Budget Measures Implementation Act
Deloitte Malta Tax Alert
7 May 2018
This tax update highlights the salient legislative measures brought into force by Act VII of 2018, Budget Measures Implementation Act, 2018 (the ‘Act’) enacted to implement the measures announced by the Minister of Finance during his budget speech for the financial year 2018. This tax update also outlines other key relevant legislative amendments recently enacted through various legal notices.
Income Tax Measures
Changes to the final tax regime on transfers of immovable property
The applicable rate of final tax that is levied upon a transfer of immovable property is determined by reference to a number of factors, primarily the date and method of acquisition of the property, as well as the profile of the property being transferred (mainly whether such property forms part of a project or not). In this regard, the following are the salient changes to the final tax system on immovable property transfers:
- The definition of ‘Project’ (comprising property that has been developed by the owner into more than one transferable unit or divided for transfer into more than one transferable portion) has now been amended to exclude ‘land acquired by the owner and divided for transfer into more than one transferable portion, where the land is transferred by the owner in the same state as when it was acquired and no permit has been issued by the Planning Authority during the period of ownership by the owner’.
- Transfer of one’s own residence may be exempt from tax subject to certain conditions being satisfied. This exemption (the ‘main residence exemption’) shall no longer be available where the property being transferred forms part of a project.
- Partitions of immovable property where no owelty is due between the partitioners would generally not give rise to any tax liability. Such exemption is no longer applicable when the partitioned property was acquired by the partitioners from an individual (the original owner) who had availed himself of the main residence exemption.
- When the immovable property being transferred was acquired by an individual either through a tax-exempt donation or through a tax exempt property transfer upon a company liquidation, the date of acquisition, upon a subsequent transfer, is deemed to be the date when the property was originally acquired by the donor/ the liquidated company (as opposed to the date when the property was acquired by the individual).
Other relevant changes
- Any financial assistance received by a parent of a child in respect of the maintenance of that child and paid by the other parent in terms of a public deed regulating the obligations of the parents for the maintenance of that child shall be exempt from Malta income tax.
- Companies carrying on the business of insurance were precluded from claiming and/ or surrendering tax losses in terms of the general group loss relief provisions. Such restriction is no longer applicable and insurance companies are now eligible to apply the group loss relief provisions.
- Payors of qualifying investment income (on which 15% final tax is generally levied) are now also required to render an account to the Commissioner for Revenue of all payments of qualifying investment income made during any particular year by the 31 January of the following year, which account shall include details of the recipient’s name, address and income tax registration number, the amount of investment income paid and the tax deducted.
- The ‘married’ individual marginal tax rates could be applied by unmarried individuals who satisfied certain criteria, mainly where the individual wholly maintained under his/ her sole custody a child who was not over 16 years of age, or if over that age, was receiving qualifying instruction/ apprenticeship, and who in any case was not in receipt of income in excess of €2,400. As a result of these measures, the age threshold has been increased from 16 years to 18 years (or not over 23 years if such child was receiving qualifying instruction/ apprenticeship) and the income cap of the said child has been increased from €2,400 to €3,400.
- Individuals not ordinarily resident or not domiciled in Malta are subject to Malta tax on a source and remittance basis. Such basis of taxation shall no longer be applicable to individuals who are long term residents or who hold a permanent residence certificate/ permanent residence card (as defined in the relevant subsidiary legislation). Furthermore, individuals who are ordinarily resident but not domiciled in Malta and who are in receipt of foreign source income of €35,000 (which is not remitted to Malta), would now be subject to a minimum Malta income tax liability of €5,000 per annum. A lower cap may apply if it can be proved that the Malta tax on the total worldwide income would be lower than the €5,000.
- The 30 June tax payment deadline on qualifying part-time income has been brought forward to 30 April, with effect from year of assessment 2019.
- The 30 June tax payment deadline for the 15% final tax on qualifying rental income under article 31D of the ITA has been brought forward to 30 April, with effect from year of assessment 2019.
Change to the definition of a ‘participating holding’
- Qualifying companies registered in Malta may elect for a tax exemption on certain income or gains derived from qualifying equity investments which satisfy the criteria of a participating holding. The percentage equity holding required for a holding to constitute a participating holding has been reduced from 10% to 5%. Furthermore, qualifying investments now include equity holdings in partnerships or EEIGs that have not elected to be treated as companies for the purposes of the ITA. Any financial assistance received by a parent of a child in respect of the maintenance of that child and paid by the other parent in terms of a public deed regulating the obligations of the parents for the maintenance of that child shall be exempt from Malta income tax.
Duty on Documents and Transfers Act Measures
- No duty shall be charged on the transfer of immovable property or marketable securities between persons who are married to each other, whether the community of acquests exists between them or otherwise, and on any transfer inter vivos of the ordinary residence (or part thereof), of any or both of the spouses.
- Individuals buying their first residential property will continue to benefit from a duty exemption on the first €150,000 for acquisitions taking place during 2018.
- Individuals acquiring a residential property in Gozo by the end of 2018 will benefit from a reduction in the duty rate from 5% to 2% provided that the final deed is executed by the 31 December 2018.
- Acquisitions of property located in an Urban Conservation Area shall be subject to a reduced duty rate of 2.5%, provided that the final deed is executed by the 31 December 2018.
- Individuals who sell their first residential property and acquire another residential property (within 12 months from the sale of the first property) shall be eligible to a refund of duty on the acquisition of the second property up to €86,000 of consideration, provided that such individuals do not own any other residential property at that time. This reduced rate shall apply to acquisitions taking place up to 31 December 2018. The threshold is increased to €150,000 in the event that the second property is acquired by persons who are on the Register of Persons with Disability or their guardians.