Malta Tax Year 2023 in Review

This overview highlights noteworthy tax developments that transpired during 2023 year.

Part 1: Updates arising from the Legislation in Malta 

LN 4 of 2023 – Amendment to the Deduction (Income from Employment) Rules

LN 4 of 2023 year has introduced amendments to the Deduction (Income from Employment) Rules in Malta. The income threshold outlined in Rule 2, initially established at €10,200, has been extended to €10,535.

LN 8 of 2023 – Amendment to the Cooperation with Other Jurisdictions on Tax Matters Regulations

LN 8 of 2023 has amended the Cooperation with Other Jurisdictions on Tax Matters Regulations (SL 123.127). Notable revisions encompass the introduction of a definition for "joint audit" along with a new provision overseeing joint audits. Additionally, the update brings clarity to the concept of "foreseeable relevance" in Regulation 12 and includes provisions addressing the automatic exchange of information reported by Platform Operators. Penalties for non-compliance with reporting obligations by Platform Operators are also specified.

LN 9 of 2023 – Amendment to the Exemption from Tax on Property Transfers (Set-off of Tax Arrears) Rules

The Exemption from Tax on Property Transfers (Set-off of Tax Arrears) Rules, which were introduced in 2021 have been revised by LN 9 of 2023 amending Rule 4 introducing a notification cut-off date of 31st March 2023.

LN 40 of 2023 – Amendment to the Group Deductions (Income Tax) Rules, 2022

LN 40 of 2023 has updated the conditions outlined in Rule 3 of the Group Deductions Rules (SL 123.205) and limited the total deductions to one million euros per group of companies and the total amounts surrendered in each year of assessment shall be equal to the amounts so claimed in each year of assessment.

In addition, it limited the deductions that may be claimed by a claimant company in the year of assessment 2022 and in the year of assessment 2023 to the company’s total income for the respective tax years. 

LN 48 of 2023 – Amendment to Pensions (Tax Exemption) Rules

LN 48 of 2023 has brought about updates to the Pensions (Tax Exemption) Rules. These revised rules, effective from the 1^st of January 2023, encompass updated exemption thresholds for pension income earned by individuals on or after the 1^st of January 2022.

LN 49 of 2023 – Amendment to Tax Rebate (Pensioners) Rules

The Tax Rebate (Pensioners) Rules (SL 123.179) underwent modifications as per LN 49 of 2023, impacting income earned from the 1st of January 2023 onward.

LN 50 of 2023 and LN 51 of 2023 – Amendment to Excise Duty Act

LN 50 of 2023 has amended the Third and Sixth Schedules to the Excise Duty Act, while LN 51 of 2023 has updated the General Arrangements for Excise Duty (Council Directive (EU) 2020/262) Regulations. These changes incorporate the provisions of Commission Delegated Regulation (EU) 2022/1636, supplementing Council Directive (EU) 2020/262, and Commission Implementing Regulation (EU) 2022/1637.

LN 55 of 2023 – Amendment to Social Security Act

LN 55 of 2023 has brought revisions to the Fifth Schedule of the Social Security Act in Malta.

Budget Measures implementation Act: Act XII of 2023 year

The Budget Measures Implementation Act (Act XII of 2023) was officially published on the 4^th of April 2023. This comprehensive legislation brought revisions to various laws, including:

• Customs Ordinance
• Income Tax Act
• Social Security Act
• Motor Vehicles Registration and Licensing Act
• Income Tax Management Act
• Excise Duty Act
• Value Added Tax Act
• Arbiter for Financial Services Act

It also impacted subsidiary legislation, encompassing Customs Regulations, Cash Control Regulations, and Enforcement Measures to Recoup Established Duties and Taxes Regulations.

LN 70 of 2023 – Tax Credit (Costs of Therapy for children with disability) Rules

The Tax Credit (Costs of Therapy provided to Children with Disability) Rules, 2023, were released on the 4^th of April 2023. These rules introduced a tax credit of €200 for qualifying costs incurred in Malta, in the year immediately preceding the year of assessment starting on or after the 1^st of January 2024.

LN 77 of 2023 - revised the Exemption from Tax on Certain Property Transfers Rules

The Exemption from Tax on Certain Property Transfers Rules (SL 123.199) have been revised by LN 77 of 2023.

LN 99 of 2023 – amendment to the Assignments of Rights Acquired under a Promise of Sale Agreement Rules

LN 99 of 2023 has modified Rule 12 of the Assignments of Rights Acquired under a Promise of Sale Agreement Rules (SL 123.198), eliminating the reference to 31^st December 2022. This extension ensures the continuation of the 15% tax rate application (Rule 5) for assignments not exceeding €100,000, applicable to transactions made after 31^st December 2020, beyond the initial deadline of 31^st December 2022.

