BUDGET BILL 2015 AND OTHER FISCAL MEASURES INCLUDING LEGAL NOTICES ISSUED

Fiscal Measures

Malta Institute of ManagementINCOME TAX ACTS: Taxation on immovable property transfers Partnerships: Election to be treated as a company Equal rights for partners in a civil union Tax treatment of rental income Professional property valuations Reduction in personal income tax rates Tax exemption on minimum wage earners and

pensioners - cost of living adjustment Reduced 7.5% tax rate extended to waterpolo

players

Malta Institute of Management Parents of children who attend church and

private schools who opt to make use of school transport may now claim a tax deduction of €150.

Tax exemption on students’ stipends Individual Savings Account Rules Personal Retirement Scheme Rules

Malta Institute of ManagementA. Taxation on immovable

property transfers

With effect from 1st January 2015 the capital gains tax system will, with minor exceptions, be fully replaced by the tax on property transfer system.

Capital gains will continue to apply in respect of the transfer of shares and other prescribed items as well as immovable property situated abroad.

Malta Institute of Management The new Final Withholding Tax will be 8% on the value of

the property transferred. There are however be two exceptions to this as follows:

a. In the case of individuals who do not carry on the business of property trading, the applicable final withholding tax rate shall be 5% if the property is transferred less than five years after the date of its acquisition.

b. In the case of properties acquired by any person (individuals & companies) before the 1st January 2004 the applicable final withholding tax rate shall be 10% the value of the property transferred.

Malta Institute of Management Transfers of inherited immovable property will remain

subject to a 12% final tax on the difference between the transfer value and the cost of acquisition (denunzja); and to a 7% final tax on the consideration if inherited before 25/11/1992. Nothing has changed in this regard.

The current exemptions are not affected by the new system and will therefore continue to apply. For example: transfers of one’s own residence, donations as prescribed, assignments during separation and divorce, intra-group transfers, etc, will remain exempt from tax.

There are transitory provisions with respect to properties in respect of which a notice of a promise of sale or transfer relating to that property has been given to the Commissioner before the 17th November, 2014.

Malta Institute of ManagementTRANSFERS MADE ON OR AFTER 1st JANUARY 2015

Notice of a promise of sale or transfer relating to the property has not been registered before the 17th November, 2014

5% FWT if transferor is an individual who does not trade in property and property is transferred before five years from the date of its acquisition.

10% FWT if property was acquired before the 1st January 2004.

8% FWT in all other cases.

Malta Institute of Management Notice of a promise of sale or transfer relating to

the property has been registered before the 17th November, 2014

5% FWT if transferor is an individual who does not trade in property and property is transferred before five years from the date of its acquisition.

12% FWT if property was acquired before the 1st January 2004.

8% FWT in all other cases. If transfer is made before 12 years from DOA of the

property an election may be made to exclude the transfer from the final tax system and 7% provisional tax paid on contract, if transfer is made by 31/12/2015.

Malta Institute of Management Properties forming part of a project or situated

within a special designated area (i.e. transferred by owner of SDA project) existing before the 1st January 2015

Owner of the project elected to exclude the transfers of all properties from the final withholding tax system before the 1st January 2015:

Notice of a promise of sale or transfer relating to the property has been registered before the 17th November, 2014:

The transfer is subject to 35% tax on the profit and 7% provisional tax is to be paid on contract.

In the case where the property is not situated within a SDA and the transfer is made after 12 years 12% FWT applies.

Malta Institute of Management Owner of the project did not elect to exclude the

transfers of all properties from the final withholding tax system before the 1st January 2015:

Notice of a promise of sale or transfer relating to the property has been registered before the 17th November, 2014.

12% FWT applies

Notice of a promise of sale or transfer relating to the property has not been registered before the 17th November, 2014.

10% FWT if property was acquired before the 1st January 2004.

8% FWT in all other cases.

Malta Institute of ManagementTransfer of property made by a person who is not

resident in Malta

Election can be made if:

produces to the notary who publishes the deed of transfer a statement signed by the tax authorities of the country of that person’s residence that confirms that person’s residence in that country and that certifies that that person is subject to tax in that country on gains or profits derived from the transfer of immovable property situated in Malta.

