The Budget Measures Implementation Act, 2018 (‘the Act’), contains a number of amendments of a fiscal nature; we herein highlight the salient features of the income tax and duty measures contained in the Act.
Malta’s 100% participation exemption relieves income tax both on income derived from a participating holding and on gains derived from the transfer thereof. The Act reduces the minimum participating holding requirement of 10% of the equity shares of a company to 5%. In addition, the Act extends the scope of entities in which a participating holding can be held to include, in addition to companies and collective investment schemes, European Economic Interest Groupings (EEIG), partnerships en nom collectif and partnerships en commandite, irrespective of whether such entities elect to be treated as companies for tax purposes in Malta.
Effective from financial year ending in 2018, companies carrying on the business of general and/or long term insurance can claim group loss relief or surrender losses to the group.
Taxpayers in receipt of ground rents from urban and rural tenements can now opt to be taxed in terms of the 15% final withholding tax system.
The deadline for the payment of the 15% tax on rental income, if opted for by any person (including corporate entities), will be moved forward by two months, from 30th June to 30th April following the end of a calendar year. The first payment deadline under this new rule will be 30th April 2019 for rents earned in 2018.
A new tax deduction was introduced to those exploiting intellectual property. The deduction is capped at a percentage amount of qualifying income derived from qualifying intellectual property by any person as the Minister may prescribe. Further details are expected on the application of this deduction.
In addition, the Act has aligned the wording of Article 14(m) of the Income Tax Act with the Guidance Note that had been published by the Inland Revenue on its website in connection with deductions on capital expenditure related to intellectual property. It has been clarified that such property must be ‘used and employed’ in the production of the relevant income and the expenditure must be spread equally over a number of consecutive years, not being less than three.
The Act provides a clarification on the computation of the notional interest deduction that was introduced in 2017. The Notional Interest Deduction Rules allow a tax deduction for the notional cost of risk capital, capped at 90% of the chargeable income that is allocable to the Maltese Taxed Account and Foreign Income Account. The Act clarifies that such 90% cap should be computed on the chargeable income ignoring any flat rate foreign tax credit.
With retrospective effect from year of assessment 2015 (i.e. basis year 2014), tax credits available to taxpayers in terms of the Business Promotion Act may be utilised without regard to any order of priority.
Upon the deduction of 15% final withholding tax on payments of interest and other investment income, banks and other payors of such income are now required to disclose the identity and other details of the recipients of such income to the Commissioner for Revenue. Such information must be submitted by payors by 31st January following the year in which the tax was withheld, with the first reporting date being 31st January 2019 in respect of payments effected during 2018. This reporting requirement ceases after the lapse of 9 years from the year that the said income becomes payable. The Commissioner for Revenue may impose a penalty capped at €23,000 if the information is not submitted on time, or not as required. The professional secrecy provisions of the Income Tax Management Act do not apply to such information.
The payment deadline for individuals who opt for the 15% tax rate on income from part-time self-employment has been moved forward by two months, from 30th June to 30th April following the end of a calendar year. The first payment deadline under this new rule will be 30th April 2019 for income earned in 2018.
In addition, unless the 15% tax is paid by the due date, the income from part-time work will be subject to tax at the standard progressive rates of tax when a notice is issued by the Commissioner for Revenue to the effect that an enquiry will be conducted on that person's tax declarations and liabilities.
The Act introduces a minimum tax of €5,000 (before taking into account any foreign tax relief) per annum chargeable to individuals who are ‘ordinarily resident’ but non-domiciled, as from basis year 2018. This tax charge will apply to individuals and married couples who:
This minimum tax will be net of withholding tax and any other tax already paid in Malta, with the exception of tax paid on capital gains from a transfer of immovable property. Moreover, if the non-domiciled person proves to the Commissioner for Revenue that the tax payable on foreign income and capital gains would have been less than the minimum tax above had he/she been taxed on a worldwide basis, that person’s tax liability will be capped at such lower amount.
In addition, the Act provides clarification for what was previously a grey area, that individuals who acquire either of the following statuses in Malta, will not be eligible to claim the remittance basis of taxation:
Certain conditions for the application of the married tax bands by Maltese residents who are unmarried, widows/widowers, separated or divorced have been changed. Such individuals must, amongst others, have whole maintenance of a child under his/her sole custody and must be designated as the sole beneficiaries of children’s allowance where applicable. The age bracket of the child has increased from 16 to 18 years, and to 23 years if still receiving full-time education or serving an apprenticeship. The child must not receive more than €3,400 (previously €3,200) income during the year. The latter increase of €200 to the income cap of a child is similarly reflected in the provisions governing the use of the parent tax bands.
Several changes were made to Article 5A of the Income Tax Act, the article which regulates the final withholding tax system on the transfer of immovable property situated in Malta.
The imposition of duty on documents and transfers is being waived on the transfer inter vivos between persons who are married to each other, of the ordinary residence or part thereof, of any or both of the spouses.
Other fiscal measures enacted by the Act include:
Changes related to the administration of income tax and its collection include the following:
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