On 20 March 2020 numerous measures announced in the Budget Speech were enacted by means of Budget Measures Implementation Act. Here is a short summary of the legislative updates:

Income Tax

Income tax on overtime

From 1^st January 2020, taxpayers may opt to have his/her qualifying overtime income subject to tax of 15%. The tax will be final unless a taxpayer elects otherwise.

Separate tax return option for married couples

With effect from year of assessment 2021, each spouse may make an election to file a separate income tax return, which can be availed of, if:

• During the year in which the election is made, the income of each of the spouse consists of income derived from a trade, business, profession or vocation, from employment income (excluding directors fees); or from a pension received in relation to past employment; OR
• The married couple has agreed by means of a public deed that any property they acquire during marriage will be governed by the system of separate property or by the system of community of residue with separate administration in terms of Maltese or foreign law and that system still applies to them at the time the election is made.
  • 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.

Cell Companies

The definition of a company under Article 2 of the ITA has been amended so as to embrace the new definition every cell of a cell company and that part of a cell company in which non-cellular assets are held shall be deemed to be a separate company. This amendment is line with recent amendment to 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.

Due to this amendments each cell and the non-cellular part of a cell company will be deemed as a taxable legal person. Therefore each cell and non-cellular part of a company would need and become subject to: separate registration for income tax purposes, TIN and income tax return, tax payments and consequently receive tax refunds accordingly.

Change in criteria with respect to the 5% rate on property transfers tax

The ITA provides that transferor will be subject to a 5% final withholding tax, payable on the transfer value, where a property is transferred within 5 years from its acquisition date, provided that the transfer takes place after 1st January 2015 and the property being sold does not form part of a project.

The Budget Act sets further restrictions by excluding disposal of any immovable property made within five years from the date of acquisition, which is not the transferor’s sole ordinary residence and on which any construction works for which a development permission is required, have been carried on orders given by the transferor. Such transfer will not be eligible for the reduced rate of 5%.

Budget measure on withholding tax on assignments of rights acquired under a promise of sale agreement

The budget Measures Implementation Act has amended the ITA, so that gains from the transfer of promise of sale agreements have been excluded the Property Transfers Tax regime as per Article 5A of the ITA. 

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%, while the remainder value will be subject to a 7% provisional tax.   

Provisional tax on share transfers in a property company

Starting 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.

Allowable Deduction for Borrowing Costs

By means of the transposition of the EU Anti-Tax Avoidance Directive implementation regulations (ATAD I) in the ITA Article 14(1)(a) of the ITA has been amended so that the deduction for borrowing costs will be allowed in accordance with the interest limitation rule  compounded in Regulation 6.

Duty on Documents and Transfers

Extension of reduced rate for acquisition by individuals of sole ordinary residence

As of 15^th October 2019 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.

Transfer of Interest in a Partnership

With effect from 28th June 2019, the following is applicable to interests in partnerships:

• Exemption from stamp duty found in Article 47 of the DDTA will also apply to transfers of interest in partnerships. Article 47 of the Act, provides for an exemption from stamp duty on transfers of marketable securities held by or issued by certain companies, which include amongst others companies that are owned as to more than 50% by non-residents and who have the majority of their business outside Malta.
• The value shifting provisions applicable to reduction in the real value of marketable securities were extended to cover reductions in the real value of an interest in a partnership.
• The restructuring exemption from duty will also be applicable to transfers of interest in partnerships.

Transfer of foreign marketable securities in property companies

As of 1st January 2020, no duty shall be due on transfers inter vivos of foreign marketable securities (whether executed in Malta or outside Malta) held in a property company, provided that duty on such transfer would have been paid in the country where the transfer is executed or in the jurisdiction where the company is registered.

New Penalty and Interest on Late Payment of Duty

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.

VAT

The 7 day extension applicable to online VAT return filings is no longer conditional to the corresponding VAT payment also being made. Online filing of VAT returns within 7 days from the standard VAT return deadline, without making the corresponding VAT payment, does not trigger an administrative penalty for late filing of the VAT return.

OTHER MATTERS

• Vehicle scrappage scheme will continue to be available with grants up to a maximum of € 1,500.
• A € 300 bonus will be introduced upon the birth or adoption of a child.
• Persons residing in a home for the elderly shall receive a grant of € 300. This grant increases to € 350 for persons older than 80 years.
• The importation and production of certain single use plastics will be prohibited from 1st January 2021. The sale and distribution of same will be prohibited from 1st January 2022.
• A gas pipeline project between Malta and Sicily to supply the Delimara Power Station is expected to be completed by 2024 through an investment of € 400 million.