Budget Measures Implementation Act, 2023

On 4 April 2023, several of the measures announced in the Malta Budget 2023 speech were enacted through the Budget Measure Implementation Act, 2023 (‘Budget Act’) with measures coming into force, unless otherwise stated, on 4 April 2023.

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’), the Income Tax Management Act, Chapter 372 of the Laws of Malta (‘ITMA’) and the Value Added Tax Act, Chapter 406 of the Laws of Malta (‘VATA’).

Increase in allowable deductions for sports and cultural activities

In terms of articles 14E and 14G of the ITA, a person who has paid fees in respect of his children who have not attained the age of 16 years shall be allowed a deduction for tax purposes of a maximum of €300 (up from €100), subject to the amount actually being paid and to the satisfaction of the Commissioner for Revenue (‘CfR’), in relation to their attendance at the following activities:

• Sports activities organised either by a person registered under the Sports Persons (Registration) Regulations, Subsidiary Legislation 455.03 or by the Kunsill Malti għall-Isport (known as SportMalta);
• Creative or cultural courses organised by institutions or persons licensed or accredited by the Malta Council for Culture and the Arts; and
• Attendance at the above activities organised by entities outside Malta where the claim for deduction shall be made directly by the individual concerned in such format and content as determined by the CfR.

These provisions shall be deemed to have come into force as from the year of assessment 2024.

Extension of the provision governing the tax treatment of mergers, divisions of companies, etc.

In terms of article 27A of the ITA, the Minister of Finance is delegated with the authority to make rules regulating the tax treatment of companies (and their shareholders or members) and other similar bodies or persons concerning mergers, divisions of companies, transfer of assets between companies and exchange of shares concerning companies.

Pursuant to the Budget Act, reference to the “transfer of assets between companies” has been broadened to capture “transfer of assets between companies, a transfer between a company and a person who is related to it in such manner as may be prescribed”.

Reduced rate of taxation on royalties derived from qualifying literary works

The tax on royalties derived by an individual in his capacity as author of a qualifying literary work in terms of article 31F of the ITA shall be reduced to the rate of 7.5% of the gross amount of the royalties when the royalties are derived on or after 1 January 2023, as opposed to the rate of 15% on royalties derived preceding this date.

This provision shall be deemed to have come into force as from the year of assessment 2024.

Application of the 7% provisional tax payment to the (deemed) transfer of an interest in a partnership

The scope of the 7% provisional tax payment in terms of article 43 of the ITMA has been extended to also apply to gains or profits arising on a transfer of a full or partial interest in a partnership and any alienation of any such full or partial interest in a partnership, calculated by reference to the higher of the market value and the consideration.

The CfR may authorise the payment of provisional tax at a rate lower than 7% if it can be proved that the gain derived is less than 20% of the higher of the market value or the consideration, as the case may be.

In the case of a deemed transfer of an interest in a partnership from the other partners (i.e. where a person acquires or increases a partnership share), then the provisional tax payment shall be calculated by reference to the gains or profits arising on such a deemed transfer.

Clarification on the application of the 0.6% interest rate for tax payments

By means of Legal Notice 228 of 2022, an interest rate on late tax payments of 0.6% was introduced. References to such interest rate have now been included in the principal act itself (i.e. the ITMA), clarifying that such interest rate finds application in the following situations:

To taxpayers in terms of the relevant provisions of the ITA when the date by which the tax shall be payable in terms of the relevant provisions of the ITA is 31 August 2022 or a later date. In such cases, the rate of 0.6% shall apply for every month or part thereof during which the tax remains unpaid.

To the CfR on any repayment of tax that becomes due as from the date it becomes due for every month or part thereof for which it remains unpaid for any period or part thereof commencing on or after 1 September 2022.

Additionally, the 14-day time limit for the payment of a refund due by the CfR may be extended by another period of 12 months if the CfR so requires in order to carry out further verifications for due diligence purposes.

Clarification on the ‘due date’ in terms of the collection of tax after an objection or appeal

Pursuant to the Budget Act, an amendment was made to article 45 of the ITMA concerning the collection of tax after the determination of an objection or appeal which ascertains that the due date is deemed to be the relevant tax settlement date, and therefore interest shall accrue on any unpaid tax following such a tax settlement.

Introduction of an obligation to provide information for VAT purposes upon a request by the CfR

A new provision provides that the Minister for Finance may prescribe requirements for any person to retain and furnish the CfR with such information as may be required to combat VAT fraud. We understand that this is an enabling provision for the introduction of rules implementing the EU CESOP reporting requirements for payment services providers (PSPs).

A new administrative penalty has been introduced whereby in a situation where this information is not furnished within the prescribed time limit, the person in default shall be liable to an administrative penalty of €50 for every month or part thereof that elapses from the date by which the information should have been furnished in accordance with the VATA and the date when it is actually furnished to the CfR. The total administrative penalty shall in no case exceed €600 for every time the information is not duly provided.

Increase in administrative penalties relating to VAT recapitulative statements

The administrative penalties applicable to late filing of VAT recapitulative statements have been increased significantly to €50 (from €10) for every month or part thereof, with a maximum penalty of €600 (from €120) for each late VAT recapitulative statement. This significant increase in penalties reinforces the Malta tax authorities’ previously stated intention to actively enforce taxpayers’ compliance with VAT recapitulative statement filing obligations and to penalise non-compliance.