As from the 1st January, 2015 such non resident persons may still be entitled to opt out of the final withholding tax system and be taxed under article 5 (Capital gains) however the 7% provisional tax paid relating to a transfer of property made on or after the 1st January, 2015, shall not be available for refund under article 48 of the Income Tax Management Act. No claim can be made to reduce the 7% provisional tax payable.

Malta Institute of ManagementExemptions prescribed under article 5A(4) of the

Income Tax Act:

Donations Property that has been owned and occupied by the

transferor as his own residence for a period of at least three consecutive years

The assignment of property between spouses consequent to a judicial or consensual separation or a divorce.

The assignment of property that formed part of the community of acquests between the spouses

A transfer of property from one company to another forming part of the same group.

Malta Institute of Management The transfer of property upon the incorporation of a

business or a partnership en nom collectif as a going concern into a limited liability company.

The settlement of property on trust, or the distribution or reversion of property settled on trust.

A transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of a distribution of assets pursuant to a scheme of distribution.

Malta Institute of Management Tax losses (capital / trading) no longer

available. Companies to allocate profit after tax to

the Final taxed account. Article 14(4) – Limitation of tax loss

(existing provision)

Malta Institute of ManagementB. Partnerships: Election to be

treated as a company for tax purposes

Any partnership or EEIG shall be entitled to make an election in writing to be treated as a company for all purposes of the Income Tax Acts

Malta Institute of Management Article 27 ITMA:

“Where income from any source accrues to or is received by a partnership that is carried on by any two or more persons jointly and the partnership is not a "company" in terms of article 2 of the Income Tax Act (including, for the avoidance of doubt, partnerships in respect of which no election in terms of sub-article (6) of this article is in force), the income of any partner from the partnership, shall be deemed to be the share to which he was entitled during the year preceding the year of assessment in the income of the partnership, such income being ascertained in accordance with the provisions of the Income Tax Acts and shall be included in the return of income to be made by such partner under the provisions of the Income Tax Acts.”

Malta Institute of Management Partnerships: Tax treatment no longer determined on

whether a trade, business, profession or vocation is carried on.

Article 27(6) ITMA: Any partnership or EEIG referred to in subparagraph (iii) of paragraph (a) or sub-paragraph (ii) of paragraph (b) of the definition "company" in sub-article (1) of article 2 of the Income Tax Act shall be entitled to make an election in writing to be treated as a company for all purposes of the Income Tax Acts, and in such case, the provisions of article 27 ITMA shall not be applicable thereto.

Such an election shall be made on such form and under such conditions as may be prescribed and shall be effected not later than sixty days after the date of setting up of the partnership or EEIG as the case may be

Malta Institute of ManagementDefinition of a “Company”:

A. Limited Liability companies:

a limited liability company constituted under the Companies Act or under the Commercial Partnerships Ordinance

any other company constituted as such under any other law in force in Malta

any body of persons constituted, incorporated or registered outside Malta, and of a nature similar to a company referred to above.

Malta Institute of ManagementB. PARTNERSHIPS:

any partnership en nom collectif and any partnership en commandite constituted under the Companies Act or under the Commercial Partnerships Ordinance;

any partnership regulated by the applicable provisions of the Civil Code and registered in such manner as may from time to time be provided in terms of the Second Schedule to the Civil Code;

any European Economic Interest Grouping (EEIG) formed pursuant to the provisions of the Companies Act (European Economic Interest Grouping) Regulations;

any body of persons constituted, incorporated or registered outside Malta and of a nature similar to any partnership referred to above;

Treated as companies if elected to be treated as a company in terms of sub-article (6) of article 27 of the Income Tax Management Act and for as long as such election remains in force:

Malta Institute of Management Partnerships en commandite the capital of which is divided

into shares constituted under the Companies Act existing on the coming into force of the changes shall be deemed to have elected to be treated as a company.

