Following the last Budget Speech and the parliamentary debates on Bill No. 72, the Budget Measures Implementation Act, 2024 ('the Act') was issued on 2nd April 2024. The Act contains amendments to a number of laws, including the Income Tax Act, the Income Tax Management Act, the Duty on Documents and Transfers Act and the Value Added Tax Act.
We highlight hereunder the salient changes to these fiscal laws.
Amendments to the Income Tax Act (ITA)
Extension of tax exemption/reduction on transfers of property previously leased through certain Housing Authority Schemes
The income tax exemption (or reduction where applicable) on the first €200,000 of the transfer value of immovable property which has previously been leased for at least ten years through the Private Rent Housing Scheme administered by the Housing Authority, has been extended to cover two additional schemes, being the Nikru Biex Nassistu Scheme and the Rehabilitation of Vacant Dwellings for Rent Scheme.
The Private Rent Housing Scheme is aimed at subsidizing the rent of low-income earners whereas the Nikru biex Nassistu Scheme and the Rehabilitation of Vacant Dwellings for Rent Scheme are aimed at encouraging private owners to lease property on a long-term basis to the Housing Authority to accommodate social housing applicants. Subject to conditions, the eventual transfer of such leased property by the owner may benefit from the capped exemption from transfer tax or a capped reduction of the tax, depending on whether the acquirer is the same person as the tenant.
A similar amendment was also made to the Duty on Documents and Transfers Act (see below) to mirror the extension to all three schemes but from the duty side.
Immediate tax deduction of intellectual property costs
A new proviso has been added to Article 14(1)(m) of the ITA providing for an immediate deduction of expenditure of a capital nature on intellectual property or intellectual property rights. The ITA already provided for a deduction of such costs over a minimum number of three years. However, the current amendment effectively gives the option to taxpayer, as from basis year 2024, to accelerate the deduction in respect of such costs by claiming it in full in the year in which the expense is incurred or in which the intellectual property or intellectual property rights are first used or employed in producing the income.
This amendment codifies the Guideline issued in December 2023 by the Commissioner for Tax and Customs ('CfTC')on the matter.
School transport fee deductions
Article 14H of the ITA, which provided for a deduction of school transport fees paid, up to €150 per child below 16 years of age, has been deleted. Accordingly, as from basis year 2024, no deduction from personal taxable income shall be allowed in respect of such fees.
7.5% tax on income extended to other individuals involved in sports
The 7.5% reduced income tax rate applicable to income derived by registered players, athletes and licensed coaches has been extended to cover income derived by other individuals involved in a sport-activity, on a full time or part-time basis, including match officials and sports administrators.
Amendments to the Income Tax Management Act (ITMA)
Empowerment to Minister to lay down rules to exempt companies from an audit requirement
Article 19 of the ITMA has been amended to allow the possibility for the Minister of Finance to prescribe rules exempting certain companies from an audit requirement on their financial statements. Such empowerment clause is aligned with the Minister's intent, expressed in the last Budget Speech of aligning laws to ensure administrative simplification for companies having different obligations under the Companies Act and the Merchant Shipping Act and/or to ease the audit requirement for small companies where this requirement does not exist under the aforementioned Acts.
Amendments to the Duty on Documents and Transfers Act (DDTA)
Extension of duty exemption/reduction on transfers of property previously leased through certain Housing Authority Schemes
The provision which allows for a duty exemption or reduction on the first €200,000 of the transfer value of the immovable property acquired, and which had previously been leased for at least ten years through the Private Rent Housing Scheme administered by the Housing Authority, has been extended to cover property that qualified for two other schemes – the Nikru Biex Nassistu Scheme and the Rehabilitation of Vacant Dwellings for Rent Scheme. Such extension mirrors the income tax exemption/reduction extension referred to above.
Exemption from duty on transfers causa mortis of qualifying agricultural land
The Act introduced an exemption in Article 32(9) of the DDTA through which no duty shall be levied on the transfer causa mortis of qualifying agricultural land. Qualifying agricultural land is defined as immovable property situated in Malta, which is certified as (a) being used for an agricultural activity by the heir or by one of the heirs who classified as a professional farmer and/or is being inherited by an heir who is himself a professional farmer, or (b) which is leased in accordance with the provision of the Agricultural Leases (Reletting) Act and is duly registered.
