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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Malta: VAT essentials 

Essential information regarding VAT as it applies in Malta.


Scope and Rates

What supplies are liable to VAT?


Value added tax (VAT) is due on any supply of goods or services made in Malta, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person.


"Supply" is not restricted to the provision of goods and services by way of sale, but can equally apply to other forms of transaction, including the leasing or hire of goods, the grant, assignment or surrender of a right, or even an agreement not to do something. It does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example, giving business gifts and the private use of business assets.


What is the standard rate of VAT?


The standard rate of VAT is 18 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes.


There is a reduced rate of 7 percent applicable to the letting of, or the provision of accommodation in, premises which for the purpose of the provision of that accommodation are required to be licensed by the Malta Tourism Authority (MTA)


Furthermore, there is a reduced rate of 5 percent applicable to the following goods and services:


  • electricity
  • confectionery and other edible items
  • medical accessories
  • printed matter
  • items for the exclusive use of the disabled
  • certain works of art, collectors' items, and antiques
  • minor repairing of bicycles, shoes and leather goods, and clothing and household linen
  • domestic care services and care of young, elderly, sick or disabled persons
  • admission to museums, art exhibitions, concerts and theatres.

There is a considerable list of exempt with credit (that is to say, zero rated) supplies, including:


  • exports and like transactions
  • international goods traffic
  • intra-Community supplies
  • international transport and ancillary services
  • supplies of certain qualifying vessels and aircraft, the chartering thereof and certain services provided thereto
  • investment gold
  • food
  • pharmaceutical goods
  • local scheduled transport
  • supplies of goods on board cruise liners.

The list of exempt without credit supplies includes:


  • immovable property, with certain exceptions, including:

    • accommodation for which an MTA license is required
    • parking areas
    • the leasing of property by a limited liability company to a Maltese VAT registered person for the purposes of the lessee’s economic activity

  • insurance services
  • credit, banking and other services
  • cultural and religious services
  • lotteries and gambling services
  • public postal services
  • health and welfare services
  • education
  • public broadcasting
  • water by a public authority.

What are the other local indirect taxes beside VAT?


Other local indirect taxes in Malta include:


  • duty on documents and transfers (stamp duty)
  • customs duty
  • excise duty
  • eco-contribution
  • motor vehicle registration tax

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Registration

Who is required to register for Maltese VAT?


Maltese Entities


If a business makes taxable supplies in Malta or supplies services within the territory of another EU Member State which are subject to VAT in the Member State where the customer is established by way of reverse charge and its turnover exceeds the small undertakings threshold of EUR 12,000 to EUR 28,000 per year, it will be required to register and account for Maltese VAT. If it trades below the threshold but its turnover is in excess of EUR 7,000 per annum, it is still required to register for VAT but may opt out of the VAT system (whereby it will not charge VAT and will not be entitled to claim any input VAT back). If turnover does not exceed EUR 7,000 per annum, companies are not required to register at all (in which case they will not charge VAT and will not be entitled to claim any input VAT back), although they may optionally register for VAT and thus opt into the VAT system.


If a business makes exempt without credit supplies only, then it cannot register for VAT.


If a business has an establishment in Malta and makes supplies outside Malta, which would be taxable or exempt with credit if made in Malta, then it may elect to register for Maltese VAT.


Non-Maltese Entities


The registration rules that apply to Maltese entities also apply to non-Maltese entities making taxable supplies in Malta. However, the registration thresholds mentioned above are not applicable to overseas businesses not established in Malta. To deal with its VAT affairs, an overseas business may appoint a VAT representative with joint and several liability to the tax authorities.


If a business is not registered for VAT in Malta but sells and delivers goods from another EU Member State to customers in Malta who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 35,000 per year it is required to register and account for VAT in Malta.


If a business is established outside the EU and supplies telecommunication or electronically supplied services to non-taxable customers established in Malta and the effective use and enjoyment of those services takes place in Malta, then the place of supply is Malta. The supplier will then have to register for Maltese VAT. If, however, it supplies the same services to customers in other EU Member States it can opt to register for VAT in one Member State rather than all of them. In this case, it still has to account for VAT on supplies at the rate prevailing in the Member State of its customer but it only has to deal with one Member State for filing and payment purposes.


