Budget Measures Implementation Act, 2024

On 2 April 2024, the Budget Measures Implementation Act, 2024 (‘Budget Act’) was introduced to implement several of the measures announced in the Malta Budget 2024 speech, with measures coming into force, unless otherwise stated, on 2 April 2024.

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’), the Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta (‘DDTA’), the Value Added Tax Act, Chapter 406 of the Laws of Malta (‘VATA’) and the Social Security Act, Chapter 318 of the Laws of Malta (‘SSA').

Reduction in property transfer tax and stamp duty due on transfers of properties leased at affordable rates

The special tax rate regulated under article 5A(5) of the ITA and article 32G(1) of the DDTA has now been extended to include additional rent schemes. Transfers involving property satisfying certain conditions benefit from a special tax rate of 0% on the first €200,000 of the transfer value, while normal rates apply on the excess thereof. The requisite conditions are the following:

1. The transfer of property takes place on or after 1 January 2022;
2. The property had been leased for a minimum period of 10 years;
3. The transfer is made to the tenant;
4. The tenant was entitled to a benefit in respect of that lease under:

a. The Private Rent Housing Benefit; or
b. The Nikru Biex Nassistu Scheme; or
c. The Rehabilitation of Vacant Dwellings for Rent Scheme.

Prior to this amendment, the only scheme recognised for this benefit was the Private Rent Housing Benefit. These provisions shall be deemed to have come into force as from the year of assessment 2025.

Deductions in respect of intellectual property and intellectual property rights

During last December, the Commissioner for Tax and Customs (‘CfTC’) issued a notice whereby it was announced that, with effect from the period covered by the year of assessment 2024 (i.e., basis year 2023), any expenditure of a capital nature incurred on Intellectual Property (‘IP’) or IP rights may, at the option of the person that has incurred such expenditure, be deducted in full (as opposed to over a minimum period of three consecutive years) in terms of article 14(1)(m) of ITA in the year in which the said expenditure has been incurred or in the year in which the IP or IP rights are first used or employed in producing the income.

Article 14(1)(m) of the ITA has now been amended to state that any such expenditure may be deducted in the year in which the said expenditure has been incurred or the year in which the IP or IP rights were first used or employed in producing the income of such person, subject to such conditions as may be prescribed.

Personal deduction for school transport fees

The provision allowing for a deduction of up to €150 per child in relation to school transport fees set out in article 14H of ITA has been removed and is no longer applicable as of the year of assessment 2025 (i.e. basis year 2024).

Extension of the reduced rate of tax on income derived from qualifying sports activities

In terms of article 56(26) of the ITA, the special tax rate of 7.5% previously limited to qualifying players, athletes and coaches deriving income from a qualifying sports activity has now been extended to include other individuals such as match officials and sports administrators, subject to certain limitations and conditions as the Minister responsible for finance may prescribe.

Clarification on the one year period to give notice to the CfTC on causa mortis stamp duty exempt transfers of dwellings

A clarification to article 35(4) of the DDTA was introduced regarding the one-year period for cases subject to litigation. In a nutshell, the exemption on stamp duty on property transferred causa mortis to descendants when such property was the ordinary residence of the person from whom the transfer originates shall only be available 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 CfTC 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.

The clarification provides that where, in a situation where the right of the person making the causa mortis declaration has been subjected to litigation and a copy of any such judgement in its regard is attached to the notice required to be provided to the CfTC in accordance with article 33 of the DDTA, the said period of one year shall be reckoned to run from the date on which the said judgment became res judicata (i.e. the subject of a final judgement).

Exemption on stamp duty on causa mortis transfers of qualifying agricultural land

Stamp duty on causa mortis transfers of qualifying agricultural land which is leased or cultivated by professional farmers has been removed through the addition of sub-articles to article 35 of the DDTA. To qualify for this exemption, the land must satisfy the following criteria:

(i) It constitutes immovable property situated in Malta;
(ii) It is certified with the competent authority responsible for the agriculture land lease and ownership register with the Ministry responsible for agriculture;

and

(iii) At the time of the transfer:

a. An agricultural activity as defined by the Agricultural Act is being undertaken by an heir who classifies as a professional farmer; or
b. Is leased in accordance with the provisions of the Agricultural Leases (Reletting) Ordinance and is registered with the competent authority.

(iv) Before the lapse of five years from the date of transfer causa mortis, no transfer inter vivos is made of the land in question, unless to a co-owner who is a professional farmer.

Time limit for certain non-established taxable persons to register for VAT purposes in Malta

Article 10(4) of the VATA specifies the time by which a non-established taxable person should register for VAT purposes in Malta i.e. within 30 days from when the first supply for consideration is made.

Pursuant to the Budget Act, this sub-article has been amended to include a provision which allows a non-established taxable person intending to make use of the One Stop Shop (OSS) special scheme to be relieved from its VAT registration obligation when the said person notifies the CfTC accordingly within 10 days from the date of the first relevant supply.

