By means of Act No. VII of 2022, the Government of Malta has on the 8th February 2022, published the necessary measures which were originally announced in the Malta Budget Speech for the year 2022. The measures come into force on the 1st January 2022, unless indicated. The following is a summary of the legislative changes to the Income Tax Act (‘ITA’) Chapter 123 of the Laws of Malta and the Duty on Documents and Transfers Act (‘DDTA’) Chapter 364 of the Laws of Malta.
Definition of ‘industrial building or structure’
The definition of a ‘car park’, within the term ‘industrial building or structure’ for the purpose of the ITA has been amended so that operators of car parks will also be entitled to claim capital allowances on such car parks where the operation by such persons involves substantial activity, having regard to the capital employed, the organization of the operation and the income that it generates.
Recognized stock exchanges
References to ‘recognized stock exchanges’ under the Financial Markets Act has been amended to refer to stock exchanges which will be recognized by the Commissioner for Revenue (CfR). Such references include those found in Articles 5, 5A, 12 and 41 of the ITA and Articles 32, 42, 42B and 42C of the DDTA.
Reduced rate of income tax and stamp duty on transfers of immovable property leased at affordable rates
A transfer made on or after 1st January 2022 where
- The property had been leased for a period of at least 10 years; and
- During the above-mentioned period, the tenant was entitled to benefits in respect of that lease under the Private Rent Housing Benefit Scheme administered by the Housing Authority; and
- The transfer is made to the tenant
no tax and duty on documents shall be payable on the first Eur200,000 of the value of the property. Tax and duty on the excess (if any) shall be charged at the rate that would have otherwise applied.
Where the above-mentioned transfer is not made to the tenant and the period of lease to which the tenant was entitled to the above-mentioned benefit is of less than 10 years but not less than 3 years, the tax and duty that would be paid on the first Eur200,000 of the value of the property transferred shall be half of what would have otherwise applied. Tax and duty on the excess (if any) shall be charged at the rate that would have otherwise applied.
The DDTA has also been amended in this respect so that the reduced rate of stamp duty will not be applicable to persons who require a permit to acquire immovable property situated in Malta or to persons who would require such a permit had the property acquired had not been situated in a Special Designated Area.
Exemption from tax on gains derived by non-residents
The exemption applicable to non-residents on gains or profits derived by non-residents on transfers of units in Collective Investment Schemes, units relating to long term business of insurance, interests in partnerships and shares in companies (where the assets of such partnership or companies do not wholly or principally consist of immovable property situated in Malta) has been extended to transfers of any rights over the above-mentioned assets.
Limitation on deductions relating to capital expenditure on intellectual property (‘IP’) and intellectual property rights (‘IPR’)
In terms of Article 14(1)(m) of the ITA, expenditure of a capital nature incurred by a person on IP and IPR is allowed as a deduction over a period of at least 3 consecutive years, provided that such IP and IPR would have been used or employed in the production of the income of such person.
The new amendments introduce a limitation whereby in case the IP or the IPR were acquired by the acquirer from a company (transferor) by means of a transfer which was deemed for tax purposes to be a transfer on which no gains or loss arose in terms of Article 5(9) of the ITA, the total deductions that may be claimed shall be the lower of the cost of the acquisition and the market value of the said assets at the time of the acquisition. This is to be reduced by the amount, if any, that the transferor had claimed as a deduction in respect of the IP and the IPR that have been transferred.
School fees deductions
Article 14B of the ITA provides for a personal deduction in respect of fees paid to certain schools. A clarification has been made so that reference to ‘a school named by the Minister’ has been amended to refer to ‘a licensed independent school, as confirmed by the Minister responsible for education.’
Election by trusts to be treated as a company
In terms of Article 27D of the ITA, resident trustees may make an election to be treated as a company for tax purposes, subject to the satisfaction of a number of formalities. The amendments clarify that trustees that may make such an election include trustees that have been granted authorization by the MFSA in terms of Article 43(3) of the Trusts and Trustees Act (Chapter 331 of the Laws of Malta) as well as trustees that are not required to obtain such an authorization in terms of Article 43(6) of the same Act.
Removal of claw-back rule in respect of persons resident in Malta who are beneficially entitled to the profits of an entity that claimed the notional interest deduction (NID)
Article 42 of the ITA provides for a number of claw-back provisions which are applicable when a person resident in Malta becomes entitled to the profits of an entity that has claimed a deduction in terms of the NID rules. These claw-back provisions have now been removed.
Limitation on the 15% tax rate applicable to income derived from overseas employment
In terms of article 56(17) of the ITA, an optional 15% tax rate is applicable to individuals deriving employment income payable under a contract of employment requiring the performance of work or of duties mainly outside Malta, subject to a number of conditions.
The following two limitations have been introduced:
- The 15% shall not apply to emoluments payable under a contract of employment for a period which is of less than 12 months or that lasts less than 12 months;
- The 15% shall also not apply for a year of assessment if, during the year immediately preceding that year of assessment, the individual was present in Malta for a period that exceeds or for periods that in aggregate exceed 30 days, disregarding any period during which that individual was present in Malta on vacation leave or sick leave and disregarding any period preceding the commencement or following the termination of the contract.
Income derived by individuals from artistic activities to be taxed at 7.5%
With effect from YA 2023, individuals who derive income from a full-time or part-time artistic activity shall have the option to be charged to tax on such income at the rate of 7.5% of the gross amount of the income. The tax shall be final and no set-off or refund shall be granted. The said income shall be deemed to have been income derived from an artistic activity if it has been so certified by the Arts Council Malta, in a statement produced to the CfR on such form and in such manner and within such time as the CfR may approve.
The Minister for Finance may, by rules, prescribe the manner in which the income of an individual who takes the option referred to above is to be computed including, but not limited to, rules to calculate the income for any year of assessment in an amount corresponding to the average income derived during a number of years of assessment.
Reduced tax rate on qualifying part-time income
With effect from YA 2023, the rate of tax on income derived from part-time employment in terms of Article 90A of the ITA shall be reduced from 15% to 10%.