Act XXVII of 2023 – revision of the Commissioner for Revenue Act

Act No. XXVII of 2023 has brought about revisions to the Commissioner for Revenue Act (CAP 517), introducing significant changes outlined below:

1. The title "Commissioner for Revenue" will now be "Commissioner for Tax & Customs." References to the Commissioner of Inland Revenue, the Commissioner of Value Added Tax, the Comptroller of Customs, and the Commissioner for Revenue are now to be interpreted as references to the Commissioner for Tax and Customs.
2. Any mentions in legislation referring to the Office of the Commissioner for Revenue will now be understood as references to the Malta Tax and Customs Administration.
3. The Commissioner for Tax & Customs is no longer answerable to the Minister for Finance. When handling the determination of an individual's tax affairs under the Revenue Acts, the Commissioner will act independently, free from the direction or control of any board established under this Act, or any Minister, Government official, agency, or authority.
4. A Board of Governance has been established, accountable to the Minister for Finance. This board is tasked with reviewing or developing proposals concerning the vision, strategy, and/or performance of the Malta Tax & Customs Administration.

Furthermore, in line with Act XXVII of 2023, all references to the Commissioner for Revenue in the various Revenue Acts shall be replaced with Commissioner for Tax & Customs.

LN 231 of 2023 – amendment to the Eighth Schedule to the VAT Act 

LN 231 of 2023 has implemented a reduced rate of 12%, effective from the 1^st of January 2024, applicable to four specific service categories:

1. Custody and management of securities.
2. Management of credit and credit guarantees by entities other than the original creditors.
3. Hiring of a pleasure boat for a period not exceeding 5 weeks (subject to specified conditions).
4. Services involving the care of the human body by medical professionals (subject to specified conditions).

This adjustment in VAT rates is grounded in article 105a of the VAT Directive 2006/112EC, introduced by Council Directive (EU) 2022/542, also known as the VAT Rates Directive, and is incorporated into the Eighth Schedule of the VAT Act.

LN 232 of 2023 – amendment to the Social Security Act

LN 232 of 2023 has replaced the Third, Sixth, Seventh, Eighth, Ninth, Tenth, and Twelfth Schedules of the Social Security Act.

LN 266 of 2023 – amendment to the Deductions and Tax Credit (Relevant Qualifications for Industry) Rules

LN 266 of 2023 has amended the Deductions and Tax Credit (Relevant Qualifications for Industry) Rules, which provide a tax credit for students who successfully complete qualifying courses designated by Malta Enterprise. The revision extends the application of these rules to courses commencing before 31^st December 2024, extending the previous deadline from 31^st December 2023.Top of Form

Act XXXV of 2023  

Act XXXV of 2023 has modified the definition of 'Malta' within the VAT Act (CAP 406), now encompassing the 'Exclusive Economic Zone.' The revised definition specifies that Malta includes not only the Island of Malta, the Island of Gozo, and the other islands of the Maltese Archipelago, along with their territorial waters and continental shelf but also extends to any exclusive economic zone area, subject to the provisions of sub-article (4).

According to the newly introduced sub-article 4, the inclusion of an exclusive economic zone area in Malta is limited to activities carried out pursuant to, or directly related to, an authorization or license granted in accordance with the Exclusive Economic Zone Act.

LN 272 of 2023 – CESOP Regulations

LN 272 of 2023 has released regulations that transpose the provisions of Article 1 of Directive 2020/284 EC, amending Directive 2006/112/EC to introduce specific requirements for payment service providers.

These regulations, effective from 1^st January 2024, mandate payment service providers to maintain records of payees and payments associated with the services they offer. Additionally, providers must submit this information to the Commissioner for Tax & Customs. This submission facilitates competent authorities in Member States to conduct controls on supplies of goods and services occurring within a Member State, aligning with the objective of combating VAT fraud.

LN 277 of 2023 – NOMAD Permit Income Tax Rules

LN 277 of 2023 has introduced regulations outlining the taxation procedures for holders of a Nomad residence permit.

According to these rules, permit holders will be subject to income tax at a rate of 10% on chargeable income arising from "authorised work," as defined, with the possibility of relief for double taxation under the Income Tax Act. The regulations specify that income derived from authorized work within the first 12 months from the later of the date of the Nomad residence permit's issuance or the 1^st of January 2024, will not be subject to income tax. This exemption is contingent upon the declared residence during this 12-month period not being of a casual nature.

