VAT highlights

Reduced VAT rate for books disseminated through electronic means | Abolishment VAT registration exemption | 2015 changes to the VAT rules | Remission of interest and administrative penalties | Reduction of interest rate | Proposal for (new) VAT rules on vouchers

An overview of Malta VAT developments

Last updated: May 2017

Reduced VAT rate for books disseminated through electronic means

The Malta VAT rate applicable to books disseminated through electronic means was reduced from 18% to 5% to bring them in line with the VAT rate that applies to books published in paper format. The measure was set to take effect retroactively, as from 1 January 2015.

The reduced rate applies solely to books supplied on physical means of support (such as audio books or books published on CDs, DVDs, SD-cards or USB drives). In accordance with the provisions of the EU VAT Directive and the Court of Justice of the European Union’s decisions in the cases referred to it by the European Commission in connection with the application of a reduced VAT rate to e-books by Luxembourg and France, the reduced rate does not apply to e-books downloaded/streamed from the internet or, more generally, to electronically supplies services.

Abolishment VAT registration exemption

With effect from 1 January 2015 the rules regarding VAT registration for established persons have been amended. The VAT registration threshold for persons (whether natural or legal persons) established in Malta was abolished (previously a €7,000 annual turnover threshold applied). As a consequence, these persons have to obtain a VAT registration as from their first VAT transaction in Malta.

As a transitory measure, taxable persons providing taxable or exempt with credit supplies of goods/services that are currently not VAT registered must register or re-activate a previously held VAT number by 30 June 2015.

This measure will not impact non-established persons, as there is no threshold for their VAT registration in Malta.

2015 Changes to the VAT rules

Since 1 January 2015, telecommunications, broadcasting and electronic services supplied to private consumers (private individuals / non-taxable persons) in the EU are taxable in the Member State of the customer. B2C suppliers of telecommunications, broadcasting and electronic services have to charge VAT, if any, to their customers at the rate applicable in their customers’ Member State.

Deloitte Malta's newsletters and publications relating to VAT 2015 provide information on the changes to the rules, as well as updates on any official guidance and other developments.

More detailed information on the 2015 changes to the place of supply rules.  

Remission of interest and administrative penalties

Remission of interest...

On 28 March 2014, rules for the remission of interest (due by virtue of late payment of Malta VAT) had been introduced. In terms of these rules, the Commissioner for Revenue may, at his discretion, remit wholly or in part, any interest incurred by a taxpayer by virtue of late payment of VAT due if he is satisfied that the VAT due was not paid due to a reasonable cause.

... and administrative penalties.

The scope of the rules has now been extended to also cover administrative penalties that may become due under any of the provisions of article 37 to 41 of the Malta VAT Act (i.e. administrative penalties that may become due – for example – for reasons of failure to (timely) register for VAT, failure to (timely) submit a VAT return / recapitulative statement, failure to correctly declare VAT due in a VAT Form 004, etc.).

The Commissioner of Revenue may impose additional conditions to allow the reduction of such interest. Conditions may include:

  • the requirement for no further defaults within a specified period; and
  • the requirement to pay the outstanding VAT amount within a specified period.

It may also be possible to agree a payment plan with the VAT Department in respect of any outstanding VAT amounts. Where a payment plan does not exceed two years, interest may be suspended from the date a person enters into such a plan.

Reduction of interest rate

The rate for interest due on VAT which is not paid by the date on which it becomes payable was reduced to 0.54% (interest is due per month or part thereof during which VAT payable remains unpaid). Previously, the rate was set at 0.75%. The new rate became applicable as of 1 January 2014 and also applies to VAT that is refundable to a VAT registered person, where such refund is not paid within the time prescribed by law.

Proposal for (new) VAT rules on vouchers

Despite vouchers being a booming business in Europe, Directive 2006/112/EC (‘the VAT Directive’) does not specifically provide for rules on the treatment of transactions involving vouchers. In the absence of common rules, EU Member States have developed their own solutions, however, inevitably inconsistent. Since uncertainty about the correct VAT treatment can be problematic for cross-border transactions and for chain transactions in the commercial distribution of vouchers, the European Commission is proposing to update the EU VAT rules to ensure a uniform VAT treatment of all types of vouchers across all EU Member States.

Under the proposed new rules, the different categories of vouchers would be clearly defined, distinguishing between Single-Purpose Vouchers, Multi-Purpose Vouchers and Discount Vouchers, and the point of taxation for voucher transactions would be harmonized, to prevent mismatches which result in double taxation or double non-taxation. The time of taxation will be determined by the nature of the voucher, thereby clarifying whether the VAT should be charged when a voucher is sold or when it is redeemed for goods and services.

The new rules draw a clear line between vouchers and other means of payment. In particular, the growing number of mobile devices makes it necessary to distinguish between prepaid telecom credits (which are vouchers) and mobile payment services (which are taxed differently). Changes in payment technology, notably the increasing use of mobile payments, require that any room for confusion is removed.

The proposed Directive further sets up common rules for the distribution of vouchers in a chain of intermediaries, especially where this extends across two or more EU Member States and includes a number of other technical measures to deal with the right of deduction, redemption and reimbursement procedures, the person liable for payment of the VAT and other obligations for businesses.

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