Whether or not the partnership or EEIG elects to be treated as a company or otherwise, the status of the said partnership or EEIG shall remain effective until such time as the Commissioner, at his sole discretion and for a reasonable cause, authorises a change following a request in writing made by the partnership or EEIG, as the case may be, on such form and under such conditions as may be prescribed.

Malta Institute of ManagementC. Equal rights for partners in a civil

union

Married couple refers to two spouses who contracted marriage or two partners who have registered their partnership as a civil union, in accordance with the legal provisions of the country where the marriage or civil union was executed.

Married refers to any of the spouses or partners in a married couple.

Spouse shall include a partner registered as being in a civil union.

Malta Institute of ManagementD. Tax treatment of rental income

Applies to any person renting immovable property, being a tenement leased as a residence or garage, to an individual or individuals.

Tenement:

a dwelling house or part thereof which is to be occupied or is occupied as a home or residence by the occupier or a garage

not a commercial tenement excluding a tenement which, for the purpose of the said

letting, is required to be licensed by virtue of the Malta Travel and Tourism Services Act.

Malta Institute of Management Optional: Tax charged at the rate of 15% of the gross rental

income received. Such tax shall be final and notwithstanding any other provision of the Income Tax Acts, no set-off or refund shall be granted to any person in respect of the tax so charged.

Where a person, in a relevant year, derives rental income from the letting of more than one tenement and the option has been exercised for such year, the total rental income received in the said year from all the tenements let out by such person shall be taxed at 15%.

Where an enquiry has been conducted any rental income which has not been declared shall be charged to tax at the rate of 35% of the gross rental income received and such tax shall be in addition to any interest and additional tax payable under the Income Tax Acts. Such tax shall be final and notwithstanding any other provision of the Income Tax Acts, no set-off or refund shall be granted to any person in respect of the tax so charged.

Malta Institute of ManagementPast undeclared rental income:

Where an individual has failed to declare rental income derived from a tenement leased as a residence or garage during the period of eight years preceding basis year 2013 (basis years 2005 to 2012) in any return and such individual opts to declare such rental income in the prescribed form to be submitted by not later than the 30th June 2015, and pays tax at the rate of 15% on the gross rental income received it shall be deemed for the purpose of the Income Tax Acts that such rental income was received during basis year 2014.

Malta Institute of Management Where an individual exercises the option and declares

rental income for more than one year, the total amount subject to the tax shall not exceed an amount determined as follows:

Y = (a / b) x 2

Where –

(a) "Y" represents the amount to be determined;

(b) "a" is the total rental income declared in the said relevant form;

(c) "b" is the number of years comprised in the relevant period in respect of which rental income is declared:

Malta Institute of ManagementE. INDIVIDUAL SAVINGS ACCOUNT

RULES

An individual savings account shall qualify as an ISA if: the account holder is an individual who is at least eighteen years

old, and is ordinarily resident in Malta the account holder does not hold any other ISAs with any person

at the time of application, and that he shall not thereafter open any other ISAs for as long as the ISA with such payor remains open in his name

elects by notice in writing to the payor of investment income pursuant to article 35 of the Act to be paid any such investment income arising from his holding of the ISA without deduction of tax

Malta Institute of Management the income from such an individual savings account

consists exclusively of interest payable to an individual in his own name – bank deposits, Government stocks, listed bonds.

deposits by the individual into the individual savings account and the value of interest-bearing securities credited for the benefit of the individual into such account do not exceed €1,000 in any year. (€2,000 will apply for year 2015).

Malta Institute of ManagementF. PERSONAL RETIREMENT SCHEME

RULES

"qualifying scheme" means a personal retirement scheme or a long term contract of insurance that fulfils the requirements of these rules and which is approved by the Commissioner;

"personal retirement scheme" means a retirement scheme which is not an occupational retirement scheme and to which contributions are made for the benefit of an individual;

"qualifying contribution" means a contribution made to a qualifying scheme in respect of which a credit against the income tax chargeable in Malta may be claimed in terms of the Act;

Malta Institute of ManagementA 57. (1) An amount which is equal to the lower of:

