Following the last Budget Speech and the parliamentary debates on Bill 247, the Budget Measures Implementation Act, 2022 (‘the Act’) was published on 8 February 2022. The Act contains amendments to several laws including the Income Tax Act (‘ITA’) and Duty on Documents and Transfers Act (‘DDTA’). We highlight herein the salient changes to these fiscal laws.
Exemption on transfers of listed securities
The income tax exemption which was previously reserved to transfers of shares listed, or in consequence of a listing, and transfers of securities in a prescribed fund listed on a ‘stock exchange recognised under the Financial Markets Act’ is now applicable to transfers made on a stock exchange ‘recognised by the Commissioner for the purpose of this provision’. It is understood that such amendment is aimed at securing the same tax exemption on transfers of securities listed on foreign stock exchanges to that accorded to securities listed on the Malta Stock Exchange. Nonetheless, the applicability of the exemption is dependant on the Commissioner for Revenue's recognition of such foreign exchanges.
Along the same lines, all other references in the Income Tax Act and in the Duty on Documents and Transfers Act to ‘stock exchange recognised under the Financial Markets Act’ are replaced by ‘stock exchange recognised by the Commissioner for the purpose of [the specific] provision’.
Tax exemption on the transfer of certain assets by non-Maltese residents
The Act extended the exemption from tax on gains or profits derived by non-Maltese residents from the transfer of certain securities, partnership interest and units in a collective investment schemes or relating to linked long term business of insurance to transfers ‘of any right over’ such assets. Such exemption applies as long as the securities / interests or rights therein are not held in a property company or property partnership and provided that the beneficial owner of the gains or profits is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
Tax and duty on transfer of property leased at affordable rates
No transfer tax and duty on documents and transfers is due on the first €200,000 of the transfer value of immovable property transferred after 1 January 2022 if (a) such property had been leased for a period of 10 years ending on the date of the transfer, (b) during the whole 10-year period the tenant was entitled to a benefit in respect of that lease under the Private Rent Housing Benefit Scheme administered by the Housing Authority and (c) the transfer is made to the said tenant.
If the above conditions are satisfied, except that:
- the transferee is not the said tenant; or
- the lease period is for less than 10 years but more than 3 years; or
- the tenant was entitled to the Private Rent Housing Benefit for less than 10 years but more than 3 years;
the applicable tax and duty rates are halved on the first €200,000.
Tax and duty on the transfer value in excess of €200,000 remain chargeable at the applicable rates.
The duty exemption/reduction does not apply if the acquirer requires a permit in terms of Immovable Property (Acquisition by Non-Residents) Act or, if the property is situated in a Special Designated Area (‘SDA’) the acquirer would have required such permit had the property been located in a non-SDA.
Certain documentation would need to be filed with the Revenue.
[For further details on other immovable property measures, you may wish to refer to the 'Tax and Duty Schemes on the Transfer of Immovable Property' factsheet].
Income tax deduction of intellectual property costs
The Income Tax Act allows a tax deduction of capital expenditure incurred on intellectual property (IP) and IP rights when such are used or employed in the production of the income. The deduction is spread equally over a number of consecutive years, not being less than 3 years. The Act now caps such deduction in instances when such IP/IP rights are/were acquired through an exempt intra-group transfer (falling under Article 5(9) of the Act). The capped amount is the lower of the cost of acquisition and the market value of the IP/IP rights at the time that the exempt transfer takes/took place less any deductions claimed by the transferor with respect to the same IP/IP rights as aforesaid.
Definition of ‘car parks’ for income tax purposes
The definition of ‘car parks’ now includes such commercial structures even when the provision of parking services is not the main income generating activity of the operator, provided that the operation of the car park involves substantial activity, having regard to (i) the capital employed, (ii) the organisation of the operation and (iii) the income it generates. Such amendment codifies into the ITA the Guideline issued in 2021 by the Revenue on the matter. The change in definition is mainly relevant to those enterprises claiming initial allowances and/or capital allowances on expenditure incurred on car park structures.
Removal of deeming provision related to notional interest deduction
The Act effectively deleted the rule in the ITA which deemed profits to be distributed when a Maltese resident individual is beneficially entitled to profits of a company that claimed the notional interest deduction. Any reference to this rule in the ITA has consequently been removed. The inapplicability of the said deeming provision is effective from year of assessment 2022.
Trusts electing to be treated as companies for income tax purposes
An amendment clarifies that the trusts that are not required to obtain an authorization in terms of the article 43(6) of the Trusts and Trustees Act can also elect to be treated as companies for income tax purposes. Such applies where the trustee is a person resident in Malta.
Income tax on employment outside Malta
Changes were passed to Article 56(17) of the Income Tax Act which provides for a tax rate of 15% on income derived from employment outside Malta where the contract requires the performance of work or duties mainly outside Malta. A new proviso prohibits access to the special rate where (i) the contract of employment is for a period of less than 12 months or lasts less than 12 months or (ii) the individual was present in Malta in the relevant year for more than a total of 30 days, disregarding days of vacation or sick leave in Malta and any period preceding the commencement or following the termination of the contract. This amendment affects Maltese resident individuals who work abroad.
Income tax on part-time work
As announced in the last Budget Speech, as from year of assessment 2023, the rate of tax on part-time work is reduced from 15% to 10%.
Tax on income of sport players, athletes and coaches
The article that allows the option to sports players, athletes and coaches to tax their emoluments at 7.5% has been amended to ensure that (a) the tax is charged on the gross emoluments and (b) no set-off or refund can be granted in respect of the tax so charged.
Tax on income from artistic activities
Effective from year of assessment 2023, individuals deriving income from artistic activities can opt to be taxed on gross income at a new final tax rate of 7.5%. Certification from the Arts Council Malta is required. The Minister may prescribe rules on this option. This is another measure that had been announced in the last Budget Speech.
Partner, Private Client and Global Mobility Services
KPMG in Malta
Lisa Zarb Mizzi
Partner, Tax Services
KPMG in Malta
Paul Pace Ross
Director, Tax Services
KPMG in Malta
John Ellul Sullivan
Partner, Tax Services
KPMG in Malta