Emergency Measures

COVID-19: The Budget Measures Implementation Act – The Tax Measures | Update 5

On 20 March 2020, the Maltese Parliament enacted the Budget Measures Implementation Act, 2020, Act VIII of 2020. The Act implements the key measures announced by the Minister for Finance when presenting the Budget for 2020 last October, including the option for married couples to submit a separate return and a reduced rate of tax applicable on over-time work, and other notable amendments, including the amendment catering for the change in Company law providing for cell companies carrying on or engaged in shipping or aviation business and the extension of certain duty exemptions to transfers involving partnerships. 

1. Income Tax Act (ITA)

1.1  Cell Companies (Effective as from 20 March 2020)

The definition of the term ‘company’ in the ITA will be changed to align it to the Companies Act (CA) as amended by the Various Financial Services Laws (Amendment) Act, Act V of 2020. A new article (article 84E) has been recently added to the CA, providing the Minister for Finance with the powers to make regulations which, amongst other things, provide for the formation, constitution, authorisation and regulation of cell companies carrying on or engaged in shipping or aviation business.

Accordingly, the provisos to the definition of ‘company’ in article 2(1) ITA which used to refer to the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations and the Securitisation Cell Company Regulations will be substituted with another proviso, providing that every cell of a cell company and that part of a cell company in which non-cellular assets are held, shall  each be deemed to be a separate company implying that each cell and the non-cellular part of a cell company:

  • will have a separate income tax number;
  • will be required to assess their income separately, submit a separate income tax return and pay income tax due or receive tax refunds separately;
  • will likely apply any relevant anti-abuse provisions separately. 

1.2  New Rules relating to Profits Derived from the Assignment of Promise of Sale Agreement (Effective as from 1 January 2020)

Assignments of Promise of Sale Agreements will be carved out from the purview of Property Transfers Tax. An amendment empowers the Minister to publish rules relating to the tax treatment of such profits including especially rules on deductions to be allowed, tax to be paid and special compliance matters.

A news item had been published by the Commissioner for Revenue in this regard on 24 January 2020. This news item may be accessed on the following link: https://cfr.gov.mt/en/News/Pages/2020/Budget-measure-on-withholding-tax-on-assignments-of-rights-acquired-under-a-promise-of-sale-agreement.aspx

1.3 Restriction of 5% Property Transfers Tax rate (Effective as from 20 March 2020)

Persons disposing of immovable property which is not their sole ordinary residence cannot benefit from the 5% Property Transfer Tax rate applicable on property disposed of within 5 years from the date of acquisition if the said person, or a related person, has carried out on that property any works for which certain development permissions apply.

1.4  Alignment of Article 14(1) with ATAD I (Effective as from 1 January 2019)

Article 14(1) ITA has been amended to align its wording with the Interest Limitation Rule recently added via the transposition of ATAD I. The updated wording indicates that the Commissioner for Revenue will issue guidelines in relation to limitations to the deductibility of interest expenses and the carry forward of amounts unclaimed.

1.5 150% Super-Deduction for Scientific Research Removed (Effective as from 1 January 2019)

The Third proviso to Article 14(1)(h) ITA has been removed implying that, in claiming a deduction for expenditures on scientific research, taxpayers will no longer be able to claim the special 150% deduction.

1.6  Special Tax Rate for Rental Income Derived From Long Private Residential Leases (Effective as from 20 March 2020)

The Budget Act inserts a proviso in Article 31D ITA allowing for the abatement of tax chargeable on rent derived from a long private residential lease in such circumstances and by such amounts as may be prescribed.

1.7 Separate Tax Returns (Effective as from year of assessment 2021)

With effect from year of assessment 2021, married couples will be allowed to file separate tax return (similar to what had been originally suggested in the article in the link https://timesofmalta.com/articles/view/Do-they-pay-as-much-as-I-do-.495124)

The revised legislative framework contemplated by a new Article 49A ITA provides that in a state of affairs involving a married couple living together, any of the spouses may make an election to file a separate tax return ("a separate return election").

To be eligible to the separate return election:

  1. during the year in which the election is made, each of the spouses derives trading income/employment income (not being directors’ fees)/pension for past employment; OR
  2. in terms of a public deed concluded by the spouses, the property they acquire during their marriage is governed by the system of separate property or by the system of community of residue with separate administration in terms of Maltese law or in terms of a foreign law that may be applicable to the property of the spouses that provides for any similar system, and that system still applies to them at the time that the election is made.

Compliance matters pertinent to the separate return election will be articulated in directions that shall be published by the Commissioner for Revenue.

For any year of assessment in respect of which a separate return election is effective:

  1. the income of each spouse shall be charged to tax in the name of the respective spouse separately from the income of the other spouse, and each spouse shall be responsible for complying with the ITA relating to the submission of returns of his or her income and the ascertainment of that income;
  2. the income of a spouse shall comprise all income derived by that spouse regardless of any right which the other spouse may have in respect of that income in virtue of the provisions of any law regulating the rights of the spouses over their property and income;
  3. for the purposes of deduction rules, expenses shall be deemed to have been incurred by the spouse in whose name the relative receipt is issued, and where a receipt is issued in the joint name of the spouses, the relative expense shall be deemed to have been incurred by the spouses in equal portions; and
  4. any amounts of unabsorbed losses, unabsorbed capital allowances or unabsorbed tax credits brought forward from any year of assessment preceding that as from which a separate return option becomes effective shall be accounted for in the computation of the income of the spouse in whose name the income derived from the source that had given rise to the losses, capital allowances or tax credits in question is chargeable.