Corrections to tax periods covered by an assessment

The Budget Act introduced two new sub-articles to article 28 of the VATA (relating to adjustments to tax returns) with the aim of clarifying the procedure applicable with respect to corrections in relation to tax periods covered by a provisional assessment:

• Article 28(3) of the VATA provides that when a provisional assessment is served, the relevant taxable person may not correct any of the VAT returns impacted by the provisional assessment until the said provisional assessment is either confirmed or cancelled by the CfTC.
• Article 28(4) of the VATA provides that any corrections required to be made after an assessment shall be subject to the pre-approval of the CfTC.
  

Clarification on the time limit applicable to appeals against a decision by the Administrative Review Tribunal

Article 47 of the VATA clarifies the time limits within which a party may appeal to sentences adjudicated by the Administrative Review Tribunal (‘Tribunal’). Pursuant to the enactment of the Budget Act, the aggrieved party may appeal against that decision (purely on a question of law) within 30 days from the date of the service of the decision appealed from, however by not later than 183 days from the date of the decision by the Tribunal or, for decisions delivered before 1 January 2024, by not later than 30 June 2024.

Record keeping requirements by taxable persons

For the first time in the history of Maltese domestic VAT legislation, an explicit VAT anti-abuse provision has been introduced to address situations involving, in particular:

• Artificial / fictitious schemes which directly or indirectly result in the accrual of a tax advantage, which shall be disregarded; and
• Blocking of input tax recovery on supplies which have been the subject of VAT fraud anywhere in the supply chain where the taxpayer knew (or should have known) of this fraud, and this irrespective of whether the taxpayer was actually involved in the fraud.

In such situations, the CfTC may re-evaluate the declared VAT liability or VAT refund and may also impose statutory interest and/or administrative penalties in relation thereto.

Offences and punishments

Article 76 of the VATA lists a number of offences which may trigger liability to a fine of a criminal law nature on the person convicted. With specific reference to the offences mentioned in paragraph (c) of this article, the offender may also be ordered to ensure compliance with the law within a set time limit in order to avoid being liable to the payment of a further fine of €5 for every day that the default continues after the lapse of such time as fixed by the court.

Pursuant to the enactment of Budget Act, the list of offences laid out in the above-mentioned paragraph (c) has been broadened to include, besides failure to file VAT returns, failures in furnishing additional returns / statements (such as recapitulative statements) or other information, when required to do so.

VAT interest paid to the CfTC is no longer deductible

Prior to the Budget Act, Article 74 of the VATA provided that interest paid or payable under the VATA by any person to the CfTC shall be treated as expenses incurred in the production of the income of that person. Therefore, such interest was treated as deductible for income tax purposes.

The provision has been deleted; consequently, as of the implementation date of the Budget Act, interest incurred on late paid VAT is typically no longer deductible for income tax purposes.

Calculation of contributory pension in the event of a commutation of a service pension

As of 1 January 2024, in the event that an individual would have opted for a commutation of a service pension in part thereof and as a result would have seen a reduction in his contributory pension rate, such commutation of a service pension shall no longer be taken into consideration for the purposes of calculating the contributory pension after 12 years from when the service pension is paid or if the pensioner would have reached 72 years of age, whichever is the earlier.

Credited contributions

Mothers who commence insurable employment after giving birth shall be entitled to the same credited contributions as contemplated within the provisions of article 16(2)(d) of the SSA.

Increased sickness benefit

Where an individual undergoing any major surgical operation, suffering severe injuries or being afflicted by a disease requiring long-term treatment makes a claim for sickness benefit in terms of article 18 of the SSA, may benefit from an increased rate of sickness benefit equivalent to the national minimum invalidity pension, for approved days in excess of the first 156 days, within any two-year period.

Invalidity pension to persons suffering from mental health

As of 1 January 2024, persons suffering from mental health who have been undergoing regular treatment for at least three years for conditions, which have been certified by a psychiatrist, may be entitled to the full rate of an invalidity pension, increased invalidity pension or national minimum pension, as the case may be, subject to satisfying certain conditions in terms of the actual social security contributions paid.

Reassessment of pensions

The provisions set out in article 59(7) of the SSA, have been widened to include the annual re-assessment and increases to pensions of persons born on or before 31 December 1961.

Additional benefits, allowances and bonuses

As of 1 January 2024, a special allowance may be granted to a household in respect of every child over the age of 16 who is pursuing post-secondary education in a recognised educational institution, and who still lives with the parents in the same household, irrespective of whether the student receives remuneration, allowance or is gainfully occupied.

The one-time payment granted to a parent for the birth or adoption of the first child has been increased to €500, and €1,000 for every subsequent birth or adoption.

Persons who have reached retirement age but do not qualify for a contributory pension may be entitled to a yearly bonus of €500 or €600 and dependent on the number of contributions actually paid, an increase of €50 from 2023.

Families whose disposable equivalised income, dependent on the number of family members within that household, is below the national median may be awarded an additional benefit, which for the year 2024 shall be between €100 and €1,500, to counter the cost of living.