Update to Fringe Benefits Regulations

09 August 2017

Legal Notice 205 of 2017, enacted on the 8th August 2017, brings into place some important changes in the Fringe Benefit Rules (Subsidiary Legislation 123.55) as per below:

 

  1. New rule 3A was introduced and provides that fringe benefits are deemed to arise in the country where the services in terms of the relative contract of employment or office are wholly or principally performed – therefore if an individual is provided a free car, accommodation etc in Malta but the employment activities are performed outside of Malta such income is deemed to be foreign source income. In the case of directors source is deemed to be where the company is managed and controlled.
  2. Rules 9, 10, 16 and 20 – Provision of a Van to an employee is no longer treated as a fringe benefit (previously annual fringe benefit was capped at €465)
  3. Rule 14 changed so that no fringe benefits is deemed to arise where (a) the vehicle value does not exceed €16,310; and (b)  the  said  vehicle  is  used  wholly  or  mainly  for  point  to point  services  by  an  employee  who  is  a  salesman  or a support  person  in  the  performance  of  his  duties  or for such other similar services  as  may  be approved by the Commissioner; and (c) the Commissioner approves in writing the applicability of this rule to that case.
  4. Rule 19 – The cost of immovable property granted to an employee is no longer to be increased by five times the annual ground rent payable.
  5. Rule 24 – The annual value of immovable property granted by the employer to an employee is now as follows (in bold changes):

(i) in the case of immovable property, 5% of the higher of the market value and the cost of the property:

Provided that where the property is held under a title of emphyteusis, the said value shall be the higher of:

(A) 5% of the market value; and

(B) the total of 5% of the cost of the property, and an amount equivalent to the relative annual ground rent;

  1. Rule 26 – Benchmark interest rate for loans granted by employer to employee reduced to 6.5% per annum.
  2. Rule 27 – Loans provided by an employer to an employee who is a 25% shareholder (share capital and voting rights) are no longer deemed to be a fringe benefit.
  3. Rule 33 relating to the value of free or discounted transfer of property and provision of services has been completely revamped as per below (in bold changes):
  • the value of free or discounted transfer of property and provision of services is the excess, if any, of the value of the property or service over the consideration paid by the beneficiary.
  • when the benefit consists in the transfer of a motor vehicle and the beneficiary had, before the transfer, made private use of that motor vehicle, from the value of the property or service over the consideration paid by the beneficiary there shall be reduced the total value of the motor vehicle use fringe benefit calculated during the time the employee made use of the car (but the value so reduced shall not be less than zero).
  • When a benefit provided by the employer consists in the transfer of in-house property or the provision of an in-house service, the value determined shall be reduced by the in-house benefit reduction (€700)
  • When in-house property or an in-house service is provided to an employee on a working day and consumed or availed of by the employee on the employer’s business premises the benefit shall have no value.
  1. Rule 37 – The value of a fringe benefit by way of an exercise of a share option scheme is no longer deemed to be 42.85% of the excess of the market value over the exercise price on the date of the exercise. Instead such excess is taxable at a flat rate of 15% (which is equivalent to 42.85% of 35%).
  2. Rule 39:
  • relocation costs and costs of journeys between work shifts now to be treated as exempt fringe benefits
  • clarification that mobile is an also an exempt fringe benefits
  • new exempt fringe beenfits: (s) the following health related costs:

(i) the cost of a medical examination, test or screening which an employee is required to undergo in order to take a new employment or to take up a new post with the same employer or to gain entry to a superannuation fund;

(ii) the cost of medical care, medicine and other medical treatment provided as a prevention against injury or illness related to an employment as part of a programme available generally to employees exposed to the same work-related health risks;

(iii) the cost of individual or group counselling relating to safe work practices, health, fitness, stress management or drug or alcohol

abuse that is given as part of a programme available generally to employees exposed to the same work-related health risks.