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Budget Measures Implementation Act, 2022

Deloitte Malta Tax Alert

14 February 2022

On 8 February 2022, several of the measures announced in the Malta Budget 2022 speech were enacted through the Budget Measures Implementation Act, 2022 (‘Budget Act’) with measures coming into force, unless otherwise stated, on 8 February 2022.

Below is a summary of the key legislative changes resulting from the Budget Act in connection with the Income Tax Act, Chapter 123 of the Laws of Malta (‘ITA’) and the Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta (‘DDTA’):

Definition of “industrial building or structure”

  • The definition of a “car park” within the term “industrial building or structure” for the purposes of the ITA has been extended to car parks whose operations by any such person involves substantial activity, having regard to the capital employed, the organisation of the operation and the income it generates.

Recognised stock exchanges

  • Several references to stock exchanges recognised by the Financial Markets Act, Chapter 345 of the Laws of Malta (‘FMA’), throughout articles 5, 5A, 12 and 41 of the ITA and articles 32, 42, 42B and 42C of the DDTA have been amended to refer to stock exchanges recognised by the Commissioner for Revenue (‘CfR’) for the purposes of such provisions within the respective provisions of the ITA and the DDTA.

Reduced property transfer tax and stamp duty on transfers of property leased at affordable rates

  • Pursuant to the Budget Act, a transfer that is made on or after 1 January 2022 where:
    • the property transferred had been leased for a period of at least 10 years ending on the date of the transfer; and
    • during that whole period of 10 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
    • that transfer is made to the tenant of that property,

no tax under article 5A of the ITA nor duty in terms of the DDTA shall be chargeable on the first €200,000 of the value of the transferred property and the tax and duty on the excess, if any, shall be chargeable at the rate that would have otherwise applied.

  • When a transfer satisfies the three conditions referred to above except that:
    • it is not made to the tenant but to another person; or
    • the period during which the tenant was entitled to the said benefit was less than 10 years but not less than three years;

the tax under article 5A of the ITA and the duty in terms of the DDTA on the first €200,000 of the value of the property shall be chargeable at the rate of one half of the rate that would have otherwise applied and the tax and duty on the excess, if any, shall be chargeable at the rate that would have otherwise applied.

  • The reduced rate shall apply only if the parties to the transfer or any of them produces to the notary who publishes the deed of the transfer 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 notary shall make a reference to that document in that deed and shall produce that document to the CfR together with the notice of the transfer referred to in article 51 of the DDTA.
  • Furthermore, the reduced stamp duty rate 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, Chapter 246 of the Laws of Malta, or who would have required such permit had the property acquired not been situated in a special designated area.

Clarification on the tax exemption on gains or profits derived by non-residents

  • In terms of article 12(1)(c) of the ITA, certain gains or profits derived by non-residents when realised on the transfer of units in collective investment scheme, units relating to long-term insurance policies, interests in a partnership, and shares or securities in a company are exempt from income tax in Malta unless the partnership or company’s assets consist wholly or principally of immovable property situated in Malta.
  • This exemption has been clarified and now also refers to “transfers of any rights over” the above-mentioned assets.

Introduction of a limitation on deductions relating to expenditure of a capital nature on intellectual property or any intellectual property rights.

  • In terms of article 14(1)(m) of ITA, there shall be deducted any expenditure of a capital nature on intellectual property (‘IP’) or any intellectual property rights (‘IP rights’) incurred by a person, to the extent the IP or IP rights are proved to have been used or employed in the production of the income of such person.
  • Any such expenditure of a capital nature shall be spread equally over a number of years, but at least over a period of three consecutive years, the first year being that in which the expenditure has been incurred or the year in which the IP or related IP rights are first used or employed in producing income.
  • The Budget Act has introduced a new limitation provided that when the IP or IP rights were transferred to the said person (‘Acquirer’) by a company (‘Transferor’) and it was deemed in terms of article 5(9) of the ITA that no loss or gain arose from that 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 claimed as a deduction in terms of this paragraph in respect of the property or rights that have been transferred.

Clarification on school fees deductions

  • Article 14B of the ITA allows for the deduction of qualifying school fees for Malta income tax purposes subject to the satisfaction of a number of requirements stipulated therein.
  • Pursuant to the Budget Act, reference to “a school named by the Minister” has been substituted to refer to “a licensed independent school, as confirmed by the Minister responsible for education”.

Clarification on trusts electing to be treated as a company

  • In terms of article 27D of the ITA, resident trustees may, in certain instances and subject to the satisfaction of a number of formalities, make an election to be treated as companies for Malta income tax purposes.
  • The Budget Act clarifies that trustees making in an election in terms of article 27D of the ITA include trustees that have been granted authorisation under article 43(3) of the Trust and Trustees Act, Chapter 331 of the Laws of Malta (‘TTA’) as well as trustees that are not required to obtain such authorisation in terms of article 43(6) of the TTA.

Removal of claw-back rule in relation to persons resident in Malta becoming beneficially entitled to the profits of an entity that applied a notional interest deduction

  • In terms of article 43 of the ITA, a number of claw-back provisions may find application where a person resident in Malta becomes entitled to the profits of an entity that has applied a deduction in terms of the Notional Interest Deduction Rules, Subsidiary Legislation 123.176.
  • Pursuant to the Budget Act, the specific claw-back provisions and references related to such provisions throughout the ITA (such as the investment income provisions) have been removed.

Introduction of a limitation on the reduced tax rate applicable to overseas employment

  • In terms of article 56(17) of the ITA, an optional 15% tax rate is applicable to individuals deriving employment income payable under a contract of employment requiring the performance of work or of duties mainly outside Malta, excluding any service on board a ship, aircraft or road vehicle owned, chartered or leased by a Maltese company and any service for the Government of Malta, and received in respect of work or duties carried out outside Malta, or in respect of any period spent in Malta in connection with such work or duties, or on leave during the carrying out of such work or duties.
  • The Budget Act introduced the following two limitations in relation to the application of this rate:
    • The 15% shall not apply to emoluments payable under a contract of employment for a period of less than 12 months or that lasts less than 12 months;
    • In addition, the 15% shall also 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 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.

New 7.5% rate on income derived by individuals working in the art, culture and entertainment sectors

  • With effect from the year of assessment 2023, an individual who derives income from a full-time or part-time artistic activity shall have the 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. The tax chargeable shall be final and no set-off or refund shall be granted to any person in respect of the tax so charged.
  • Income shall be deemed to have been income derived from an artistic activity if it has been so certified by the Arts Council Malta established by the Arts Council Malta Act, Chapter 542 of the Laws of Malta, in a statement produced to the CfR on such form and in such manner and within such time as the CfR may approve.
  • In this regard, the Minister for Finance 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.

Reduced tax rate on qualifying part-time income

  • With effect from the year of assessment 2023, the rate of tax on income from part-time in terms of article 90A of the ITA shall be reduced from 15% to 10%.

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