malta-vat by worldtradepresss

Worldwide VAT, GST and Sales Tax Guide

Valletta GMT +1

Regional Business Centre

Achille Ferris Street

Msida MSD 1751 Malta

Indirect tax contacts

Robert Attard +356 2347 1458 robert.attard@mt.ey.com

Saviour Bezzina +356 2347 1326 saviour.bezzina@mt.ey.com

Daniel Cassar Overend +356 2347 1964 daniel.cassar.overend@mt.ey.com

A. At a glance

Name of the tax

Value-added tax (VAT)

Local name It-taxxa fuq il-valur mizjud

Date introduced 1 January 1999

Trading bloc membership European Union (EU)

Administered by Ministry of Finance (http://www.vat.gov.mt)

VAT rates

Standard

18%

Reduced 5%, 7%, 12%

Other Exempt with credit (0%) and exempt without credit

VAT number format

VAT return periods

Thresholds

Registration

Established

MT12345678

Quarterly (the Commissioner for Revenue may prescribe longer or shorter periods)

EUR30,000-EUR35,000 (certain conditions apply)

Non-established None

Distance selling

Intra-Community acquisitions

Electronically supplied supplies

EUR10,000

Recovery of VAT by non-established businesses Yes, subject to certain conditions

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods and the rendering of services in Malta by a taxable person for consideration, in the course or furtherance of an economic activity

Holding companies. Holding companies can form part of a VAT group, subject to satisfying all applicable conditions outlined above.

Cost-sharing exemption. The VAT cost-sharing exemption (in line with VAT Directive 2006/112/ EEC Article 132(1)f) has been implemented in Malta. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in line with requirements laid out in Malta VAT Law – Item 7 of Part 2 of the Fifth Schedule to the Maltese VAT Act Cap. 406).

Fixed establishment. In Malta, there is no legal definition of a fixed establishment for VAT purposes. However, in practice, the Maltese VAT department applies the principles/conditions that emerge from Article 11 of Council Implementing Regulation (EU) No. 282/2011. It defines a fixed establishment as any establishment, other than the place of establishment of a business referred to in Article 10 of the Regulation, characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive and use the services supplied to it for its own needs. In certain cases its application in practice might require clarifications from the tax authorities with respect to specific scenarios that might not be clear.

Non-established businesses. A “non-established business” may be any of the following persons:

• A taxable person that has not established its economic activity.

• A taxable person that has no fixed place of establishment in Malta.

• A physical person who has not established its economic activity in Malta.

• A physical person who does not have a fixed place of establishment in Malta, has no permanent address in Malta or does not usually reside in Malta.

A non-established business that makes supplies in Malta may appoint a tax representative or may be required by the Maltese tax authorities to do so. The Commissioner for Revenue may designate, by means of a written notice, a person resident in Malta with whom the non-established business has a business relationship to be the tax representative of the non-established business, unless the non-established business has already designated a representative. The representative must be nominated in writing to the VAT authorities. A tax representative is jointly and severally liable with the person represented.

Tax representatives. Persons who are not established in Malta and who are required to register for VAT purposes in Malta may nominate a person resident in Malta to act as their fiscal representative. This is to be made in writing to the Commissioner for Revenue and is subject to its approval. Such a request may also be made by the Commissioner for Revenue itself.

The representative is liable in the same manner and to the same extent as the person for whom it acts as representative, for all obligations imposed by the VAT Act.

Reverse charge. Under the VAT directive, certain supplies received as a customer from a supplier outside Malta are required to be treated in a different way to normal supplies. In such situations, rather than being charged VAT by the supplier, the customer will account for any VAT due. This is known as the “reverse-charge” mechanism.

The reverse-charge mechanism applies to services and for certain goods. For example, goods with installation supplied by someone not established and not VAT registered in Malta, to a Maltese established and VAT-registered business, would fall under the reverse-charge mechanism.

Where the reverse-charge mechanism applies, the Maltese recipient must act as both supplier and recipient of the services for VAT purposes. On the same VAT return, therefore, the Malta taxable person must account for output and input tax.