Any unabsorbed capital loss that had been incurred in a transfer made by a spouse shall be available as a deduction from any capital gains that may be derived by that spouse, and if the transfer had been made by the spouses jointly, the unabsorbed capital loss shall be available to the two spouses in proportion to the undivided shares transferred by them respectively.

Subject to certain conditions, a married couple living together may revoke a separate return election by means of a notice in writing to the Commissioner.

1.8  Tax On Over-Time (Effective as from 1 January 2020)

Income derived by an individual that represents qualifying overtime income shall be subject to tax at the reduced rate of 15%. Except where the individual deriving qualifying overtime income elects otherwise, the tax shall be final and shall not be available as a credit or set off against the tax liability of any person or as a refund. Rules relating to eligibility will be established by Legal Notice. 

2. Income Tax Management Act (ITMA)

2.1  Treatment Trustees/Central Securities Depositories as Beneficial Owners (Effective as from 1 June 2020)

As from 1 June 2020, the Commissioner for Revenue will only refrain from treating licensed trustees, authorised/licensed central securities depositories as the beneficial owners of shares if these provide the Commissioner for Revenue with a certificate, which, amongst others, includes the names and taxpayer identification numbers of the person or persons for the benefit of which the share is held and of their ultimate beneficial owners.

2.2  Provisional Tax due on the Transfer of Securities in a Property Company / Interest in a Property Partnership (Effective as from 20 March 2020)

With effect from 20 March 2020, the provisional tax payable upon the transfer of securities in a property company or of an interest in a property partnership will be equal to an amount as prescribed by Legal Notice, which amount will not exceed 35% of the higher of the market value and the consideration for the transfer.

2.3  Tax Refunds to be settled in 6 months (Effective as from year of assessment 2021)

Tax refunds which are determined to be due on the basis of an income tax return which is submitted after the relevant tax return date shall become due on the later of:

  1. 6 months after the furnishing of the income tax return; and
  2. 6 months after the date on which the refund would have otherwise have become due.

Prior to this amendment, the deadline imposed by the law was of 12 months, not 6 months. 

3. Duty on Documents & Transfers Act

3.1 New Penalty Regime (Effective as from 15 October 2019)

As from 15 October 2019, certain omissions to pay duty will be subject to additional duty equivalent to 20% of the amount of duty assessed by the Commissioner, and interest at a rate to be prescribed by the Minister (previously, the same omission was subject to an additional sum, equivalent to the amount of duty calculated on the total value).  

3.2 Introduction of Interest on Late Payment of Duty (Effective as from 1 January 2020)

Interest on late payment of duty will be charged at a rate to be determined by the Minister. Several articles were amended, with effect from 1 January 2020, to reflect that their breach would result in the levying of interest at a rate prescribed by the Minister.

3.3 Acquisitions of Property for the purpose of establishing own residence (Effective as from 15 October 2019)

Individuals who are not first time buyers and who acquire property for the purpose of establishing their own residence will be subject to duty at the reduced rate of 3.5% on the first €175,000 (increased from €150,000) of the value or consideration, as may apply. Similarly, individuals who acquire the property they occupy by means of inheritance will also benefit from this increase.  This change is effective as of 15 October 2019, and appears to align these articles with the first time buyers scheme, as recently amended.

3.4 Extension of exemptions to partnerships (Effective as from 28 June 2019)

With effect from 28 June 2019:

  • the restructuring exemption has been extended to apply to transfers of an interest in a partnership;
  • the blanket exemption from duty on documents and transfers has been extended to cover the transfer of interest in a partnership too; and
  • the value-shifting provisions, including the exceptions thereto, have been extended to cover reductions in the real value of an interest in a partnership.    

3.5 Duty on certain transfers of foreign marketable securities residence (Effective as from 1 January 2020)

With effect from 1 January 2020, duty will not be due on transfers inter vivos of foreign marketable securities held in a property company made to or by any person resident in Malta where duty has been paid outside Malta in the country where the transfer is executed or where the company is registered.

3.6 Extension of deadline for payment post-assessment (Effective as from 1 January 2020)

The deadline for the payment of duty, additional duty or interest following the finalisation and conclusion of an assessment has been extended to 30 days as of 1 January 2020. The amended article also provides that, within 2 days of the lapse of this 30 day period, the Commissioner may register in the public registry or in the land registry, a note of privilege for the amount demanded in the judicial act.

3.7 Power of the Commissioner for Revenue to issue forms and guidelines (Effective as from 1 January 2020)

As of 1 January 2020, the Commissioner will have the power to:

  • Issue forms to be used for the purposes of the DDTA; and
  • Issue explanatory guidelines for these forms and notices. 

4. Value Added Tax Act

The 7-day extension in the filing deadline for online VAT filings contemplated in Article 42. (1) (d) of the VAT Act is no longer subject to the respective tax payment being effected as well. This is in line with the Tax Deferral Scheme announced last Friday (20th March 2020) permitting companies and self-employed to postpone VAT payments without suffering any negative consequences subject to the conditions of the scheme. Hence the online filing of a VAT Return/Form within 7 days from deadline date, without the respective tax payment, should not trigger the administrative penalty for late filing, subject to the conditions of the scheme.

5. Commissioner for Revenue Act

A document that is certified by the Commissioner, or by a person authorised by him for this purpose, as being a true reproduction of an electronic copy, prepared by or under the authority of the Commissioner, of a document that was furnished to or issued by the Commissioner, will be deemed for all purposes of the law as an authentic copy of the original document and shall constitute and be admissible as evidence in any proceedings to the same extent as the original.