LN 289 of 2023 - Periods of Applicability of Exemptions (Duty on Documents and Transfers Act)

LN 289 of 2023 has prolonged the exemptions pertaining to:

1. The Exemption of Duty as per Article 23 Order (SL 364.12)
2. The Duty on Donations of Marketable Securities and Immovable Property Used for Business (Exemption) Order (SL 364.15)
3. The Duty on the Acquisition of the Second Immovable Property to be used as Sole Residence (Exemption) Order (SL 364.17)

LN 296 of 2023 – Amendment to the Tax Credit (Costs of Therapy for children with disability) Rules

Following the announcement in the 2024 budget, the Tax Credit (Costs of Therapy Provided to Children with Disability) Rules have undergone revisions (LN 296 of 2023) to raise the allowance from €200 to €500, effective from the Year of Assessment 2025.

LN 316 of 2023 – amendment to the Exemption of Duty in Terms of Article 23 Order

LN 316 of 2023 has amended the Exemption from Duty in terms of Article 23 Order, extending the deadlines related to the exemption of duty on the acquisition of residential property in Gozo.

Part 2: Malta Budget Speech for 2024 year

A concise summary of the significant measures proposed in the 2024 Budget below: 

Pension Exemption Portion:

• The gradual tax exemption introduced in 2022 will continue over 5 years.
• For the basis year 2024, the exempt portion increases to 60%, subject to a prescribed cap.
• Pensions for 2024 will see an increase of €15 per week (inclusive of COLA).

Widows’ / Widowers’ Pension:

• Pension will no longer be taxable for individuals under 61 years.
• Beneficiaries continue to receive the pension income of their deceased spouse.

Disability Therapy Tax Credit:

• Tax credit for qualifying therapy costs for children with special needs increased to €500 per annum (previously €200).

Donations to Voluntary Organizations:

• Businesses donating to registered voluntary organizations may deduct up to €500 for social, environmental, and animal welfare causes.

Reduction in Taxes on Transfers of Certain Rented Properties:

• No final withholding tax and stamp duty on the first €200,000 for property transfers to tenants with a history of leasing.

Fiscal Incentives for Highly Qualified Persons:

• Existing fiscal incentives for highly qualified persons to be revised and harmonized to match the skills needed in the Maltese economy.

Removal of Audit Requirement for Small Companies:

• Small companies exempted from the obligation to engage an auditor for drawing up an auditor's report.

Extension of Seed Investment Scheme:

• The Seed Investment Scheme, offering tax credits to companies investing in startups, will be extended.

Property in UCA’s & Vacant Property:

• Exemption from Stamp Duty and Final Withholding Tax on the first €750,000 for certain property purchases extended to 2024.

Extension of Reduced Tax Rate on Income from Sports Activities:

• The 7.5% tax rate on income derived from sports activities extended to other individuals engaged in sports activities.

Get Qualified and Higher Education Tax Credits:

• Existing schemes offering deductions and tax credits under the Get Qualified Scheme and Higher Education scheme continue in 2024.

Bonus Payment to Employees:

• Individuals earning less than €60,000 to benefit from bonus payments issued by the Treasury Department, ranging from €60 to €140.

REITS / Green Bonds:

• Consultations will be held for potential fiscal incentives for REITS companies and companies offering green bonds.

Capital Transfer Duty Measures:

• Duty schemes for First-Time and Second-Time buyers extended for 2024, along with reduced duty on transfers of family businesses.
• Reduced duty on transfers of Gozo property not extended, but promises of sale registered by December 2023 qualify for the reduction.

Part 3: Launch of Malta Tax and Customs Administration - Delivering Transformation Strategic Plan 2023 - 2025

The Office of the Commissioner for Revenue (CfR) has introduced a three-year strategic plan covering the period from 2023 to 2025. The primary objective of this strategy is to modernize the CfR to align with the evolving economy and leverage the advantages of contemporary technology. A key initiative involves consolidating the departments responsible for Income Tax, Value Added Tax, and the Customs Department, culminating in the establishment of the Malta Tax and Customs Administration.

Minister for Finance and Employment, Clyde Caruana, expressed approval for the strategic plan, highlighting that it represents two years of dedicated effort. The overarching goal of the strategy is to optimize the utilization of existing revenue, enabling the country to achieve more with fewer resources, while also ensuring the effective collection of all taxes owed.

The Commissioner for Tax and Customs (CfR) has now changed its name to Malta Tax and Customs Administration.

Part 4: EU Legislation and Guidance 

February 2023 Update to the EU list of non-cooperative Jurisdictions:

The ECOFIN Council has revised its list of non-cooperative jurisdictions, incorporating the British Virgin Islands, Costa Rica, Marshall Islands, and Russia.

As of the update on the 14^th of 2023, Annex I of the EU list now comprises 16 jurisdictions that exhibit either a deficiency in their dedication to enhancing tax good governance or a lack of progress in fulfilling their earlier commitments.

