Malta’s tax laws have been subject to a number of changes and updates during the course of 2020, some of which were precipitated by the COVID-19 pandemic.
Income and capital gains tax
A number of changes to the income and capital gains tax regimes trace their roots to the Budget Measures Implementation Act 2020 (Act), which was published in March 2020. This Act implements key tax measures which had been announced in Malta’s budget for 2020.
The Act introduces Article 90B to the Income Tax Act (ITA), pursuant to which provision income from certain overtime work (qualifying overtime income) has been brought within the scope of a reduced rate of income tax. The said article has prompted the enactment of the tax overtime rules, together with relative amendments to the Final Settlement System (FSS) Rules, which define the eligibility criteria to the proposed reduced tax rate.
Changes to tax rates on transfer of immovable property
Another noteworthy amendment introduced by the Act is that to Article 5A of the ITA dealing with the property transfer tax regime (PTTR), which generally provides for a system of taxation on transfers of immovable property situated in Malta and any real right over such property. The said amendment varies the tax treatment of profits derived from the assignment of a right obtained in terms of a promise of sale agreement, such that the latter assignment is no longer deemed to be a ‘transfer of property’ within the context of the PTTR.
This also includes a promise to alienate immovable property in any manner and a promise of an emphyteutical grant. Consequently, gains so derived will no longer suffer property transfer tax under the Article 5A PTTR, but will be subject to tax in terms of specifically applicable regime.
Further rules supplementing the above-mentioned amendment have additionally been published prescribing the conditions for the validity of any such assignment and the deductions allowed for the purpose of determining the income resulting from any such assignment. In this respect, proceeds derived from the assignment of rights under a promise of sale relating to immovable property (less certain specific deductions) will be subject to a final tax of 15% with effect from January 1 2020. The 15% rate will be applicable on the first €100,000 ($115, 560) whilst proceeds above the €100,000 will be taxed at the rate of tax applicable to the assignor, subject to a provisional tax payment at 7%.
The PTTR have been subject to additional reform pursuant to the Exemption from Tax on Certain Property Transfers Rules 2020 (the Rules). The Rules were enacted in an effort to support the Maltese property market during the COVID-19 pandemic. As a result of these changes, property transfer tax levied on a seller of immovable property has been reduced from the rate of 8% to 5% and will apply on the first €400,000 of the value of the property where final deeds of sale are published until the end of March 2021.
The Rules do also feature an anti-avoidance provision the result of which is to claw back any favourable tax treatment availed of therefrom, where it is in the opinion of the Commissioner for Revenue (CfR) that two or more transfers form part of a ‘structured arrangement’, designed for the purpose of inflating the applicable benefit in terms of these Rules.
Similarly, the rate of stamp duty levied on the acquisition of immovable property has also been reduced, from 5% to 1.5%, once again on the first €400,000 of the higher of the consideration for the transfer of property or the value of property, where final deeds of sale are published until the end of March 2021, and provided a number of conditions are satisfied. The anti-abuse provision outlined above is also applicable in terms of the reduced duty rate.
Deferral of the first reporting deadlines for DAC6
An update is also available in respect of the deferral of certain deadlines emanating from EU taxation measures which have been transposed into Maltese law. To this effect, the CfR has announced that it will be deferring, by six months, the first reporting deadlines arising as a result of DAC6 implementation legislation.
This deferral comes as a response to the European Council’s adoption of Directive (EU) 2020/876 of June 24 2020 (which supersedes Directive 2011/16/EU), addressing the urgency to defer the deadlines for filing and exchanging information in the field of taxation owing to burdens being faced by several taxpayers due to the COVID-19 pandemic.
Donald Vella
T: +356 2123 8989
E: donald.vella@camilleripreziosi.com
Kirsten Debono Huskinson
T: +356 2567 8117