The VAT registration form can be accessed on the Maltese VAT department’s website.


Are there penalties for not registering or late registration?


There are penalties for failing to register for VAT promptly, which increase with time. These penalties are calculated as a multiple of the net tax for the period commencing when the business should have applied to be registered. The net tax is the output tax that should have been charged less the input tax that your business would have been entitled to recover.


A penalty may be waived/mitigated where it can be shown that there is a reasonable excuse for the late registration.


Is voluntary VAT registration possible for an overseas company?


Yes. If an overseas business making supplies in excess of the small undertakings threshold of EUR 12,000 to EUR 28,000 per year can register voluntarily in the same way as a Maltese entity. Registration allows input VAT to be claimed through the VAT return system. Registration means that Maltese VAT must be accounted for on all taxable sales made in Malta, including those where the customer would have been liable under the reverse charge mechanism if the overseas business was not registered for VAT in Malta.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


If a business makes supplies of goods or services in Malta, then it is required to register and account for Maltese VAT. However, it is possible to avoid registering and accounting for Maltese VAT when making certain supplies.


In the following examples the obligation to account for the VAT due can be shifted to the customer provided that it is registered for Maltese VAT.


Triangulation


If a business is an intermediate supplier to a Maltese buyer of goods which purchased from a business in a EU Member State other than its own and are delivered from there to Malta, VAT due can be accounted for by the Maltese customer (see section Invoices).


Call-Off/Consignment Stock


The call-off stock simplification is not applicable in Malta except on a case-by-case basis upon application to the local VAT office.


Fixed Assets


The sale of fixed assets is not included in the calculation of turnover for the purpose of the small undertakings threshold.


Supply and Install


If a business supplies goods and installs or assembles them in Malta, the customer can account for any VAT due, in effect, as an acquisition. It must be registered for VAT in another EU Member State, and not otherwise required to be registered in Malta. In addition, the goods must be shipped from within the EU (see section Invoices).


Reverse Charge Services


These services are covered in more detail in chapter International Supplies of Goods and Services. Bear in mind that these provisions are subject to particular requirements.


Does an overseas company need to appoint a fiscal representative?


The appointment of a fiscal representative is not mandatory in Malta, except where the Commissioner so designates in the case of a person who is not established in Malta and is not established elsewhere in the EU who is or is required to be registered for VAT in Malta.

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VAT grouping

Is VAT grouping possible?


No, it is not possible.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Most registered businesses are required to submit VAT returns on a quarterly basis. However if a business supplies predominantly/only zero-rated goods and services, it may seek to opt to submit monthly VAT returns. Failure to furnish VAT returns and settle any outstanding VAT payments on time may result in additional tax and interest. For example, one late VAT return and VAT payment will give rise to a 1.75 percent monthly penalty of the tax due. To mitigate additional tax, a business must show a reasonable excuse for the default.


Are there any other returns that need to be submitted?


EC Sales List (Recapitulative Statements)


If a business supplies goods which are shipped from Malta to VAT registered businesses in other EU Member States and it wishes to zero rate the supply (see section International Supplies of Goods and Services), it is required to complete Recapitulative Statements.


Recapitulative Statements are also required in the case of supplies of services (other than services that are exempted from the tax in the Member State where the transaction is taxable, and for which the recipient is liable to pay the tax) provided to taxable persons and non-taxable legal persons identified for VAT purposes.


Recapitulative Statements are completed on a monthly basis where they include goods, and on a calendar quarter basis in relation to services only. However, it is also possible to opt for quarterly Recapitulative Statements in relation to goods where the quarterly value of intra-EU supplies of goods does not exceed EUR 50,000.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States that exceeds a threshold of EUR 700 per calendar year must complete supplementary declarations each month.


The Intrastat penalty regime is a criminal one and could result in proceedings in Court, although the authorities normally prefer to compound any proceedings. This involves the offer of an administrative fine in lieu of Court proceedings. The forms VAT/AS/101/2004 Supplementary Declaration – Arrivals and VAT/DS/102/2004 Supplementary Declaration – Dispatches can be accessed on the Maltese National Statistics Office website.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The applicable rate is the last European Central Bank (ECB) exchange rate applicable before the date when the supply takes place.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. If a company is established in another EU Member State, then it should make a claim in terms of EU Directive 2008/9/EC through the electronic portal maintained by the Member State of establishment. A non-EU business should recover the VAT under the 13th Directive procedure.