April 2023 EU Customs Reform Proposal including proposals to revise the Import One Stop Shop:

The Commission has introduced a set of proposals outlining a comprehensive reform of the EU Customs Union, marking what is being lauded as the most ambitious overhaul since its establishment in 1968.

These measures aim to streamline customs processes for businesses, simplifying complex procedures and replacing traditional declarations with a more intelligent, data-driven approach to import supervision. Simultaneously, the reforms empower customs authorities to effectively evaluate and intercept imports that pose genuine risks to the EU, its citizens, and its economy.

A key aspect of the proposal is the creation of a new EU Customs Data Hub, set to replace existing technology. This hub will aggregate data provided by businesses, offering authorities a comprehensive 360-degree view of supply chains and the movement of goods.

The proposed reform to the EU Customs Union, encompasses amendments to the VAT Directive, with a specific focus on the Import One Stop Shop (IOSS):

Expanding the scope of the deemed supplier rule, which currently applies solely to distance sales of imported goods not exceeding €150, to encompass all distance sales of goods imported from a third territory or third country.

Broadening the reach of the IOSS, currently restricted to distance sales of imported goods in consignments with an intrinsic value not exceeding €150, to include all distance sales of imported goods, regardless of their value.

Extending the application of the special arrangements outlined in Chapter 7 of Title XII of Council Directive 2006/112/EC, presently limited to eligible imported goods with an intrinsic value not exceeding €150, to cover all eligible goods.

May 2023 ECOFIN Agreement on DAC 8 and October 2023 Approval of revised Directive:

On May 16, 2023, EU Finance Ministers achieved a political consensus on the overarching framework for revisions to the Directive on Administrative Cooperation in taxation. This primarily centres on enhancing reporting and facilitating the automatic exchange of information, focusing on:

• Revenues stemming from transactions involving crypto assets.
• Details concerning advance tax rulings for high-net-worth individuals.

Subsequently, at the meeting on the 17^th of October 2023, the ECOFIN Council formally adopted amendments to the Directive on administrative cooperation in taxation, specifically addressing reporting and the automatic exchange of information related to transactions involving crypto-assets and advance tax rulings for high-net-worth individuals.

June 2023 Proposed changes to EU Withholding Tax Procedures:

The European Commission has introduced a set of new regulations aimed at enhancing the efficiency and security of withholding tax procedures within the EU. These measures are designed to benefit investors, financial intermediaries such as banks, and tax administrations of Member States. The key proposed actions include:

• Establishment of a standardized EU digital tax residence certificate.
• Implementation of two expedited procedures: a "relief at source" mechanism and a "quick refund" system. Member States have the flexibility to select the preferred approach, including the option of a combined utilization of both procedures.

September 2023 – BEFIT proposal published.

On the 12^th of September 2023 year, the European Commission unveiled a series of initiatives with the aim of reducing tax compliance expenses for large, cross-border businesses operating within the EU.

At the core of these initiatives is the Proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT), which outlines a unified set of rules to ascertain the tax base of companies within a group that prepare consolidated financial statements and are subject to corporate income taxation in a Member State.

Additionally, the package encompasses a proposal to standardize transfer pricing rules across the EU, ensuring a consistent approach to transfer pricing.

The proposed implementation dates for these initiatives are set for the 1^st of July 2028 for BEFIT and the 1^st of January 2026 for the transfer pricing proposal.

September 2023 – Head Office Taxation proposal

The European Commission has unveiled a proposed Directive introducing the concept of Head Office Taxation. This proposal offers small and medium-sized enterprises (SMEs) engaged in cross-border operations through permanent establishments the flexibility to engage with a single tax administration rather than navigating through multiple tax systems. Under this framework, qualifying SMEs can opt to compute the taxable results of their permanent establishments based on the tax regulations of the Member State where their head office is located, while the relevant tax rate(s) will continue to be determined by the Member State(s) in which the permanent establishments are situated.

October 2023 Update to the EU list of non-cooperative Jurisdictions

The ECOFIN Council has revised its list of non-cooperative jurisdictions, incorporating Antigua and Barbuda, Belize, and Seychelles. Simultaneously, three jurisdictions that were initially added to the list in February 2023  namely, the British Virgin Islands, Costa Rica, and Marshall Islands – have now been removed. This adjustment reflects the dynamic nature of the list, with jurisdictions subject to periodic evaluations and updates.

What this means for you

The above updates may or may not apply to your scenario, depending on your personal circumstances. As a taxpayer or potential taxpayer in Malta, staying informed about the latest tax updates is crucial, as they bring about several changes that might directly impact you or your business.

How we can help

Our team of experienced tax lawyers can help you navigate the complexities of taxation and achieve your objectives. Please feel free to contact us to learn more about how we can assist you in light of the latest tax updates in Malta