On 20 March 2020, the Maltese Parliament has enacted the Budget Measures Implementation Act 2020. Through the enactment of this legislation, amendments were made to the Income Tax Act (ITA), Value Added Tax Act (VATA), Income Tax Management Act (ITMA), and Duty on Documents and Transfers Act (DDTA). The main tax measures of the Act are as follows:

Definition of Company

With effect from 20th March 2020, the definition of ‘company’ in Article 2(1) of the ITA has been updated in relation to cell companies.

Profits derived from the Assignment of Promise of Sale Agreements

As from 1 January 2020, profits derived from the assignment of a promise of sale agreement will be subject to a 15% final tax. The 15% tax rate will be applicable on the first EUR 100,000, while the rest will be subject to a 7% provisional tax. 

5% Final Withholding Tax on transfers of Immovable Property

A restriction has been introduced in those cases where the 5% withholding tax applies to the transfer of immovable property situated in Malta. The ITA provides that the transferor will be subject to the final withholding tax rate of 5 %, payable on the transfer value, where a property is transferred within 5 years from its acquisition, provided that the transfer is made after 1 January 2015 and the property does not form part of a project. With effect from 20 March 2020, the 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 works for which development permission was required, have been carried out on the said property by the transferor or by a related person of the transferor. This means that such a transfer will not benefit from the reduced rate of 5%.

Restriction on interest deduction

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 (Regulation 6) recently added in view of the transposition of the EU Anti-Tax Avoidance Implementation regulations (ATAD) in the ITA. 

Rental Income derived from Long Private Residential Leases

The Act provides for a new proviso to Article 31D(2) of the ITA allowing for an abatement of tax paid on rent derived from long private residential leases in circumstances and by such amounts as may be prescribed.  This amendment is effective from 20 March 2020.  Article 31D(2) of the ITA provides for a reduced final rate of tax of 15% on rental income derived from a tenement.

Income Tax Returns for Married Couples

A new Article 49A has been introduced with respect to the filing of separate income tax returns for married couples living together.  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 apply to them at the time the election is made.

New Penalty Regime

As from 15 October 2019, certain omissions to pay duty will be subject to an additional duty equivalent to 20% of the amount of duty assessed by the Commissioner and interest at a rate which will be prescribed by the Minister for Finance.

Interest on Late Payment of Duty

As from 1 January 2020, interest on late payment of duty has been introduced.  The rate of interest will be determined by the Minister for Finance.

Payment of VAT for Online Filing of VAT Returns

Prior to this amendment, the seven-day extension applicable to online VAT return filings was subject to the payment of the corresponding VAT due.  By virtue of this amendment, the online filing of VAT returns within 7 days from the standard VAT return deadlines, without making the corresponding VAT payment, shall not trigger an administrative penalty for late filing of the VAT return.