Under both of these provisions, there are strict time limits for making claims.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required.
  • Motor cars (excluding certain commercial vehicles): with certain exceptions, businesses cannot recover VAT on the purchase of a motor car; similarly businesses cannot recover VAT on any lease charges.
  • Business entertainment: VAT is not recoverable on business entertainment costs including staff entertainment and subsistence costs.
  • Purchases falling within the Tour Operators' Margin Scheme. The VAT on goods and services which fall under this scheme cannot be reclaimed.
  • Goods sold under one of the margin schemes for second hand goods. There are a number of schemes which provide for VAT to be accounted for on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the removal of those goods from Malta (either by the supplier or its customer) to that Member State, then no VAT is chargeable as this is a zero-rated intra-Community supply. The supplier must obtain your customer's VAT identification number and quote it on its invoice. It should also obtain evidence of the removal of the goods from Malta.


If a company sells goods to a customer who is not registered for VAT in another EU Member State, it will have to charge Maltese VAT. If its sales exceed a certain threshold for that Member State, it may have to register in that Member State under what is known as the Distance Selling scheme.


If a company exports goods to a customer (business or private) outside of the EU then it does not charge VAT but, as for intra-Community sales, it should make sure that in all cases it keeps proof of dispatch/delivery to support the zero rating.


Services


If a company supplies services to a business customer established outside Malta (whether in another EU Member State or outside of the EU), no VAT is generally chargeable in Malta. In the case of customers established in another EU Member State, the supplier must obtain the customer's VAT identification number and quote it on its invoice. It will also need the customer's VAT identification number for the purposes of the Recapitulative Statement.


Furthermore, certain services do not attract VAT in Malta when provided to a non-business customer outside of the EU:


  • transfers and assignments of copyrights, patents, licenses, trademarks, and similar rights
  • advertising services
  • services of consultants, engineers, consultancy bureaus, lawyers, accountants and other similar services, as well as data processing and the supply of information
  • obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right referred to in this list
  • banking, financial, and insurance transactions including reinsurance
  • the supply of staff
  • the hiring out of movable tangible property with the exception of all forms of transport
  • telecommunications
  • radio and television broadcasting services
  • electronically supplied services
  • the provision of access to a natural gas system situated within EU territory or to any network connected to such a system, to the electricity system or to heating or cooling networks, or the transmission or distribution through these systems or networks, and the provision of other services directly linked thereto.

How are goods dealt with on importation?


When goods are imported into Malta from outside the EU, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from customs’ control.


How are services which are brought in from abroad treated for VAT purposes?


If a business buys in services from outside Malta, it will generally be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Malta.


Under the reverse charge, the recipient is required to account for a notional amount of VAT as output tax on its VAT return covering the period in which it made the payment and it recovers this VAT as input tax on the same return.


If the recipient is able to recover all of your VAT, the reverse charge has no cost effect and is a VAT compliance matter only. However, if it is partly exempt, there is likely to be a VAT cost depending on the level of recovery allowed under its partial exemption method.

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Invoices

Is a business required to issue tax invoices?


Yes, tax invoices are required to be issued whenever a person registered for VAT makes a supply (other than an exempt without credit supply) to another person who is identified with a VAT identification number, as well as in respect of distance sales and certain self-supplies.


Where a tax invoice is not required to be issued, a fiscal receipt is to be produced instead (again except when making exempt without credit supplies, which do not necessitate the issue of any fiscal invoicing whatsoever.)


