Budget Measures Implementation Act, 2020
Key legislative changes
25 March 2020
On 20 March 2020, several of the measures announced in the Malta Budget 2020 speech (the ‘Budget Speech’) were enacted through the promulgation of the Budget Measures Implementation Act, 2020 (the ‘Budget Act’) and connected secondary legislation.
Below is a summary of the key legislative changes resulting from the Act:
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Narrowing the eligibility criteria with respect to the 5% rate on property transfers tax
- A 5% rate on the transfer value on domestic real estate transfers generally applies where the transfer is made not later than five years after the date of its acquisition, and the property does not form part of a project (which includes instances where the said property was, at any time during the preceding 5 years owned by a related person and formed part of a project).
- Pursuant to the Budget Act, the 5% rate shall no longer apply where the transferor (or any related person), at any time in the five years preceding the transfer of the property, carried out on such property any works for which a development permission was required in terms of the Development Planning Act (except for works carried out for which a permission is granted without the need for an application in terms of an order made under the Development Planning Act), unless the transferor had acquired the property for the purpose of establishing sole ordinary residence (and declared such intention in the acquisition deed).
Budget measure on withholding tax on assignments of rights acquired under a promise of sale agreement
- It was announced in the Budget Speech that, with effect from 1 January 2020, the first €100,000 of profit derived on the transfer of any right acquired through a promise of sale agreement shall be subject to a final tax at a reduced rate of 15%.
- On 24 January 2020, the Commissioner for Revenue published a news item elaborating on the proposed measure, with subsequent legislation to be made retroactive 1 January 2020.
- In terms of the Budget Act, an assignment of any right obtained in terms of a promise of sale of immovable property (konvenju), including a promise to alienate immovable property in any manner and a promise of an emphyteutical grant is not regulated by the property transfers tax regime.
- The amended rule empowers the Minister for Finance to issue secondary legislation outlining the manner in which any income arising from such assignments is to be computed, reported and paid.
Provisional tax on transfers of shares in a property company or an interest in a property partnership
- Generally, provisional tax of equivalent to 7% of the consideration is due upon specified transfers of chargeable capital assets.
- As from 20 March 2020, in the case of a transfer of securities in a property company or of an interest in a property partnership, the provisional tax payment shall be equivalent to an amount to be prescribed, capped at 35% of the higher of the market value and the consideration for the transfer.
Tax on overtime work
- As from 1 January 2020, income derived by an individual that represents qualifying overtime income shall be subject to tax at a rate of 15%.
- The income tax charged in terms of this regime shall, unless otherwise elected, be final and shall not be available as a credit or set-off against the tax liability of any person or as a refund.
- Secondary legislation is expected to further define eligibility requirements and the manner in which such election is to be exercised.
Separate return election for married couples
- As of year of assessment 2021, eligible married couples may make a separate return election, in terms of which, the income of each spouse shall be charged to tax in the name of the respective spouse separately from the income of the other spouse.
- Each spouse shall be responsible for complying with the provisions of the Income Tax Acts relating to the submission of returns and the ascertainment of income.
- Special rules apply with respect to eligibility to claim deductions, roll-over relief, rental income subject to final tax and investment income.
Widened definition of “company”
- The income tax law concept of “company” has been extended to include any form of cell company as defined in any regulations made in terms of the Companies Act.
- In particular, the amendment brings incorporated cells of SICAVs within the scope of the ITA definition of “company”.
- This amendment also complements the recently introduced article 84E of the Companies Act, which empowers the Minister for Finance to make regulations to provide for the formation, constitution and regulation of cell companies carrying on, or engaged in, shipping or aviation business.
- Consistent with the position under the pre-2020 definition, every cell of a cell company, and that part of a cell company in which non-cellular assets are held, shall each be deemed to be a separate company for Malta income tax purposes.
Amendment to general rule on deductibility of interest
- The wording of article 14(1)(a) of the Income Tax Act has been overhauled to align with the terminology used in the interest deduction limitation rule regulated by regulation 6 of the EU Anti-Tax Avoidance Implementation Regulations.
- The amendment shall have effect from 1 January 2019.
Repeal of optional enhanced deduction on expenditure on scientific research
- The option allowing taxpayers to deduct 150% of qualifying expenditure on scientific research has been repealed with effect from 1 January 2019.
Duty on Documents and Transfers
Acquisitions by individuals of sole ordinary residence
- A reduced rate of 3.5% is applicable to the first €175,000 (previously €150,000) of the value or consideration paid by qualifying individuals acquiring immovable property to establish their sole, ordinary residence.
- The amendment has effect from 15 October 2019.
Transfers of partnership interests
- The Budget Act addresses a number of historical structural inconsistencies between the stamp duty rules regulating the transfer of marketable securities and the transfer of partnership interests, respectively.
- In particular:
- Re-organisation relief, where applicable to transfers of marketable securities, has been extended to transfers of partnership interests.
- The value-shifting provisions, where applicable to transfers of marketable securities, have been extended to encompass any reduction in the real value of an interest in a partnership.
- Exemptions on stamp duty regulated by article 47 of the Duty on Documents and Transfers Act have been extended to cover acquisitions and disposals of interests in partnerships.
Transfers of foreign marketable securities in property companies
- Previously, Malta stamp duty was chargeable on transfers inter vivos, whether executed in Malta or outside Malta, of foreign marketable securities in a property company made to or by any person resident in Malta.
- In terms of the Budget Act, no Malta stamp duty shall be chargeable where duty has been paid outside Malta in the country where the transfer is executed or where the company is registered.
Amendments to the interest and penalties regime
- The Budget Act has introduced a number of amendments to the ruleset concerning interest and penalties.
- The amended interest rates are to be defined in secondary legislation to be published by the Minister for Finance in due course.
- With effect from 15 October 2019, additional duty equivalent to 20% of the amount of duty assessed by the Commissioner for Revenue, plus interest, shall be due where the Commissioner for Revenue determines that the value expressed or declared in a document is lower than the real value at the time of execution of the document.
Value Added Tax
Payment of Value Added Tax
- The seven day extension applicable to online VAT return filings is no longer contingent on the corresponding VAT payment also being made.
- Accordingly, the online filing of VAT returns within 7 days from the standard VAT return deadline, without making the corresponding VAT payment, shall not trigger an administrative penalty for late filing of the VAT return.