(a) fifteen per centum (15%) of the aggregate of any contributions made or premiums paid by a person during the year immediately preceding a year of assessment in respect of membership in any personal retirement schemes as defined in the Special Funds (Regulation) Act or any Act substituting the said Act, or a policy of insurance held with a company authorised to carry on long term business under the Insurance Business Act; and

(b) one hundred and fifty euro (€150) or such other amount as may be prescribed by the Minister from time to time, (€300 in respect of year 2015)

is to be allowed as a credit against the income tax chargeable in Malta to any person who is a member of, and makes contributions to, any one or more personal retirement schemes or pays a premium in relation to a policy of insurance in the year immediately preceding the year of assessment, and the amount of the income tax so chargeable shall be reduced by the amount of the credit:

Malta Institute of ManagementDUTY ON DOCUMENTS AND TRANSFERS

ACT The stamp duty exemption on partitions will be apply to deeds of

partition of immovable property where the value of the share of the property acquired is equal to the value of the share of property held prior to the partition

The one-time exemption from the payment of duty on the first €150,000 of the value of immovable property granted to first time buyers acquiring immovable property in 2014 will be extended for contracts executed up to 30 June 2015

Duty on policies of insurance (other than life insurance policies) shall be increased by one cent for every Euro or part thereof subject to an increased minimum duty of €13

No stamp duty will apply on the transmission causa mortis of assets held in a trust where the beneficiary is a disabled person

Transfers between co-owners – property purchased as sole ordinary residence

Malta Institute of Management Professional property valuations

(DDTR)

The transferee in a transfer inter vivos of any immovable or any real right over an immovable, where the transfer is effected by public deed or in the case of a declaration made in terms of article 33 of the Act may produce to the notary publishing the relative deed, a professional valuation drawn up by an architect in possession of a warrant issued under article 5 of the Periti Act. The architect’s report shall be annexed to the deed relating to the transfer by the notary publishing such deed.

Malta Institute of ManagementVALUE ADDED TAX ACT

To facilitate dissemination of material in electronic format, the VAT rate on audio books and on books published on CDs, DVDs, SD-Cards and USB drives and similar media is being reduced from 18% to 5% with effect from 1st January 2015. This measure seeks to align the VAT treatment of such digital books with that currently attributed to printed matter/books.

Introduction of a VAT refund mechanism to enable non-EU tourists to obtain a refund of VAT paid in Malta on supplies purchased during their stay in Malta

Malta Institute of Management The exemption from registration for persons established in

Malta for VAT purposes whose turnover does not exceed €7,000 in a calendar year is being removed. Accordingly, such persons will now be obliged to register for VAT and to issue fiscal receipts in respect of supplies made however they will not be required to submit the article 11 annual vat declaration form.

Malta Institute of ManagementPART-TIME WORK RULES

4. Where income from part-time work falls to be charged under article 4(1)(a) of the Act, the provisions of article 90A of the Act shall apply only where the individual –

(b) does not engage more than two employees (and such employees shall be on a part-time basis) in the parttime activity he carries out;

(d) performs such work for a company, organisation, enterprise or entity other than that with which he is employed on full-time basis; and

(e) is registered for value added tax purposes, unless the economic activity engaged in is one in respect of which such registration is not required or the individual is exempt from registration under the Value Added Tax Act.

Malta Institute of Management 6. (1) For the purpose of rules 4(d) and 5(1)(b): (a)

companies controlled and beneficially owned, directly or indirectly, to the extent of more than 50% by the same shareholders shall be considered as the same employer;

Maximum amount subject to 15% tax:

€10,000 in the case of income chargeable under article 4(1)(b) of the Act

€12,000 in the case of income chargeable under article 4(1)(a) of the Act

Malta Institute of Management 6. (1) For the purpose of rules 4(d) and 5(1)(b): (a)

companies controlled and beneficially owned, directly or indirectly, to the extent of more than 50% by the same shareholders shall be considered as the same employer;

Maximum amount subject to 15% tax:

€10,000 in the case of income chargeable under article 4(1)(b) of the Act

€12,000 in the case of income chargeable under article 4(1)(a) of the Act

Malta Institute of Management

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