Malta: The Bill For The Budget Measures Implementation Act, 2018

Last Updated: 11 April 2019
Article by André Zarb

Income Tax on Transfers of Immovable Property acquired by Donation or Inheritance

The Bill proposes to widen the options on how to tax transfers of immovable property acquired by donation or inheritance.

Currently, if property was inherited by a transfer or after the 24th November, 1992 or was acquired by the transferor by donation made more than five years before the date of a current transfer, a final tax at 12% applies on the difference between the transfer value and the cost of acquisition by inheritance/donation as applicable. Such manner of computing the tax charge does not apply when the property transferred forms part of a project.

The Bill proposes that in the said cases, the transferor will have the option not to apply the 12% tax in the manner described, if a declaration is made to the notary at the time of the publication of the deed of the transfer and recorded in the said deed. Instead, the applicable tax charge will be of 10%, 8% or 5% of the transfer value depending on the facts and circumstances of the transfer.

Amendments to the Participation Exemption

Currently,  Malta's Participation Exemption exempts from income tax dividends and capital gains derived by a company incorporated in Malta from a holding of equity shares in an entity (referred to as 'participating holding') or from the transfer thereof, subject to the satisfaction of a number of conditions. Nonetheless, withholding taxes apply when Maltese resident shareholders become beneficially entitled to income/capital gain that is subject to the participation exemption.

The Bill proposes to remove such withholding taxes. Nonetheless, the Bill proposes that when the participating holding is in a company resident in Malta, the participation exemption with respect to gains from the transfer of the Maltese company can be availed of only on the part of the capital gain pertaining to the ultimate beneficial owners who are neither resident in Malta nor owned and controlled by, directly or indirectly, nor act on behalf of an individual/s who are ordinarily resident and domiciled in Malta. The part of the capital gain from a Maltese resident participating holding pertaining to Maltese resident ultimate beneficial owners will be subject to standard income tax rules.

Increase in the School Fees' Deductions

Fees paid to registered private schools and kindergartens can be deducted against a parent's chargeable income subject to the fulfilment of certain conditions. The Bill proposes that, as from 2019, the maximum amount of this tax-deductible expense shall increase by €300 to €2,600 for secondary education, €1,900 for primary education and €1,600 for kindergarten education.

Amendments related to the Administration of Income Tax, Value Added Tax and their Collection

These include the following:

1. Extension of the period to act on a demand note

Currently, when outstanding tax balances, including additional tax and interest, are not paid by taxpayers after notification, the Commissioner for Revenue may enforce payment by means of an executive act (mandat) through (a) the issue of a demand note that is served on the taxpayer requesting payment within 15 days; (b) following failure to pay, the service of an intimation for payment by means of a judicial act; and (c) enforcement of the payment within 2 days. The Bill proposes to extend the 15 day time-window to react to a demand note to 30 days.

2. Tax in dispute held in abeyance

The Bill proposes to remove the minimum threshold of 90% of the income tax in dispute which can be kept in abeyance by the Commissioner for Revenue when a taxpayer files an objection or appeal to an assessment. Such removal would still entitle the Commissioner to retain in abeyance the full amount of the tax in dispute. 

3. Servicing of VAT notices

In addition to the traditional mode of delivering and servicing VAT notices to a known business or private address, the Bill proposes that such mode can now be electronically to an electronic address provided by a person subject to rules to be prescribed by the Minister for Finance.

The tax team is at your disposal to discuss the relevant tax implications applicable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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