Domestic reverse charge. There is a domestic reverse charge in Malta for certain constructionrelated services. However, there are special rules in place for this domestic reverse charge. The

use of the domestic reverse charge must be approved in writing by the Maltese VAT department on a case-by-case basis subject to the satisfaction of certain conditions upon a request to be submitted in writing.

Digital economy. Specific VAT rules apply to cross-border supplies of goods and services sold via the internet (i.e., e-commerce) in all EU Member States with effect from 1 July 2021. These new rules apply to all direct sales to nontaxable persons (in practice these are mostly private individuals), but we refer to these rules as e-commerce VAT rules because most of these transactions are conducted via the internet. In general, the place of supply is in the country of consumption, i.e., where the goods are shipped to or where the buyer of the goods or services resides, subject to any “use and enjoyment” provisions that may override this rule (see the Section B. Effective use and enjoyment subsection above). Therefore:

• For supplies of services made by a nonresident supplier to a business customer (B2B), the business customer is responsible for accounting for the VAT due, using the reverse charge.

• For supplies of goods made by a nonresident supplier to a B2B, where the goods are transported from another EU Member State, the business purchasing the goods is responsible for accounting for the VAT due, as an intra-Community acquisition. If the goods come from outside the EU, the purchaser may have to report an importation of goods.

• For supplies of goods or services made by a nonresident supplier to a final consumer (B2C), the supplier is generally responsible for charging and accounting for the VAT due at the rate applicable in the customer’s country (unless the supplier’s sales fall beneath the distance selling threshold of EUR10,000 with effect from 1 July 2021). This VAT can be reported using a single VAT registration, using a “One-Stop-Shop” mechanism.

For more details about intra-EU distance sales, see the EU chapter.

Effective 1 July 2021, an e-commerce supplier may have a choice of how to account for VAT on its B2C supplies.

Local VAT registration. A nonresident supplier may choose to register for VAT in each Member State and account for VAT on all supplies made and recover input tax in accordance with local rules (see the Non-established businesses subsection above). Non-EU businesses may be required to appoint a fiscal representative for accounting for the VAT due on these transactions.

In Malta, the local VAT registration can be made online (https://cfr.gov.mt/en/eServices/Pages/ Request-for-a-New-Vat-number.aspx).

One-Stop Shop. Effective 1 July 2021, a supplier can choose to account for the VAT due under the EU One-Stop Shop (OSS), which can be used for intra-EU cross-border supplies of goods and all cross-border supplies of services made to final consumers in the EU. Unlike the previous Mini One-Stop-Shop (MOSS) scheme that applied until 30 June 2021, the OSS is not limited to cross-border supplies of electronic services, telecommunication services and broadcasting services.

In Malta, the OSS registration can be made online (https://cfr.gov.mt/en/eServices/Pages/OSS. aspx).

The OSS is an electronic portal that allows businesses to:

• Register for VAT electronically in a single Member State for all intra-EU distance sales of goods and for B2C supplies of services.

• Declare and pay VAT due on all supplies of goods and services in a single electronic quarterly return.

The OSS can be used by businesses established in the EU and outside the EU. If a supplier or a deemed supplier decides to register for the OSS, it must declare and pay VAT for all supplies (i.e., for goods as well as services) that fall under the OSS.

For more details about the operation of the OSS, see the EU chapter.

Import One-Stop Shop. Effective 1 July 2021, the Import One-Stop-Shop (IOSS) scheme applies for B2C distance sales of goods from outside the EU.

Effective 1 July 2021, VAT is due on all commercial goods imported into the EU regardless of their value. The actual supply is subject to VAT in the country where the goods are imported (i.e., the country of destination). The IOSS facilitates the declaration and payment of VAT due on the sale of low-value goods (i.e., consignments valued at less than EUR150 per consignment). It allows suppliers selling low-value goods dispatched or transported from a non-EU country to customers in the EU to collect, declare and pay the VAT due. If the IOSS is used, the importation into the EU is exempt from VAT. For more details about the IOSS, see the EU chapter.

The use of the IOSS special scheme is not mandatory. If VAT is not collected via the IOSS scheme, the importation of goods into the EU is subject to import VAT in the country of final destination, and the Member State can decide freely who is liable to pay the import VAT, which could be the customer or the seller (or an electronic interface).

