Following last week’s budget speech for the year 2021, the Government has published the bill which will implement the budget measures for next year. The following are the salient income tax and stamp duty measures which are being proposed in this bill.
Amendments to the Income Tax and Income Tax Management Act
Malta’s participation exemption exempts from Maltese income tax, dividends and capital gains derived from a participating holding, subject to the satisfaction of a number of conditions. The bill is proposing that the exemption will not apply with respect to dividends derived from a participating holding in a body of persons which is resident for tax purposes in a jurisdiction that is included in the EU list of non-cooperative jurisdictions for a minimum period of three months during the year immediately preceding the year of assessment. Where such three months are consecutive and fall in two subsequent consecutive basis years, the exemption will not apply in respect of dividends received in any one of the two years.
Payments not allowed as a deduction for tax purposes
The Bill proposes to include in the list of non-deductible expenses, payments which constitute a criminal offence or, in the case of a payment made outside Malta, would constitute a criminal offence if made in Malta.
15% tax rate on royalty income derived from literary works
The bill proposes to give the possibility to recipients of royalty income derived from literary works on or after 1stJanuary 2021 to opt to be taxed at a reduced rate of 15%. The tax will be final and the recipient will not be required to report such income in his personal income tax return. The 15% tax rate will be calculated on the gross royalty income. The literary publication must be eligible for copyright in terms of the Copyright Act,
The filing of adjustment forms pursuant to a Mutual Agreement Procedure (MAP)
Malta has in 2018 ratified the Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS). This has improved the access to and the operation of the MAP which is a procedure resorted to resolving international tax disputes pursuant to specific provisions in a double taxation agreement between Malta and another State and the EU Arbitration Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.
The Bill proposes to remove the five year prescription period for the filing of tax adjustment forms where the adjustment results in a reduction in the tax payable by or an increase in the tax refundable to the tax payer, where such forms are being filed pursuant to a MAP.
Amendments to the Duty on Documents and Transfers Act
Definition of documents
The bill proposes to include the following in the definition of documents, which are subject to duty – a judgment, decree or order of any court or other lawful authority whereby any immovable or any real right over an immovable is transferred.
Exemptions and reductions from duty on declarations ‘causa mortis’ extended to cohabitants
In calculating the amount of duty due, no account will be taken of the value of the usufruct of any property bequeathed by the person from whom the transfer ‘causa mortis’ originates in favour of cohabitants. Furthermore, no duty shall be levied, where the property consist of a dwelling house, being the ordinary residence of the person from whom the transfer ‘causa mortis’ originates and the beneficiary of such residence is a cohabitant. So far such an exemption and reduction from duty was only applicable to the surviving spouse.
Transmission ‘causa mortis’ of the ordinary residence of the deceased to descendants
The Duty on Documents and Transfers Act, provides for an exemption from duty on the transfer ‘causa mortis’ of a dwelling house to descendants in the direct line and the said dwelling house was, at the time of the transfer, and during the whole period of three years preceding the transfer, the ordinary residence of the person from whom the transfer ‘causa mortis’ originates. The Bill is proposing to remove the condition that for such an exemption to apply, the residence must have been the ordinary residence of the deceased at the time of the transfer and for a minimum of three years prior to the date of the transfer. This means that such a transfer would still be exempt from duty if the deceased was not living in his / her ordinary residence for the whole period of three years before his / her demise, for example due to the fact that prior to the demise, he / she was either hospitalised or residing in a home for the elderly.
The Commissioner’s power to determine and assess duty
The Bill is proposing an amendment to the provision which grants powers to the Commissioner for Revenue to determine and assess under declared duty, such that it would also cover under declarations on transfers of real rights over immovable property.