By means of Legal Notice 205 of 2017, the Government of Malta has amended the rules relating to fringe benefits. The below is a summary of the main changes.
What are Fringe Benefits?
Fringe benefit are benefits provided or deemed to be provided by reason of an employment or office, regardless of whether they are received in cash or in kind and whether they are received in terms of the normal conditions of the contract of service or by way of a special or ex gratia allowance.
Jurisdiction to Tax
A new Rule 3A was introduced which provides that a benefit is deemed to arise in the country where the services in terms of the relative contract of employment or office are wholly or principally performed. Benefits arising by reason of a directorship in a company are deemed to arise in the country where the company is managed and controlled.
Vans excluded from the definition of a vehicle
Vans have been excluded from the definition of a vehicle and consequently the private use of a van by an employee will not constitute a fringe benefit. Vans are defined as mechanically propelled road panel vehicles or any other commercial vehicles whose construction is primarily suited for the conveyance of goods with no seating capacity for passengers except that which is adjacent to the driver.
Reduction of the private use percentage
The private use percentage of a vehicle has been reduced from 20% to 0% where the vehicle value does not exceed €16,310 and the said vehicle is used wholly or mainly by an employee who is a salesman or a support person in the performance of his duties.
Private use of a van
As stated above, vans have been excluded from the definition of a vehicle and as a result no tax on fringe benefits would apply in case a van is used by an employee for private purposes. Before the amendment, the annual value of a benefit consisting in the private use of a van is of Eur465.
Private use of a property
For the purposes of calculating the value of an immovable property where such property is held by a title of perpetual or temporary emphyteusis, the acquisition value is deemed to be the price or premium paid in accordance with the deed of emphyteusis. Prior to the amendments, the cost of such a property was increased by five times the annual ground rent payable.
Accommodation not constituting a benefit
The rules provided for situations that where a shareholder of a company resides in a property owned by the company and a number of conditions are satisfied, such provision of accommodation will not constitute a fringe benefit. One of the applicable conditions is that the company must not have any liabilities other than by way of long term loans from a bank or financial institutions or from an individual who is directly or indirectly a shareholder of the company.
Furthermore, such liabilities must not be secured in any manner by an associated company and the creditor is not a debtor of the said associated company. If the latter condition is not satisfied, then the amendments provide that where the creditor is a bank which is a debtor of the associated company, the bank’s debt in favour of that associated company must not be for a long-term loan and is not connected with the financing of the loan to the property owning company.
Annual value of the private use of immovable property
The annual value of the property where the said property is owned by the provider of the benefit is of 5% of the higher of the market value and the cost of the property. The recent amendments have provided that where the property is held under a title of emphyteusis, the value shall be the higher of 5% of the market value and the total value of 5% of the cost of the property and an amount equivalent to the relative annual ground rent.
Beneficial loan arrangements
The granting of loans to an employee at beneficial terms is deemed to be a taxable benefit. The value of the benefit is the difference between the benchmark rate and the interest paid by the beneficiary. By means of the recent amendments, the benchmark rate has been reduced from 8.5% to 6.5%.
Furthermore, the amendments provide that the value of a loan by a company to a shareholder who holds more than 25% of the ordinary share capital and voting rights in that company shall be zero.
Free or discounted transfer of property and provision of services
The value of such a benefit is the difference between the value of the property or the service over the consideration paid by the beneficiary.
The new amendments provide that where the benefit consists of the transfer of a motor vehicle and the beneficiary had before the transfer made private use of that vehicle, the value of the benefit is reduced by the total value of the fringe benefit calculated in terms of the fringe benefits rules.
Share option and award schemes
Benefits provided under share award schemes are now also considered to be fringe benefits and taxable under the rules. The benefit is deemed to be provided on each date that shares are issued or transferred to the beneficiary in terms of the share award scheme in question. The value of the scheme benefit shall be the excess, if any, of the price which the shares in question would fetch if sold in the open market on the date when the benefit is provided over the price paid or payable by the beneficiary for those shares.
Such a benefit will from now constitute separate chargeable income and be subject to tax at 15%. Prior to the amendments, the taxable portion of the benefit was 42.85% of the excess, which when subject to a 35% tax would result in a tax liability equivalent to 15%.
Exempt fringe benefits
The list of exempt fringe benefits now also includes:
- The costs of travelling between Malta and Gozo for business purposes will now also include the relocation costs and costs of journeys between shifts.
- The costs of travelling between Malta and Gozo now also includes travel by air.
- Costs, as evidenced by receipts produced to the employer, or by his employer for the provision of fixed or mobile telephony services, now also includes the cost of a mobile phone or a facsimile machine, used by the employee for the purpose of the business of the employer.
- Health-related costs which refer to:
- The cost of a medical examination, test or screening which an employee is required to undergo in order to take a new employment or to take up a new post with the same employer or to gain entry to a superannuation fund;
- The cost of medical care, medicine and other medical treatment provided as a prevention against injury or illness related to an employment as part of a programme available generally to employees exposed to the same work-related health risks;
- The cost of individual or group counselling relating to safe work practices, health, fitness, stress management or drug or alcohol abuse that is given as part of a programme available generally to employees exposed to the same work-related health risks.