In Malta, the IOSS registration can be made online (https://cfr.gov.mt/en/eServices/Pages/OSS. aspx).

Postal Services and Couriers Scheme. If the IOSS is not used and the customer is liable for the import VAT due on the supply (and importation) of consignments with a small intrinsic value (i.e., less than EUR150), the VAT can be collected using the special scheme for postal services and couriers.

In Malta there are no additional specific local rules that apply.

For more details about the special scheme for postal services and couriers, see the EU chapter.

Online marketplaces and platforms. Under the new EU VAT e-commerce rules effective 1 July 2021, taxable persons that “facilitate” certain B2C sales of goods are deemed to have purchased and then supplied those goods themselves. This means that the single supply from the “underlying” supplier to the final consumer is split into two deemed supplies:

• A supply from the supplier to the facilitator (deemed B2B supply)

• A supply from the facilitator to the final customer (deemed B2C supply); any intermediation service provided by the facilitator is disregarded for VAT purposes

This provision does not cover all sales facilitated via the facilitator. It only covers distance sales of goods imported from non-EU jurisdictions in consignments with an intrinsic value not exceeding EUR150. The jurisdiction of residence of the supplier using the facilitator is irrelevant. The supply to the facilitating platform is VAT exempt and the supplies made by that platform follow the e-commerce VAT rules as described above. In addition, the provision also covers sales within the EU, if the supplier is not established within the EU. This applies to both local shipments within one Member State as well as intra-Community shipments. In both cases, the final customer must be a nontaxable person.

In Malta there are no additional specific local rules that apply.

For more details about the rules for online marketplaces, see the EU chapter.

Vouchers. The provisions of Council Directive (EU) 2016/1065 of 27 June 2016 amending Council Directive 2006/112/EC as regards the treatment of vouchers were transposed into local Maltese legislation as from 1 January 2019.

Single-purpose voucher (SPV) means a voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the

• Education

• Postal services

• Banking and insurance

• Grant and negotiation of credit and the management of credit by the grantor

• Supply by nonprofit organizations of approved services related to sports or physical recreation

• Sports

• Lotteries

• Broadcasting

• Water

Option to tax for exempt supplies. The option to tax exempt supplies is not available in Malta.

E. Time of supply

The time when VAT becomes due is referred to as the “date when tax on supplies becomes chargeable” or “tax point.”

The basic tax point for a supply of goods is the earlier of the date on which the goods are delivered or otherwise made available to the recipient of the supply or the date on which payment is made. The basic tax point for a supply of services is the earlier of the date on which the services are performed or the date on which payment is made.

If a VAT invoice is issued before the basic tax point or by the 15th day of the month following the basic tax point, the date on which the VAT invoice is issued becomes the actual tax point. The actual tax point overrides the basic tax point.

Deposits and prepayments. The basic tax point for a supply of goods is the earlier of the date on which the goods are delivered or otherwise made available to the recipient of the supply or the date on which payment is made. The basic tax point for a supply of services is the earlier of the date on which the services are performed or the date on which payment is made.

Continuous supplies of services. When the supply of services gives rise to successive statements of account or payments they shall be treated as performed, up to the value covered by those statements, on the last day of each period to which such statements of account or payments refer (i.e., the basic tax point).

Provided that, when a continuous supply of services does not give rise to statements of account or payments during a year, it shall be regarded as being completed at least at intervals of one year.

Goods sent on approval for sale or return. There are no special time of supply rules in Malta for the supply of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).

Reverse-charge services. The basic tax point for a supply of services is the earlier of the date on which the services are performed or the date on which payment is made.

Leased assets. For leased goods (where the delivery of goods pursuant to a contract for the hire of goods for a certain period or for the sale of goods on deferred terms, which provides that in the normal course of events ownership shall pass at the latest upon payment of the final installment) such supplies shall be treated as supplies of goods with the basic tax point being the earlier of the date on which the goods are delivered (or otherwise made available to the recipient) or the date on which payment is made.

Bad debts. A claim for a deduction by way of a bad debt relief shall be subject to such directives as the Maltese VAT department may give as to the circumstances in which it may be made and the documents or other evidence that should be produced.

The conditions for claiming bad debt relief are as follows:

• Claim for bad debt relief may be made following a final court judgment showing beyond doubt and to the satisfaction of the Commissioner for Revenue that the debt can never be recouped.

• The claim must reach the Commissioner for Revenue by not later than 12 months from the date of delivery of the final judgment.

• VAT in connection with the claim must have already been accounted for and paid to the department.

• All VAT returns and payments due as at the date of the claim must have been submitted by that date.

• The debt must have been written off in the claimant’s day-to-day VAT accounts and transferred to a separate bad debt account.

• The supply must have been made to the customer or to a third party through the customer.

• The value of the supply must not be more than the customary selling price.

• The debt must not have been paid, sold or factored under a valid legal assignment.

To claim a refund, an application to claim bad debt relief must be made by means of a registered letter addressed to the Commissioner for Revenue, providing:

• A copy of the relative final court judgment

• The date and number of any invoice issued for each supply to the customer, which is included in the claim

• For each relevant supply, the amount that has been written off as a bad debt

• The amount of the claim

The Commissioner for Revenue shall subsequently examine the case, accept or reject the claim and inform the claimant accordingly.

The claimant may deduct the tax relative to the bad debt relief claim in Box 41 of the VAT return for the tax period following that in which the Commissioner for Revenue has authorized the relief.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Malta.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Malta is recoverable. The Maltese VAT authorities refund VAT incurred by businesses that are neither established nor registered for VAT in Malta. Non-established businesses may claim Maltese VAT to the same extent as VAT-registered businesses.

EU businesses. For businesses established in the EU, refunds are made under the terms of the EU Directive 2008/9/EC. The VAT refund procedure under the EU Directive 2008/9 may be used only if the business did not perform any taxable supplies in Malta during the refund period (excluding supplies covered by the reverse charge). For full details, see the EU chapter.

There are no specific refund rules in Malta, other than those established under the respective EU Directive.

Non-EU businesses. For businesses established outside the EU, refunds are made under the terms of the EU 13th Directive. For full details, see the EU chapter.

There are no reciprocity rules in place in Malta, as there are no particular/additional restrictions other than those that apply to Maltese established businesses (i.e., the normal input tax recovery

Periodic payments. Payment of the VAT due is required in full on the same date as the VAT return submission deadline, i.e., within one-and-a-half months after the end of the tax period to which they relate. Return liabilities must be paid in EUR. Payment of VAT can be made either manually at the approved cash collection points (currently, local postal offices) or online, when filing the VAT return online via the link or online via a bank transfer to the Maltese VAT department’s bank account.

Electronic filing. Electronic filing is mandatory in Malta for certain taxable persons. Electronic filing of VAT returns is mandatory for all taxable persons except for those who have less than 10 employees. There is a seven-day extension for the filing online of the VAT return and the payment of the respective VAT due, if any.

Payments on account. Payments on account are not required in Malta.

Special schemes. Professional services. A special scheme restricted for warrant holders whereby they can apply the cash accounting system for VAT accounting (as opposed to accrual accounting). Under this scheme, the warrant holder is entitled to delay the issuance of the tax invoice up until the payment is received in such a way that VAT is only to be forwarded to the VAT department once received.

Secondhand goods, works of art, collectors’ items and antiques. A special scheme whereby VAT is mainly charged on the profit margin generated on the supply of such goods. (1) Secondhand goods dealers shall have the option to apply the provisions of this part, after having obtained the approval in writing of the Commissioner for Revenue, in respect of supplies of (a) works of art, collectors’ items or antiques that they have imported themselves; (b) works of art supplied to them by their creators or their successors intitle. (2) Where a secondhand goods dealer exercises the option available under paragraph (1) of this item, such option shall cover at least two calendar years.

Supplies by retailers and by civil, mechanical and electrical engineering contractors. A special scheme whereby these contractors can apply the cash accounting system for VAT accounting (as opposed to accrual accounting). Unlike the professional services special scheme, in this case instead of delaying the issuance of a tax invoice, the tax invoice is issued immediately and on it the words “cash accounting must be inserted.”

Travel agents. The tour operators/travel agents margin scheme is a special scheme whereby VAT is mainly charged on the profit margin generated on the supply of such services in order to avoid the need for multiple VAT registrations in different Member States.