This exemption is granted on condition that no transfer inter vivos is made within five years from the date of the transfer causa mortis (excluding assignments through a deed of partition between a co-owner who is himself a professional farmer).
The exemption applies as from 1st January 2024.
Transfer causa mortis of a dwelling house which has been subject to litigation
Article 35(2)(v) of the DDTA provides for an exemption granted in respect of transfer causa mortis to descendants in the direct line of a dwelling house where the property was the ordinary residence of the person from whom the transfer originates. Such exemption applies on condition, amongst others, that the deed of the transfer is made within one year from the relative succession. The Act introduced a new proviso through which, when the dwelling house in question or a part thereof or a real right thereon has been the subject of litigation in a court of law which has been concluded by a judgement, the one-year period starts to run from the date of the final judgement (res judicata).
Amendments to the Value Added Tax Act
Codification of general anti-abuse rules in the Maltese VAT Act
The Act introduces a general anti-abuse provision (GAAR) which largely codifies the VAT anti-abuse principles established through jurisprudence of the Court of Justice of the EU ('CJEU').
The GAAR provides that firstly any artificial or fictitious scheme which directly or indirectly results in the accrual of a tax advantage where the essential aim of that scheme is for a person to obtain such tax advantage the grant of which would be contrary to the purpose of the provisions of the VAT Act, shall be disregarded in such a manner as to redefine the scheme so as to re-establish the situation that would have prevailed in the absence of such scheme. For this purpose, a "scheme" includes any transaction or sequence of transactions, disposition, agreement, arrangement, trust, covenant, transfer of assets, structure, alienation of property, irrespectively of the date on which such scheme was made, entered into or set up.
Secondly, following CJEU jurisprudence, the GAAR provides that no amount shall be treated as deductible input VAT if that input VAT represents tax chargeable on goods or services having been the subject of VAT fraud committed upstream or downstream in the chain of supply when the person claiming the deduction knew or should have known of such fraud, irrespective of whether that person actively participated in that fraud.
When the CFTC has reason to believe that the GAAR applies, he may make an assessment determining the tax liability or the entitlement to any input tax credit, refund or set-off of the said person.
Income tax deductibility of interests levied in terms of the VAT Act
The provision in the VAT Act setting out the income tax deductibility of interest levied in terms of the VAT Act has been deleted. Therefore, for income tax purposes, the deductibility of interests incurred in terms of the VAT Act would need to be determined in terms of the ITA and the ITMA. The same principle applies for interest income payable under the VAT Act.
Broader access to books, records and documents in the course of an investigation
Pursuant to the amendments to Article 53 of the VAT Act, the CfTC has the power to inspect and require electronic access to books, records or documents including those contained in any computerised system.
Moreover, without prejudice to the provisions relating to the duty of professional secrecy, the amendments widen the power of the Commissioner to request information on taxpayers from third parties which may have information on the taxpayer.
Record-keeping requirements for taxable persons not registered for VAT
Pursuant to the changes to Article 48 of the VAT Act, all taxable persons, including those who are not required to become registered for VAT need to keep full and proper records of all transactions carried out in the course or furtherance of the economic activity.
Correction Forms after a provisional assessment has been issued
The new Article 28(3) of the VATA clarifies that a taxpayer cannot file a Correction Form after a provisional assessment has been issued until such time as the assessment is made or the provisional assessment is cancelled by the Commissioner.
Moreover, in terms of the new Article 28(4) of the VAT Act the CfTC's approval is required when a Correction Form is filed after an assessment has been made.
Appeals to the Court of Appeal following decisions of the Tribunal
The Act introduced an amendment to Article 47 of the VAT Act through which a person who feels aggrieved by the decision of the Administrative Review Tribunal has 30 days to file an appeal, which 30 days would start to run from the date of the service of the decision appealed from. Previously the 30 days started to run from the date on which the decision appealed from is notified to the said person. In all cases such 30-day period should not be later than one hundred and eighty-three (183) days from the date of the decision by the Tribunal.
A transitional period, up to 30th June 2024, applies for those appeals which have not yet been served and in respect of which the 183-day period has
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.