Budget Implementation Act

On the 2 April 2024, the Parliament transposed the Budget Implementation Act (Act XIII of 2024). The salient income tax, stamp duty and VAT provisions are as follows:

Income Tax 
Article 5A of the Income Tax Act (ITA) provides for an exemption from the property transfer tax on the first €200,000 of the transfer value, upon the transfer of an immovable property that:
  • had been leased for a period of at least ten years, and 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
  • the transfer is made to the tenant of that property.

The Budget Implementation Act extends the exemption to transfers of property that benefitted (for the same period) from the Nikru Biex Nassistu Scheme or the Rehabilitation of Vacant Dwellings for Rent Scheme, both administered by the Housing Authority. The Budget Implementation Act extends the similar benefit for stamp duty purposes (see below). 
  • Article 14 (1) (m) of the ITA provides a deduction for tax amortisation on intellectual property expenditure of a capital nature. Up to year of assessment 2023 such tax amortisation was to be availed of over a minimum number of three years. The Budget Implementation Act transposes an already announced benefit that as from year of assessment 2024, any such expenditure may be deducted in the year in which the said expenditure has been incurred or the year in which the intellectual property o  intellectual  property rights were first used or employed in producing the income. However, the Act hints at the introduction of conditions that may be prescribed by the Commissioner.
  • Article 14H provided for a tax deduction of school transport fees. This article has been removed as a superfluous given that school transport is now free.
  • Article 56 (26) of the Ita provides a beneficial tax rate of 7.5% on income derived by individual as a registered player or athlete or as a licensed coach. The Budget Implementation Act extends the beneficial tax rate to other individuals involved in a sport activity in a full or part-time employment, including match officials and sports administrators, subject to such limitations and conditions as may be prescribed.
  • Article 19 (4) of the Income Tax Management Act (ITMA) provides that a company registered in Malta is required to prepare on an annual basis a balance sheet and profit and loss account, which shall comply in every respect with the applicable provisions of articles 167, 168 and 169 of the Companies Act. Such financial statements shall be accompanied by a report made out by a certified public auditor as provided by the applicable provisions of articles 179 and 181 of that Act. The same ITMA article provided (no longer through the Budget Implementation Act) that the auditor’s report shall not be required for the first two accounting periods of a newly registered company whose sole shareholders are individuals in possession of educational qualifications as may be prescribed who have set up the new company within three years of obtaining the said qualifications and subject to such conditions, including  the  amount  of  turnover, as may be prescribed. The preceding exemption (in italics) from carrying out an audit has been removed, but the Budget Implementation Act now permits the Minister to prescribe different exemptions from the obligation to carry out an audit. 
Duty on documents and Transfers

Similar to case of the property transfer tax, the stamp duty exemption applicable on the first €200,000 of the transfer value upon a transfer (to the tenant) of an immovable property benefitting for at least ten years from the Private Rent Housing Benefit Scheme administered by the Housing Authority, has been extended to beneficiaries of the Nikru Biex Nassistu Scheme and the Rehabilitation of Vacant Dwellings for Rent Scheme, also administered by the Housing Authority.

Article 35 of the Duty on Documents and Transfers Act (DDTA) provides for exemptions and partial reliefs from stamp duty upon causa mortis transfers of immovable property. A very important exemption provided for by this article relates to:
  • the transfer of a dwelling  house (or part thereof or real right thereon);
  • where the property is transferred by the person from whom the transfer causa mortis originates to his descendants in the direct line; and
  • the said dwelling house was the ordinary residence of the person from whom the transfer originates.

Such relief was tied to a very strict condition, whereby the relief was available only where the deed of the transfer causa mortis is made within one year from the relative succession and if notice thereof is given to the Commissioner by not later than either 15 working days after the date of the publication of the deed or the expiration of the said period of one year, whichever is the later. Such timing is very punishing whenever the inheritance is contested in front of a Court. The Budget Implementation Act introduces a very important condition whereby if the dwelling house was the subject of litigation in a court of law, the one year period starts to apply when the litigation has been concluded by a judgment which has become res judicata.

