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VAT Highlights

Legal Notices 132 and 133 of 2009, published on 24 April 2009, and Legal Notice 357 of 2009, published on 15 December 2009, announced some of the amendments to the VAT Act (Chapter 406 of the Laws of Malta) adopted for the purpose of the implementation of the EU "VAT Package", as approved in February 2008. The EU "VAT Package" includes a step-plan which contains changes to the place of supply of services rules and additional compliance requirements in view thereof, as well as new rules in respect of VAT refunds. The changes are in particular relevant in the context of the cross-border provision of services as their primary objective is to ensure a level playing field for businesses which supply services within the EU and to establish a procedure for claiming VAT refunds that ensures less bureaucracy and quicker processing.

General Rule: Distinction between B2B and B2C supplies

As from 1 January 2010, the general rule in respect of the place of supply of business-to-business ("B2B") services changed. The place of supply of such services shifted from the country of establishment of the supplier to the country of establishment of the customer, requiring the customer to self-account for VAT in his country of establishment ('reverse charge'). The basic place of supply rule however remained the same for business-to-consumer ("B2C") supplies of services, which services should be taxable in the country where the supplier is located.

Exceptions for specific services

Exceptions to the general rules continue to apply to certain categories of services, such as services connected with immovable property and educational, sporting and cultural services. Certain services, such as services consisting of work on movable property, remain taxable where physically carried out when provided B2C (exception to the general rule), but are taxable where the customer is established in the case of B2B services. The 2010 amendments also clarified the VAT treatment of restaurant and catering services, another exception to the general rules.

New reporting obligations

With effect from 1 January 2010, new registration and reporting requirements were introduced for businesses supplying and receiving services in a cross-border context. The new reporting obligations complemented the revised exchange of information arrangements between the EC Member States which allow the Member States to monitor the cross-border provision of services.

Refund of Malta VAT paid by businesses established in another EU Member State

Legal Notice 357 of 2009, amended by Legal Notice 36 of 2011, introduced changes to the application procedure for refunds of Malta VAT paid by businesses established in other EU Member States, effective 1 January 2010. The application for a refund is to be submitted in electronic format to the VAT authorities of the applicant's Member State of establishment, through the electronic portal set up by that Member State. This procedure applies to refund applications submitted after 31 December 2009. Eligibility of the applicant for a refund of Malta VAT depends on the said applicant's eligibility in terms of the rules in force in the Member State of establishment. Furthermore, restrictions to the recovery of VAT on certain purchases in terms of the rules in the Malta VAT Act for blocked inputs (including entertainment, alcohol and motor vehicles) still apply.

EU VAT Refund Claim : Persons registered under article 10 who are eligible for a refund of VAT paid in another EU Member State may submit an application for a refund through the Malta VAT Department's electronic portal.

Hiring of Means of Transport

As of 1 January 2013, the place of supply in respect of business-to-consumer ("B2C") supplies of hiring of means of transport, other than short-term hiring, shall be the place where the consumer is established. However, where such hiring relates to a pleasure boat, the supply shall be deemed to have taken place for VAT purposes where the pleasure boat is actually put at the disposal of the consumer.

Telecommunications, broadcasting and electronically supplied services

The VAT treatment of supplies of telecommunications, broadcasting and electronically supplied services to private individuals and non-business customers (B2C supplies) which are based in a different EU Member State to the Member State in which the supplier is established will significantly change.

With effect from 2015, the place of supply of these services B2C will, in all cases, be the country of establishment of the customer. B2C suppliers of such services would be required to charge VAT in the country of establishment of the customer, however suppliers may opt to have only one EU VAT registration and to report the VAT due in each Member State through that single registration ("One-stop-shop" arrangement).

Legal Notice 456 of 2011, published on 14 November 2011, announced a temporary VAT amnesty providing for a remission of interest and administrative penalties for registered persons who have an outstanding balance under the 1994 VAT Act, Customs and Excise Tax Act or the 1998 VAT Act. The arrangement is open to Malta VAT registered persons who have failed to submit the necessary VAT returns (or VAT declarations) falling due up to 15 October 2011 and/or have balances due to the VAT Department under any of the above mentioned Acts as at 15 October 2011.

VAT Directive 2010/45/EC, adopted on 13 July 2010 and coming into force on 1 January 2013, announces new rules with respect to the issuance, contents and storage of invoices. The proposed changes form part of the European Commission's broader programme of simplifying the VAT invoicing rules and reducing the administrative burdens of companies throughout Europe.

Specific attention is given in the Directive to electronic invoicing as a means of achieving that goal. The Commission announced in view thereof that further steps would be taken to create a legal framework for cross-border recognition and interoperability of secure eAuthentication systems.

The VAT Directive 2010/45/EC is still to be transposed into Maltese law.

For further information please contact Mark Grech.

This site is for information purposes only. It is intended to create an awareness of the upcoming amendments to the VAT Act and is not exhaustive. The information contained on this site does not constitute accounting, business, financial, investment, legal, tax, or other professional advice.