2022 Malta Budget Measures Implementation Act enacted in Parliament

The salient changes to the Income Tax Act and the Duty on Documents and Transfers Act are as follows:

Changes to Income Tax Act

1. Wear and tear allowances on the industrial building category of car parks is extended to be available to persons whose operation involves substantial activity, having regard to the capital employed, the organisation of the operation and the income that it generates, from such activities.

2. With effect from 1 January 2022, transfers of property that

a. had been leased for a period of at least ten (10) years (ending on the date of the transfer), and

b. during that whole period of ten years  the tenant was entitled to a benefit in respect of that lease under the Private Rent Housing Benefit Scheme administered by the Housing Authority, and 

c. that transfer is made to the tenant of that property,

no tax shall be chargeable on the first €200,000 of the transfer value. Tax on the excess, if any, shall be chargeable at the normal rate.

When a transfer satisfies the conditions above, but either a) the property is transferred to a person other than the tenant, or b) the period of the lease and, or the period during which the tenant was entitled to the said benefit was less than ten (10) years but not less than three (3) years, the tax on the first €200,000 of the transfer value shall be chargeable at half the otherwise applicable property transfer tax. The tax on the excess, if any, shall be chargeable at the normal rate.

The parties to the transfer must produce to the notary a document issued by the Housing Authority certifying the period during which the tenant of the lease of the property had been entitled to a benefit in respect of that lease under the Private Rent Housing Benefit Scheme.

3. The exemption for the transfer of any units in a collective investment scheme, any units and other such like instruments relating to linked long term business of insurance (including the surrender or maturity of linked long term policies of insurance), any interest in a partnership which is not a property partnership and any shares or securities in a company, is extended to the transfer of any rights over such financial instruments.

4. All previous references to shares listed on a stock exchange (in the Income Tax Act and the Duty on Documents and Transfers Act) recognised under the Financial Markets Act are replaced by references to shares listed on exchanges recognised by the Commissioner.

5. The deduction for capital expenditure on intellectual property (IP) spread over the useful life of such IP (subject to minimum of 3 years) is being restricted. When the IP or IP rights were transferred to the said person ("the acquirer") by a company ("the transferor") in terms of an exempt intra group transfer, the total deduction that may be claimed by the acquirer shall be the lower of the cost of acquisition and the market value of the said property or rights as at the time of that transfer, reduced, in either case, by the amount, if any, that the transferor had originally claimed as a deduction in respect of the IP rights that have been transferred.

6. The deemed distribution rule in the case of an individual resident in Malta becomes beneficially entitled, directly or indirectly, to the profits (whether or not distributed) of a company that claimed the notional interest deduction, is being deleted. All references to such sub-article are removed from the ITA. This deletion is with effect from year of assessment 2022.

7. The reduced 15% flat tax rate on employment income in terms of a contract requiring the individual to carry out the activities wholly or mainly outside of Malta will include new conditions. The reduced rate will not apply to emoluments payable under a contract of employment for a period of less than twelve (12) months or that lasts less than twelve (12) months. Moreover, the benefit shall not apply for a year of assessment if, during the year immediately preceding that year of assessment, the individual was present in Malta for a period that exceeds or for periods that in aggregate exceed thirty (30) days, disregarding any period during which that individual was present in Malta on vacation leave or sick leave and disregarding any period preceding the commencement or following the termination of the contract. This article is applicable from year of assessment 2023 (basis year 2022).

8. The Income Tax Act provides for an optional tax rate of 7.5% on income derived from full-time or part-time sports activity, either as a registered player or athlete or as a licensed coach. Such tax, if opted for, shall be final with no option of set-off or refund. This article is applicable from year of assessment 2023 (basis year 2022).

9. New reduced rate: An individual who derives income from a full-time or part-time artistic activity shall have an option to be charged to tax on all such income at the rate of 7.5% of the gross amount of the income so derived. This tax would be final and no set-off or refund shall be granted to any person in respect of the tax so charged. The reduced tax rate applies to income derived from an artistic activity if it has been so certified by the Arts Council Malta established by the Arts Council Malta Act.  The Minister may by rules, prescribe the manner in which the income of an individual who takes the option referred to above, is to be computed including, but not limited to, rules for calculating the income for any year of assessment in an amount corresponding to the average income derived during a number of years of assessment.

10. With effect from the year of assessment 2023, the rate of tax on income from part-time work to which this article applies shall be 10%. Also the reduced tax rate for overtime income is capped at an annual income of €10,000.

Changes to Duty on Documents and Transfers Act

With effect from 1 January 2022, transfers of property that

a. had been leased for a period of at least ten (10) years (ending on the date of the transfer), and

b. during that whole period of ten years  the tenant was entitled to a benefit in respect of that lease  under  the  Private  Rent  Housing  Benefit Scheme administered by the Housing Authority, and 

c. that  transfer  is  made  to  the  tenant  of  that property,

no duty shall be chargeable on the first €200,000 of the transfer value. Duty on the excess, if any, shall be chargeable at the normal rate.

When a transfer satisfies the conditions above, but either a) the property is transferred to a person other than the tenant, or b) the period of the lease and, or the period during which the tenant was entitled to the said benefit was less than ten (10) years but not less than three (3) years, the stamp duty on the first €200,000 of the transfer value shall be chargeable at half the otherwise applicable stamp duty. The stamp duty on the excess, if any, shall be chargeable at the normal rate.

The parties to the transfer must produce to the notary a document issued by the Housing Authority certifying the period during which the tenant of the lease of the property had been entitled to a benefit in respect of that lease under the Private Rent Housing Benefit Scheme. The exemption and the reduced stamp duty shall not apply to a transfer made to a person who requires a permit by the Minister responsible for finance for the purposes of the Immovable Property (Acquisition by Non-Residents)Act or who would have required such permit had the property acquired not been situated in a special designated area.

For more information, get in touch with our Tax Advisory Team: