Budget Measures Implementation Act

Budget Measures Implementation Act


Amendments to the Income Tax Act


Amendments to the exemption from the property transfer tax on transfer of immovable property

The ITA, provides for an exemption from the property transfer tax (through a reference in Art5A to Art5)  on the sale of own residence owned for a period of at least three years. The period of residence includes the physical occupation of the premises and any absences from Malta such as on account of foreign employment, illness, holiday or study."  The allowable absences have been extended to also include care in a hospital or home for the elderly. However, a new anti abuse rule has been introduced such that otherwise allowable absences (listed above) will no longer count to establish if the three year minimum residence period is satisfied if the premises in question is used or employed for any other purpose during such absence.


Amendments to the conditions to be satisfied to claim the participation exemption on dividend income

With effect from 1 January 2021, the participation exemption will no longer be applicable to dividend income derived from a participating holding in a body of persons resident for tax purposes in a jurisdiction that is included in the EU list of noncooperative jurisdictions for a minimum period of three months during the year immediately preceding the year of assessment, unless it is proved to the satisfaction of the Commissioner that the said body of persons maintains sufficient significant people functions in that jurisdiction as is commensurate with the type and extent of the activity carried on in that jurisdiction and the income earned therefrom. Where such three months are consecutive and fall in two subsequent consecutive basis years, the exemption shall not apply in respect of any such dividend derived in any one of the two years


New disallowed deduction

Similarly as from January 2021, there shall be disallowed as a tax deduction, any payment the making of which constitutes a criminal offence or, in the case of a payment made outside Malta, would constitute a criminal offence if made in Malta.


15% Final tax on royalties derived from qualifying literacy works  

New Article 31E, introduces a new optional 15% tax rate on royalties derived on or after 1 January 2021 by an individual in his capacity as author of a qualifying literary work* by virtue of his title to the copyright on that work conferred by the Copyright Act. Such 15% tax shall be final and no set-off or refund shall be granted to any person in respect of the tax so charged. The option is to be exercised by means of the submission of a notice to the Commissioner and the payment of the tax calculated by not later than the 30th of April of the relative year of assessment, unless otherwise provided by the Commissioner. If an individual, exercises such option, it shall apply to the full amount of those royalties. Moreover, the said individual shall not be required to declare such royalties in any return made pursuant to the Income Tax Acts.


*"qualifying literary work" means a publication which bears an ISBN and which is a novel, story, poetical work, text book, treatise, history, biography, encyclopaedia or dictionary that is eligible for copyright in terms of the Copyright Act.


New Article 51A – Transfer Pricing

The Minister responsible for finance may make rules in relation to transfer pricing generally and may, in particular by such rules, provide for the determination of the arm’s length pricing of a transaction or a series of transactions, any adjustments in relation thereto and advance pricing agreements.


Amendments to the Duty on Documents and Transfers Act


Amendments to documents subjects to stamp duty

The definition of a document has been amended to also include the parts in bold: “document" means that it includes a policy of insurance, a bill of sale, a notarial deed, a schedule of redemption of ground rent filed in court, and a judgment, decree or order of any court or other lawful authority whereby any immovable or any real right over an immovable is transferred”. This is meant to empower the Commissioner to issue assessments in the additional highlighted circumstances if the Commissioner believes that the value declared in the documents transferring the immovable property, as specified in the additions to the definition,  is undeclared.


Cohabitant and spouse defined

The Budget Implementation Act introduces two definitions to the DDTA:

"cohabitant" means a person in a cohabitation enrolled by means of a public deed under the Cohabitation Act;"

"spouse" includes a partner registered as being in a civil union"


Amendments to Articles 35 and 51 of the DDTA (additional to Budget Speech)

Article 35 of the DDTA is being amended to extend the exemptions from stamp duty, presently applicable to causa mortis transfers to surviving spouses, to causa mortis transfers to the surviving cohabitant. Moreover, the threshold on which reduced duty is payable on the causa mortis transfer of property where the deceased or the heirs resided, is being increased to €200,000 (previously €175,000).


Moreover, the DDTA presently exempts from stamp duty causa mortis transfers of immovable property which satisfy all the following conditions:

(a) the property transferred causa mortis consists of a dwelling house o  a part thereof, or of any real right over a dwelling house;

(b) the property is transferred by the person from whom the transfer causa  mortis originates to his descendants in the direct line; and

(c) the said dwelling house was, at the time of the transfer, and during the whole period of three years preceding the transfer, the ordinary residence of the person from whom the transfer originates.

The three residence condition(in underline above) is being removed by the Act.


The following new deeming provision is also provided for by the Act: When the person from whom the transfer causa mortis originates is hospitalized or residing in an old people’s home at the time of the transfer, the ordinary residence occupied by that person before being hospitalized or going to reside in an old people’s home shall be considered as that person’s ordinary residence. Therefore, ordinary residence exemption on transfer causa mortis to descendants will start to apply even if at the time of death, the parent was hospitalized or residing in an old people’s home.


Intra group exemption transfers

The exemption from duty on intra group exchanges and restructuring of shareholding in a group of companies, has been extended to also include:

  1. the exchange of a partnership interest for shares from one company to another where the company receiving the shares and the company whose shares are being exchanged are companies forming part of the same group of companies; and
  2. the transfer of a partnership interest for consideration from a company or partnership to another company or partnership,  where the transferor and the transferee form part of the same group of companies, or where any or both of them are partnerships, would have been considered to form part of the same group if they had been a company or companies.


All references to companies have been extended to partnerships, in terms of definition, property company/partnership, group and references to capital voting rights and rights to profits. 


Starting from 1 January 2021, notaries shall be required to also notify the Commissioner of  inter vivos transfers of immovable property which qualify for an exemption from stamp duty.


Amendments to the Income Tax Management Act

Article 10A of the ITMA empowers the Commissioner when and as often as he deems necessary, give notice in writing to any person to furnish him, within a reasonable time stated in such notice, not being less than thirty days, such information as may be necessary in order to provide information, including documents, to foreign tax authorities where arrangements between Malta and the respective State or its tax authorities exist for the reciprocal exchange of information for tax purposes. The notice period is being reduced from 30 days to 20 days.


Presently an adjustment form which either reduces the tax payable by a person or increases the tax refundable to a person, shall have effect only if filed within five years from the expiration of that year of assessment to which it relates. The Act introduces a proviso to this 5 year restriction when the further return is filed with the Commissioner for the purposes of implementing an agreement reached pursuant to a Mutual Agreement Procedure in terms of an arrangement in terms of article 76 of the Income Tax Act including Convention 90/436/EEC of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.


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