The Budget Implementation Act introduces a new exemption for the transfer causa mortis of qualifying agricultural land. Qualifying agricultural land is defined as immovable property situated in Malta which is certified by the competent authority responsible for the agriculture land lease and ownership register within the Ministry responsible for agriculture as land which, at the time of the transfer in question: (a) is an agricultural activity as defined in the Agriculture Act, is being undertaken by the heir (or one of the heirs who classifies as a professional farmer and, or is being inherited by an heir who is himself a professional farmer as shall be established by the Minister responsible for agriculture or (b) is leased in accordance with the provisions of the Agricultural Leases (Reletting) Act and is registered with the competent authority responsible for the agricultural land lease and ownership register. This exemption is subject to the condition that before the lapse of five years from the date of the transfer causa mortis no transfer inter vivos (apart from assignment between co-owners professional farmers) is made of the property in question or of a part of it.

Value Added Tax
Article 10 (4) of the VAT Act requires a taxable person who is not established in Malta, to register under Article 10, within 30 days from the date of the first supply on which he is liable to pay VAT. The Budget Implementation Act removes such a registration obligation where the non-established person provides electronically supplied services and takes advantage of an OSS simplification procedure to pay the Maltese VAT where applicable. However, the person is relieved of the obligation to be registered only when such person notifies the Commissioner that he will use the OSS to declare and pay the tax which that person is liable to pay, in line with the provisions of the respective special scheme, by no later than ten days from the date of that supply.

The Budget Implementation Act introduces a new subarticle to Article 28 of the VAT Act that prohibits the correction of any VAT return in respect of which the Commissioner has raised a provisional assessment until such time that a (final) assessment is raised or the provisional assessment is cancelled by the Commissioner.  The Budget Implementation Act includes further provisions of an administrative nature that arguably increase the powers of the Commissioner:
  • An appeal (on a point of law) to a decision of the Tribunal now has to be made within 30 days from the date of the service of the decision appealed from, but not later than 183 days from the date of the decision by the Tribunal, or on30th June 2024, whichever date is the later.
  • A taxable person established in Malta is required to keep full and proper records of all transactions carried out in the course or furtherance of his economic activity, even if not registered. 
  • The Commissioner is now empowered (new provisions with added emphasis) to inspect and to require electronic access to any books, records, information and documents, including those contained in any computerised system, and to request a copy or extracts thereof, relating to the economic activity of any person.
  • Removal of the duty of professional secrecy when the Commissioner requires any person to give such information as may be requested for the purpose of determining whether any supplies have been made by or to that person or any third party on which that person may have  information, or whether any  intra-community acquisitions or importations have been made by that person or any third party on which that person may have information, or the value of any such supply, acquisition or importation, and to require the attendance of any person at the office of the Commissioner for the purpose of providing such information.

Article 74 of the VAT Act used to provide clarity with respect to the income tax treatment of VAT penalties and interest. This clarity has been completely removed and Article 74 was replaced by a new wide encompassing anti-abuse provision as follows:
  • Any artificial or fictitious scheme which directly or indirectly results in the accrual of a tax advantage when the essential aim of that scheme is for a person to obtain said advantage the grant of which would be contrary to the purpose of the provisions of the VAT Act, shall be disregarded in such a manner as to redefine the scheme so as to re-establish the situation that would have prevailed in the absence of such scheme. A scheme includes any transaction or sequence of transactions, disposition, agreement, arrangement, trust, grant, covenant, transfer of assets, structure, alienation of property, irrespectively of the date on which such scheme was made, entered into or set up.
  • No amount shall be treated as input tax of a person to the extent to which it represents tax chargeable on goods or services having been the subjects of VAT fraud committed upstream or downstream in the chain of supply, when that person knew or should have known of such fraud, irrespective as to whether that person actively participated in that fraud.
  • When the Commissioner has reason to believe that the anti-abuse provisions above apply, he may make an assessment determining the tax liability or the entitlement to any input tax credit, refund or set-off of tax of th esaid person, for any tax period, in such manner and in such amount as may be necessary according to the circumstances of the case. This will not prejudice the right of a person to object to such an assessment and to appeal from a decision of the Commissioner refusing that objection. The relevant provisions of the VAT Act relating to objections and appeals shall apply mutatis mutandis.

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