Recent amendments to the Fringe Benefits Rules
Deloitte Malta Tax Alert
This tax update highlights the salient legislative measures brought into force through Legal Notice 205 of 2017 (see Government Gazette of Malta No. 19,843 – 08.08.2017), Fringe Benefits (Amendment) Rules (the ‘Legal Notice’) which amends the Fringe Benefits Rules, S.L. 123.55 (the ‘Fringe Benefits Rules’). The contents of the Legal Notice are to be construed as one with the Fringe Benefits Rules.
- The definition of a controlling position in a company has been extended so as to include an individual who holds, directly or indirectly, shares in an associated company (>50% relationship), whereby such holding together with the direct or indirect holding of that person’s family members represents more than 50% of the ordinary share capital or voting rights in that company.
- A clarification has been introduced as to the country of source in the case of a benefit arising as a result of an employment or office. In terms of the Legal Notice, the country of source shall be the country where the services in terms of the relative contract of employment or office are wholly or principally performed.
- In the case of benefits arising by reason of directorship, such benefits shall be deemed to arise in the country where the company of which the individual/s is/ are a director/s is managed and controlled.
- Vans have been excluded from the definition of a vehicle for the purposes of the Fringe Benefits Rules. Accordingly, the private use of a van shall be deemed to have no value for the purposes of the Fringe Benefits Rules.
- · When calculating the private use percentage of a vehicle, the percentage of the fringe benefit value taken into consideration in cases when the vehicle value is €16,310 or less, has been reduced from 20% to 0%. This applies in cases when the vehicle is used wholly or mainly for point to point services by an employee who is a salesman or a support person in the performance of his duties or for such other similar services, as may be approved by the Commissioner for Revenue (the ‘CR’).
- For the purposes of determining the value of the fringe benefit, in the event of immovable property held by a person under the title of either a perpetual or temporary emphyteusis, the cost of the immovable property shall only consist of the price or premium, if any, paid/payable in accordance with the deed of emphyteusis. In terms of the Legal Notice, an increase to the cost of immovable property equivalent to five times the ground rent payable is no longer applicable.
- A new provision has been added which determines the annual value of the benefit arising from the private use of property which is held under the title of emphyteusis. This shall be the higher of (i) 5% of the market value and (ii) the total of 5% of the cost of the said property and an amount equivalent to the annual ground rent.
- The benchmark rate of interest on loans granted by a bank set up or licensed under Maltese law, or else by a financial institution authorised to lend money to the general public under Maltese law to an employee of such bank or financial institution, shall now be the rate on the main refinancing operations as applied by the Central Bank of Malta, as prevailing at the end of the previous calendar year. Prior to the introduction of the Legal Notice, the central intervention rate was applied.
- In all other cases, the benchmark rate of interest on other loans has been reduced from 8.5% to 6.5% by way of the Legal Notice. Furthermore, as a result of the Legal Notice, no fringe benefit shall be deemed to arise in cases where a loan is granted to a shareholder who holds more than 25% of the ordinary share capital and voting rights of that same company.
- In terms of the Legal Notice, when determining the fringe benefit arising on the acquisition by an individual of a motor vehicle from a company for no consideration, or for a consideration which is less than the value of that motor vehicle, the excess of the market value of the motor vehicle, over the consideration paid by the person acquiring the said motor vehicle, shall be reduced by the total value of the fringe benefit which was brought to tax at the level of the person acquiring the said motor vehicle, provided that such value is not reduced to less than zero.
- In terms of the Legal Notice, the value of a benefit under a share option scheme shall now amount to the excess, if any, of the price which the shares would fetch if sold in the open market on the date when the benefit is provided over the price paid/ payable by the beneficiary for those shares. The value attributable to the benefit shall constitute chargeable income which is separate and distinct from any other chargeable income derived by the beneficiary, and shall be subject to tax at the rate of 15%. Prior to the introduction of the Legal Notice, the value of the benefit under a share option scheme was 42.85% of the excess, if any, of the price which the shares would fetch if sold in the open market on the date of the exercise of the option over the option price of those shares. The value attributable to such benefit would then be added to the chargeable income of the beneficiary for that particular year of assessment and charged to tax at the individual’s progressive rates of tax.
- A number of changes were made in connection with benefits considered to fall outside the scope of the Fringe Benefit Rules, and therefore not subject to Malta tax, including amendments to the cost of providing health insurance to employees. The amended provision states that the cost incurred by a company in providing insurance against expenses for medical treatment or an insurance policy under which a benefit is payable only in the event of a death or injury under a scheme generally available to employees shall not result in a fringe benefit, provided that the amount which is not deemed to constitute a fringe benefit shall not exceed 3 times the cost of providing insurance to any other beneficiary under that same scheme.
- Furthermore, the following shall not be considered to constitute fringe benefits:
- Reimbursements for the use of mobile phones or facsimile machines;
- Certain health related costs such as medical examinations, medical care, medicine and treatment and individual/ group counselling relating to safe work practices, stress management, drug/ alcohol abuse;
- Relocation costs incurred by or else reimbursed to an employee in order to settle in a country, other than his country of residence, for the purpose of taking up a new employment or posting that lasts or is expected to last for at least 12 months, or to resettle in his country of residence upon the termination of that employment or posting, including the cost of the journey of the employee and of his spouse and dependent children and the cost for the transportation of furniture and personal effects but not including accommodation costs;
- Costs of journeys between work shifts in the event where an employee returns to his country of residence immediately upon the end of a work period and the cost of a journey from the country of residence to the country where the employee is expected to resume his duties for the next work period. For the purposes of this, a work period means a recurrent period normally lasting for not more than 4 weeks, during which the employee is required to report daily for work. Such period shall be followed by a rest period which is normally at least equivalent to 1/3 of the work period. However, the CR may recognize any other period as a work period for the purposes of this rule; and
- Reimbursements of expenses incurred by an employee in connection with air travel between Malta and Gozo, and vice-versa. This was previously limited to travel by sea
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