transfer that had been made by the spouses jointly shall be available to the two spouses proportionately to the undivided shares transferred by them respectively.
#8 Tax on overtime work
As from 1 January 2020, income derived from overtime work shall be subject to tax at a flat rate of 15%. Tax so paid shall be final and non refundable. Further rules are expected to be published outlining the eligibility for this amendment.
Changes to the Income Tax Management Act
#1 Shares held by licenced financial services providers
As from 1 June 2020, where the registered holder of a share is a licenced trustee, an authorized/licenced central securities depository or a licenced investment manager, the CfR shall treat the income derived from the share as the income of the registered holder unless the CfR is informed as to whom the share belongs and is provided with the name and tax registration number of the beneficial owner of the share.
Furthermore, the CfR has notified that any company that has registered its shareholders for the purposes of the tax refund mechanism in terms of the ITMA, should revise such registration to disclose the identity of the direct and indirect beneficial owner of such refund. When shares are held by a trustee or fiduciary, the identity of the beneficial owner should also be disclosed.
#2 Provisional tax on transfers of securities/interest in a property company/partnership
With effect from 20th March 2020, provisional tax due on the transfer of shares in a property company or transfer of interest in a property partnership shall be equal to an amount to be prescribed, capped at 35% on the higher of the market value and consideration received for the share/interest.
#3 Refund of overpaid tax
As from year of assessment 2021, any overpaid tax shall be refunded by the Government within 6 months, rather than 12 months, from the date when the return was submitted or required to be submitted, whichever is the latest.
Updates to the Value Added Tax Act
Online filing of VAT return/forms
With effect from 20th March 2020, late filing penalties will no longer apply if the VAT return/form is filed on time but tax payment is not made.
Updates to the Duty on Documents and Transfers Act
#1 Assessments and penalties
Penalties applicable when an amount subject to stamp duty is assessed by CfR and results to be 15% or more higher than the real value declared, will be reduced to 20% of the under declared value. However interest on late payment of stamp duty will start to be imposed at a rate still to be prescribed.
#2 Reduction in the rate of duty upon acquisition of residential property
With effect from 15th October 2019, the reduced rate of stamp duty of 3.5 % applicable to individuals who acquire inter vivos or causa mortis a property to establish therein their ordinary residence, will be applicable on the first €175,000. Before this change, the reduced rate of stamp duty applied to the first €150,000 of the value of the property.
#3 Interest on late payment of stamp duty
With effect from 1st January 2020, interest at a rate still to be prescribed will start to be levied on the late payment of stamp duty.
#4 Duty on transfers of foreign marketable securities
No stamp duty shall be payable in Malta upon the transfer of foreign marketable securities in a property company if duty has been paid outside of Malta in the country where the transfer is executed or where the company is registered.
#5 Duty on transfers of interest in partnerships
The provisions of value shifting applicable to transfers of real values in companies shall apply also to partnerships. Thus transfers of interest in partnerships and changes in voting rights in partnerships are now subject to stamp duty.
Also the exemption applicable upon mergers, demergers and reorganizations of companies shall apply also to interest in partnerships.
Profile: Stephanie is involved in direct and indirect taxation advisory matters and also assists clients in the restructuring of their business as well as in succession planning. She is also involved in assisting individuals who obtain residency in Malta both with their compliance and advisory requirements.