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • the date of issue
  • a sequential number based on one or more series, which uniquely identifies the invoice
  • the name and address of the supplier and the VAT identification number under which he/she made the supply
  • the name and address of the person to whom the supply is made and the VAT identification number under which he/she acquired the goods or services supplied to him/her A description sufficient to identify the quantity and nature of the goods, or the extent and nature of the services supplied
  • the date on which the supply was made or completed, or the date on which a payment on account of the supply was made, insofar as that date can be determined and differs from the date of issue of the invoice
  • the taxable value per rate or exemption, the unit price exclusive of tax and any discounts or rebates if they are not included in the unit price
  • the VAT rate applied
  • where the person liable for payment of VAT is a tax representative in another Member State, the VAT identification number of that tax representative, together with his full name and address
  • e amount of VAT due expressed in Euros

Where appropriate, the following legends must be visible:


  • where the invoice is for the intra-Community supply of a new means of transport, a description to identify it as such
  • where no VAT is chargeable, an invoice shall contain a brief reference to the provision in the law under which no VAT is chargeable, distinguishing between: ­

    • supplies made outside Malta
    • exempt with credit supplies
    • exempt without credit supplies


  • Where the vendor is an intermediate supplier in relation to a Triangular transaction and wishes to take advantage of the simplification measure to avoid registering for Maltese VAT, then the invoice should bear the legend “VAT: TRIANGULATION SIMPLIFICATION INVOICE - Article 20(2)(a) of the Value Added Tax Act / Article 141 of Council Directive 2006/112/EC”.
  • When an invoice refers to a supply to which a margin scheme applies, it shall contain an indication to this effect by the inclusion of the words 'Margin Scheme' and a reference to the relevant scheme.
  • where the VAT becomes chargeable at the time when the payment is received, the mention ‘Cash accounting’
  • where the customer receiving the supply issues the invoice instead of the supplier, the mention ‘Selfbilling’
  • where the customer is liable for the payment of the VAT, the mention ‘Reverse charge’

It is pertinent to note that, irrespective of the above, if a tax invoice complies fully with the invoicing requirements set out in Council Directive 2006/112/EC, it will be deemed to constitute a valid tax invoice for Maltese VAT purposes.


Can businesses issue invoices electronically?


Yes, subject to acceptance of your customer.


Is it possible to operate self-billing?


Yes. Subject to the satisfaction of certain conditions, when a taxable supply is made to a customer by a taxable person.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, but the tax payable or to be adjusted is to be expressed or translated into Euro.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business as a going concern then VAT may not be due.

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Options to Tax

Are there any options to tax transactions?


If a company produces investment gold or transform any gold into investment gold, then it has a right of option for taxation of supplies of investment gold to another taxable person which would otherwise be exempt with credit.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


If a head office makes a charge to its branch or vice-versa in respect of services, that is not treated as a supply for Maltese VAT purposes. A transfer of goods to/from another Member State would be treated, respectively, as a deemed (exempt) intra-Community supply/deemed (taxable) intra-Community acquisition.

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Bad Debt

Am I able to claim relief for bad debts?


If a company is able to prove that a debtor balance will not be recoverable and the output tax on the sale thereto has already been paid or is payable, then it may claim the corresponding bad debt relief. If the bad debt in respect of which a deduction has been allowed is subsequently recovered, it will be treated as a taxable supply taking place upon recovery.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


No anti-avoidance provisions are expressly included in the Maltese VAT Act and subsidiary legislation.

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Penalty Regime

What is the penalty and interest regime like?


There are a number of penalties that apply in Malta for compliance failures. Late registration and late VAT return penalties have already been addressed above.


If a business makes an error on a VAT return which understates the liability or overstates the entitlement to a VAT credit, a misdeclaration penalty of 20 percent of the error may apply. If, however, it voluntarily discloses the error to the VAT Department, the penalty will be reduced to 10 percent. If it has a reasonable excuse, then the penalty could also be waived. Interest would invariably apply to an error unless there is no overall loss of revenue.

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Tax authorities

Tax audits


How often do tax audits take place?


There is no pre-set frequency for tax audits, which are carried out randomly at the discretion of the authorities.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Tax audits are not performed electronically in Malta.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


No provision is made for formal rulings in Maltese VAT law. However, formal requests for confirmations (informal rulings) are often sought from the VAT authorities.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Maltese VAT law is based on the EU VAT Directive. Consequently there is no unique VAT regime.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes, Maltese VAT law provides for reduced rates of VAT and various exemptions.


Malta also operates a very attractive yacht/aircraft leasing arrangement whereby the overall VAT incidence incurred on the acquisition of a yacht/aircraft can be reduced substantially depending on the size and means of propulsion in the case of ayacht and a number of technical features in the case of aircraft.

 

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