The Budget Measures Implementation Act 2025

The Budget Measures Implementation Act, 2025 (the ‘Act’) was issued on 17 April 2025, following the most recent Budget Speech and the parliamentary debates on Bill No. 117. The Act was complemented by a set of explanatory notes issued by the Malta Tax and Customs Authority.

We outline hereunder the key changes to the Income Tax Act, the Income Tax Management Act, the Social Security Act, and the VAT Act.

A new tax deduction was introduced for expenditure of a capital nature incurred on or after 1st January 2025 for the acquisition of a business permit, a concession or a commercial lease of a going concern (‘twellija’) or immovable property, that is used or employed in the production of the income from a trade, business, profession or vocation. Capital expenditure incurred to extend, renew or modify the terms and conditions of the acquisition of the business permit, concession or commercial lease is treated as a fresh acquisition on which a tax deduction can also be claimed. Business permits and concessions are those issued/granted by a public authority.

The deduction shall be spread equally over the lesser of (i) 15 years and (ii) the duration of the permit, concession or lease, if it is acquired for a period shorter than 15 years. The duration includes certain periods over which the permit, concession or lease may be extended. No deduction can be availed of with respect to permits, concessions or leases for an indefinite duration or for a duration of more than 15 years.

Furthermore, the deduction is not applicable if the acquisition of the business permit, concession or commercial lease is from related persons, as defined.

An enabling provision was enacted empowering the Minister of Finance to introduce rules allowing for an elective tax to be paid by entities in Malta.

No rules have been published yet, therefore, the scope, applicability and conditions of such rules are yet to be seen. We observe, however, that the marginal note to the enabling provision refers to an ‘elective tax', indicating that this will not alter previous announcements made of Malta’s intentions to defer the imposition of top-up tax mechanisms under the OECD Pillar Two Tax Rules or the EU’s Minimum Tax Directive.

Article 5A(4)(c) of the Income Tax Act exempts transfers of immovable property situated in Malta which is owned and occupied by the transferor as own residence for a period of at least 3 consecutive years and provided that the transfer takes place within 12 months of vacating the premises.

The Act introduced a new proviso to this exemption to cater for cases where a spouse ceases to occupy the property as a consequence of a divorce or separation (whether legal or de facto). In such cases, such spouse will only be treated as having vacated the property if and when the other spouse also ceases to occupy the property as his/her sole ordinary residence.

The maximum deductions claimable by parents who pay school fees with respect to their children who attend a registered private kindergarten or a licensed independent school have been increased as follows with effect from basis year 2025:

(a) Secondary school: €6,500 per child (up from €2,600)

(b) Primary school: €4,600 per child (up from €1,900)

(c) Kindergarten: €3,500 per child (up from €1,600)

The personal tax bands have been widened with effect from 1st January 2025. The new applicable tax rates are set out in the table below.

In addition, the requirement that children of taxpayers applying the ‘parent’ tax rate must not be gainfully occupied, or if gainfully occupied, must not earn income in excess of €3,400, has been removed meaning that the parent rates apply irrespective of whether the child is gainfully working or not.

The option to tax income from full-time or part-time artistic activity at 7.5% has been amended such that, from year of assessment 2026, the 7.5% tax rate applies on the income net of any allowable deductions rather than on the gross income.

‘Endangered tax’, as defined in the Schedule to the Income Tax Act, generally refers to the difference between the tax as declared by the taxpayer and the tax actually chargeable, excluding additional tax. A new proviso to this definition provides that where the Commissioner for Tax and Customs (‘the Commissioner’) is satisfied that part or all of the tax chargeable has been paid under the Final Settlement (FSS) Rules, such payment shall not be considered as endangered tax even though it was not declared.

The list of offences that can lead to criminal charges has been amended to include the following:

• Under Article 51 - failure to furnish a return that is required to be filed in terms of the Income Tax Act, without a reasonable excuse. Such default may, upon conviction, trigger a fine of a criminal nature up to €465 in addition to double the amount of undercharged tax; and
• Under Article 52 – failure to furnish a return / document / statement that is required to be filed in terms of the Income Tax Act willfully with the intent to evade tax. Such default, may, upon conviction, trigger a fine of a criminal nature up to €3,500 in addition to treble the amount of tax intended to be evaded and/or imprisonment.

The article which required the sanctioning of the Commissioner for a prosecution to start for any tax offences has been deleted. This means that the Commissioner’s permission is no longer needed for prosecutions to be initiated.

Persons appointed under or employed in the administration of the Income Tax Acts are bound by official secrecy, subject to certain exceptions. Such exceptions now include divulging information in the course of any judicial or quasi-judicial proceedings when ordered to disclose information by a court or tribunal in terms of Article 4(2) of the Income Tax Act.

The Budget Act amends the proviso to Article 11(2) of the VAT Act (‘VATA’) to provide that the registration of small enterprises shall take effect either on the first day of the month in which the Commissioner receives the application, or from the date the economic activity commences, whichever is later. Previously, registration would become effective from the date notified by the Commissioner to the small enterprise as applicant.

However, where the application is submitted by a taxable person already registered under Article 10 of the VATA and seeking to transition to the special scheme for small enterprises, registration shall take effect on the first day of the month following the month in which the Commissioner receives the application.

The Act amends Article 62 of the VAT Act which deals with the right of the Commissioner for Tax and Customs to register a special privilege over the assets a person for amounts due under the VAT Act. Prior to the Act, the Commissioner could register a special privilege over the assets forming part of the economic activity of a person in respect of any tax due by that person under the VAT Act. Following the changes introduced by the Act, the Commissioner for Tax and Customs can register, in respect of any tax due under the VAT Act, a special privilege over the assets of a person. Therefore, the right of the Commissioner to register a special privilege has been widened to include assets which do not form part of the economic activity of a person.

Persons appointed under or employed in the administration of the Value Added Tax Act are bound by official secrecy, subject to certain exceptions. Such exceptions now include divulging information in the course of any judicial or quasi-judicial proceedings when ordered to disclose information by a court or tribunal in terms of Article 56(2) of the Value Added Tax Act.

EU Council Directive 2010/24/EU of 16 March 2010 established a harmonised framework for mutual assistance among EU Member States in recovering each other’s tax-related claims, enhancing cooperation and information exchange. Locally, the Directive had been transposed into Maltese law in 2012 through Legal Notice 153 and has been effective since then.

The procedure requires that any request for recovery of foreign taxes, duties and other in-scope dues must be accompanied by a uniform instrument permitting enforcement in the requested Member State, as it forms the legal basis for executing cross-border claims.

The Act amends Article 253 of the Code of Organisation and Civil Procedure to include such uniform instrument permitting enforcement under Council Directive 2010/24/EU in the list of executive titles, thereby dispensing with the need for court proceedings to enforce such an instrument. As an executive title, the uniform instrument will constitute legal proof that an obligation is enforceable without being subject to further legal challenge.

Should you require any further information in this respect, please do not hesitate to contact the undersigned or your KPMG contact.