By means of ACT VII of 2018, the Government of Malta has published an Act to implement various budget measures for the year 2018. The following is a summary of the main changes to the Income Tax Act.
Definition of a participating holding
The definition of a participating holding has been amended so that the minimum percentage holding of10% has been reduced to 5%. Furthermore investments in European Economic Interest Grouping (EEIG) shall also be considered to be participating holdings.
Remittance rules of taxation
With effect from year of assessment 2019, the remittance rules of taxation will no longer apply to individuals who are long term residents or who hold a permanent residence certificate or a permanent residence card in terms of the Status of Long-Term Residents (Third Country Nationals) Regulations.
Financial assistance received by the parent of a child
Financial assistance received by the parent of a child in respect of the maintenance of that child, which is paid by the other parent in terms of a public deed regulating the obligations of the parents for the maintenance of that child will also be exempt from income tax.
New tax deduction against income derived from intellectual property
Rules are still to be prescribed in respect of a new deduction against qualifying income derived from qualifying intellectual property to be claimed by any person, whether or not the income arises in the course pfa trade, business, profession or vocation.
Reduced rate on rental income
The definition of rent which may benefit from a reduced rate of tax of 15% has been amended to include ground rents, whether from an urban or rural tenement.
Married and parent tax rates
Unmarried individuals, widows or widowers, separated or divorced persons may opt to be taxed at the married rates if they maintain a child under 16 years of age who is not in receipt of an annual income which exceeds Eur2,400. The child’s age has now been increased to 18 (or 23 years if receiving full time education) and the child’s annual income cannot exceed Eur3,400. The same is applicable with respect to children whose parents opt to be taxed at the parents’ tax rates.
Persons who are ordinarily resident but not domiciled in Malta
With effect from year of assessment 2019, persons who are ordinarily resident but not domiciled in Malta, who are taxed in Malta on that part of their foreign income which is received in Malta (remittance basis) and whose annual income arising outside Malta, which is not received in Malta is at least Eur35,000 shall be subject to an annual income tax liability of Eur5,000. This minimum annual tax liability does not apply to persons who have been granted a special tax status in terms of the Global Residence Programme (GRP), The Malta Retirement Programme (MRP), The Residence Programme (TRP) or the Residents Scheme Regulations.
The minimum annual tax liability of Eur5,000 includes any Maltese income tax paid, whether by way of withholding or otherwise but excludes any tax paid in terms of Article 5A of the ITA (final tax paid on transfers of immovable property situated in Malta). The minimum annual tax liability is also applicable to married couples who opt for a joint computation and whose annual income arising outside Malta which is not received in Malta, derived by both spouses is at least Eur35,000.
No tax will be paid in Malta on capital gains arising outside Malta even if such gains are received in Malta.
Amendments to Article 5A of the ITA
With respect to immovable property which has been sold, transferred, destroyed or put out of use and on which the owner would have claimed capital allowances, a balancing statement is required to be prepared and tax to be paid on any balancing charge (tax profits derived on the sale of the property).
Subsequent transfers of immovable property acquired by means of a donation
With respect to subsequent transfers of immovable property by individuals who would have acquired the immovable property by means of a donation exempt from income tax, the date of acquisition is deemed to be the original date when the said property was acquired by the donor.
It has been clarified that the definition of a project does not include a land which is divided for transfer into more than one transferable portion, where the land is transferred in the same state as when acquired.
Transfers of immovable property within a group
Transfers of immovable property from one company to another company which do not benefit from the intra group exemption because the property is not held as a capital asset may still benefit from the exemption if the transfer is part of a restructuring involving the transfer of the whole or part of a company’s business to another company. The requirement for the transferring company to own the property for a period exceeding twelve years has been removed.