Budget Implementation Act

03 April 2018

On the 29th March 2018, the Maltese Parliament enacted Act VII of 2018 which provides the substantive provisions implementing the Budget Speech for 2018.

Summary of the Budget Implementation Act enacted last Thursday:

  1. With effect from 2018 the threshold to have a participating holding will go down from 10% to 5% (including the 2 out of 3right to votes, profits and assets on winding up). Moreover, a participating holding could also be in a partnership en nom collectif (Malta or abroad) or (EEIG) European Economic Interest Grouping as long as not a property partnership and satisfies the usual 1 out of 6 conditions.


  1. The remittance basis of taxation will no longer apply to individuals who is a long-term resident, or who holds a permanent residence certificate or permanent residence card, in respect of any income derived by such individual in the year of being granted long-term resident status or the right of permanent residence and in subsequent years. The terms "long-term resident", "permanent residence certificate" and "permanent residence card" shall have the meaning assigned to them respectively in the Status of Long-Term Residents (Third Country Nationals) Regulations and the Free Movement of European Union Nationals and their Family Members Order."


  1. The definition of a project for property transfer tax purposes has been amended such that it does not include land acquired by the owner and divided for transfer into more than one transferable portion, where the land is transferred by the owner in the same state as when acquired (i.e. no excavation or any other works whatsoever have been carried out on the property) and no permit has been issued by the Malta Environment and Planning Authority (MEPA) during the period of ownership by the owner sanctioning the  development  of  the  land  into  more  than  one transferable unit.  


  • Moreover, the exclusion from the final property transfer tax in a property partition where no owelty is due has been partially removed- When the property that is partitioned consists of or includes property that was acquired by the partitioners from a person ("the original owner") who was, in respect of that transfer, exempt from tax since the transfer constituted a transfer of own residence owned for more than 3 years and transferred within 12 months from vacation, each of the partitioners is considered to  transfer  a  portion  of  that  property equivalent to his undivided share in that property. In such a case the transfer is deemed to be a sale of property for its market value and the transferor shall be deemed to have acquired that property on the date on which it had been acquired by the original owner. Any subsequent transfer shall be deemed to be a transfer of property that had been purchased on the date of the partition.


  • The bill also provides that when there is an exempt transfer of property to a related person by way of donation, on a subsequent transfer, the donee is considered to have acquired the property on the date it was originally acquired by the donor (therefore the 5 years (5% rate) start to elapse from the date the property was acquired by the donor, similarly with respect to the 2004 (10%) rule.


  • Clarification that the exemption on transfer of immovable property excludes property that forms part of a project.


  • Good news for intra group transfer exemptions – at the moment in order to claim the intra group exemption on a transfer of a property which is not a capital asset (i.e. of a property for resale), such property must have been held by the transferor for a minimum period of 12 years. This requirement is now being removed. However the date of acquisition of such property is deemed to be the date when the group company which is the transferor had originally acquired it.


  1. Interestingly, the Act provides for an exemption from tax on child maintenance paid to a parent from the other parent as provided by a public deed outside of a separation/divorce proceedings.


  1. New deduction from taxable income equal to a percentage amount of qualifying income as may be prescribed derived from qualifying intellectual property (which term shall be defined in such manner as may be prescribed).


  1. The requirement to prepare a Balancing Statement on an asset write-of/disposal etc will be removed where such disposal etc occurs before the source of income in respect of which the deduction has been allowed has ceased to exist. Therefore if an asset is disposed post termination of income generating activities, there is no need to prepare a Balancing Statement.


  1. Removal of restriction to claim group loss relief for insurance business companies with effect from YA 2019.


  1. 15% final tax on rental income now includes ground rents from both urban and rural tenements.


  1. As many of you may be aware, one can opt for a 15% final tax on investment income (example bank interest). When one takes such an option, the recipient of the interest is not required to report it in the tax return (unless a company) and the payor of the interest does not inform the tax authorities of the identities of the recipients and only makes a bulk report. This is going to change, presumably due to CRS. In fact this new provision will be inserted in Art.33 ITA:


A  payor shall render an  account to the Commissioner of all payments of investment income (subject to the15% final tax) made during any year … by  the  31st  January  following  the  year  in  which  the investment  income  is  paid. Such account shall include details of the recipient’s name, address and the income tax registration number as well as the amount of investment income paid, and the tax deducted, by the payor to the recipient during that year.

Provided that a payor shall not be required to render an account to the Commissioner once nine years have elapsed following the end of the year in which the investment income becomes payable.


  1. Parent rates applicable now up to the age of 18 (previously 16 extended only if the child is attending post-secondary education up to the age of 23 which condition for education is still there) and does not have income of €3,400 (previously €2,400). The €3,400 is also the increased threshold for married rates applicable to single parents.


  1. Art 56 (12) amended to grant the power to the CIR to impose additional tax even when tax return is not filed.


  1. Introduction of a new tax regime through Art.56 (27) applicable to individuals who are ordinarily resident but not domiciled in Malta (and to returned migrants) thereby taxed in Malta on a remittance basis and not benefitting from any special programme such as the Global Residence Programme, The Residence Programme Rules or the Malta Retirement Programme.


  • The new regime applies to individuals who derive income (including, in the case of a married couple using the joint computation the income derived by both spouses) amounting to not less than €35,000 (or its equivalent in another currency), arising outside Malta and not received in Malta. The regime imposes a minimum annual tax liability of €5,000 per annum ("the minimum tax"). Should the income (excluding capital gains chargeable in terms of article 5A of this Act) chargeable to tax in the hands of such person result in a tax liability (before taking into account double tax relief) amounting to less than the minimum tax, the individual is deemed to have received in Malta additional income arising outside Malta as shall result in a total tax liability on his total income, wherever arising, amounting to the minimum tax.


  • In  computing the minimum tax, account must be taken of tax paid under the ITA, whether by withholding or otherwise, in respect of all income (excluding tax imposed in terms of article 5A of this Act), whether arising in Malta or outside Malta


  • However, if the non-domiciled  person proves to the satisfaction of the CIR that if he had been subject to tax on a worldwide basis rather than on a remittance basis, the total tax payable by him would have amounted to less than the minimum €5,000 tax, his tax liability shall be capped  at the lower amount.


  1. When claiming the FRFTC and the NID at the same time, the 90% NID limitation shall be calculated on the amount prior to the FRFTC gross up.


  1. Article 10 of the ITMA is being amended to allow a company to claim a credit for BPA & BPR tax credits (with effect from YA 2015) after deducting other tax credits, something which at the moment is not possible (i.e. at the moment if a company has BPR tax credits and other credits, the BPR tax credits must be absorbed first).


  1. Payment of the part time tax and 15% final tax on rental income to be settled by 30th April of the subsequent year rather than 30th June, with effect from year of assessment 2019.


For further information regarding this recent development please contact our Tax Partner Josef Mercieca.