Tax in danger. A scheme that allows the domestic reverse-charge mechanism only in connection to construction-related supplies and subject to approval by the Maltese VAT department that is usually restricted to construction-related contracts greater than EUR70,000 per contract.

Investment gold. A special scheme regarding the VAT accounting for investment gold where taxable persons who produce investment gold or transform any gold into investment gold have a right of option for taxation of supplies of investment gold to another taxable person that would otherwise be exempt in terms of Part One of the Fifth Schedule.

Telecommunications, broadcasting or electronically supplied services. This scheme utilizes the OSS for EU and non-EU established service providers of telecommunication, broadcasting and electronically supplied services. For more details about the operation of the OSS, IOSS and online marketplace, see the EU chapter.

Cash accounting. Professional service providers and retailers, as well as civil, mechanical and electrical engineering contractors, may use cash accounting if they have not exceeded the threshold of EUR2 million, subject to the condition that the right to deduct input tax shall be postponed until the tax on the goods or services supplied to them has been paid.

Penalties for late payment and filings. A penalty for default in submitting a tax return equals the greater of the following two amounts:

• 1% of the excess, if any, of the output tax over input tax for the period (disregarding any excess credit brought forward from a previous tax period and any allowable deductions)

• EUR20 for every month or part of a month that the return is late

• Capped at EUR250

Interest is assessed on VAT paid late. The current rate is 0.6% for each month or part of a month. The interest rate may change.

Penalties for errors. For the filing of a tax return containing errors that are discovered during a VAT inspection, a penalty equal to the sum of the following is imposed:

• 20% of the excess, if any, of the correct amount of output tax over the output tax declared in the return

• 20% of the excess, if any, of the deductions declared in the return over the correct amount of the deductions

If an error is voluntarily disclosed before it is discovered by the VAT department, the penalty is reduced to 10%. This reduction also applies if the person involved cooperates with the Commissioner for Revenue, accepts an agreement and pays the amounts due within one month after signing the agreement.

There are no specific penalties associated with the late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details. For further details, see the subsection Changes to VAT registration details above.

Penalties for fraud. On conviction of certain irregularities in records, e.g., fraud, false representations, a person shall be liable to the following penalties:

• To a fine of not less than EUR6,000 and not exceeding EUR10,000 for certain offenses committed

• To a fine of not less than EUR700 and not exceeding EUR3,500 for certain offenses committed

In addition, where tax amounting to more than EUR100 would be endangered, to a further fine equal to two times the endangered tax or to imprisonment of not more than six months or to both such fines and imprisonment.

Provided that, the two times fine for the endangered tax shall in no case be less than EUR1,000.

In addition, on a request by the prosecution, the court shall order the offender to comply with the law within a time sufficient for the purpose, but in any case, not exceeding one month, and, in default, the offender shall be liable to the payment of a further fine of EUR5 for every day on which the default continues after the lapse of the time fixed by the court.

Personal liability for company officers. Directors and other company officials qualify to be treated as representatives of the VAT-registered person for Maltese VAT purposes and shall be jointly and severally liable (with the person of whom they are representatives) for the tax due by that person. The implications will depend on whether it is established that they acted in good faith (in which case liability is limited to the funds or to the value of any property under their management or control) or not and penalties/punitive measures depend on the actions committed ranging from daily fines to imprisonment.

Statute of limitations. The statute of limitations in Malta is six years. When the Commissioner for Revenue has reason to believe that a tax return furnished by a person registered under Article 10 for a tax period does not contain a full and correct statement of the matters required to be

declared in that return, it may make a provisional assessment and serve that provisional assessment on that person by not later than six years from the end of the said tax period or from the date in which the tax return for that tax period is submitted, whichever date is the later.

Provided that where the provisional assessment refers to the adjustment relating to input tax on capital goods mentioned in the Tenth Schedule, it shall be served by not later than six years from the end of the adjustment period mentioned in the said schedule.

Provided further that, where a person makes a correction in terms of Article 28(1), the six-year period in which the Commissioner for Revenue may make a provisional assessment as provided for in this sub-article shall start to run from the date on which the Commissioner for Revenue receives the request for the correction.