This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print page

Budget Measures Implementation Act


DOWNLOAD  

 

5 June 2013

Act III of 2013, entitled the ‘Budget Measures Implementation Act, 2013’ was published on the 17 May 2013. The Act brought into force the measures announced in the Budget speeches of the 28 November 2012 and 8 April 2013.

Important changes have been introduced through this Act, including a reduction in the personal income tax rates, changes to the taxation of immovable property transfers, extension of the participation exemption regime, and the reduction of duty payable on property transfers.

This Tax Alert briefly outlines the more significant changes to the tax laws brought about by this Act.

In this issue:

Income Tax Act

Duty on Documents and Transfers Act


Income Tax Act


Rates of Income Tax

With effect from 2013 the tax bands that will apply to income derived by individuals resident in Malta will be as follows:

Tax rate Single computation Joint computation Parental computation

%

From

To

From

To

From

To

 

0%

0

8,500

0

11,900

0

9,300

15%

8,501

14,500

11,901

21,200

9,301

15,800

25%

14,501

19,500

21,201

28,700

15,801

21,200

32%

19,501

60,000

28,701

60,000

21,201

60,000

35%

60,001

+

60,001

+

60,001

+

 


Final Withholding Tax on immovable property transfers

Since 2005, transfers of immovable property are taxable at the rate of 12 percent of the transfer value. When this rule was introduced into Malta’s tax laws, an opt out of this system was granted in respect of transfers that take place within five years from the acquisition of the property. In 2009, this period was extended to seven years and it has now been further extended to twelve years.

Back to top of article


Wear and tear allowances on car parks

Malta’s tax law provides for an initial and annual tax deduction in respect of wear and tear of premises that fall within the definition of “industrial building or structure”. Since 1997, the definition includes premises that are used as a hotel. A deduction of 10 percent of the capital expenditure is allowed in the year in which the premises are first used and employed, while a 2 percent deduction is allowed in that year and in each subsequent year until the asset is fully depreciated for tax purposes.

With effect from 1 January 2012, the term “industrial building or structure” includes a car park, being a structure of a commercial nature that is available to the general public. The deduction is available in respect of premises which are first used as a car park after 1 January 2012 and must constitute the main income generating activity of the person claiming the deduction.   

Back to top of article


Homes for the disabled

Article 14D of the Income Tax Act provides for a tax deduction, capped at €2,500, for fees paid in respect of residence in a home for the elderly. With effect from the year of assessment 2014, the same deduction shall be available to persons paying fees for residence in a private home or respite centre for the disabled. 

Back to top of article


Participating holding

With effect from the year of assessment 2013, the holding of a company in a partnership en commandite, the capital of which is not divided into shares and constituted under the Companies Act (other than a ‘property partnership’), shall be deemed to constitute a participating holding in so far as all the other conditions regulating such holdings are met.

Back to top of article


Participation exemption

The participation exemption regime, first introduced into Malta’s tax laws in 2007 has been extended to permanent establishments situated outside Malta. Thus, subject to certain conditions being satisfied, any income or gains derived by a company registered in Malta, which are attributable to a permanent establishment situated outside Malta or to the transfer of such permanent establishment, shall, with effect from the year of assessment 2013, be exempt from Malta income tax.

In addition, as a consequence of the change in the definition of ‘Participating Holding’ referred to above, the participation exemption regime will now also apply to the transfer of an interest in a partnership en commandite, the capital of which is not divided into shares and constituted under the Companies Act (other than a ‘property partnership’).

Back to top of article


Civil partnerships

When a person acquires or increases his interest in a partnership, such acquisition or increase constitutes a deemed transfer by the person/s whose interest is reduced, and is subject to tax on the resulting capital gain. For the purposes of these deemed transfer rules, the term “partnership” was defined, until 14 May 2012, so as to exclude civil partnerships which were constituted, incorporated or registered under Maltese law. However, through the enactment of Act V of 2012 on that date, the definition of the term was broadened so as to include all types of partnerships.

The definition of the term, for the purposes of the deemed transfer rules, has been amended again and has reverted back to the way it was before 14 May 2012, such that an acquisition of, or an increase in, an interest in a Maltese non-commercial partnership does not result in a taxable capital gain.

Back to top of article


Tax exemption on income from trademarks

The tax exemption on income derived from patents in respect of inventions and copyright has, with effect from the year of assessment 2013, been extended to income derived from trademarks, subject to such terms and conditions yet to be prescribed.

Back to top of article

 


Duty on Documents and Transfers Act


Duty on transfer of securities – Extension  of exemption

The Duty on Documents and Transfers Act contains an exemption from duty on the transfer of marketable securities by or in a company which proves to the satisfaction of the Commissioner that it carries on, or intends to carry on, business or has, or intends to have, business interests to the extent of more than 90 percent outside Malta.

Subject to these same conditions, this exemption has now been extended so as to include also acquisitions of marketable securities made by a trust or fiduciary arrangement consisting of a licensed retirement fund or retirement scheme the income of which is exempt from tax in Malta and whose beneficiaries consist solely of individuals who are not resident in Malta.

Back to top of article


Duty on policies of insurance – Extension of exemption

Policies of life insurance are chargeable to Malta duty at the rate of 0.1 percent of the sum assured.  Where the policyholder is an individual, duty is chargeable only where such policyholder is resident in Malta, while where the policyholder is a legal person, duty is chargeable if such legal person is incorporated or otherwise created in Malta unless the legal person falls within the categories of persons listed in article 47(3) of the Duty on Documents and Transfers Act, which comprise companies licensed under the Investment Services Act and companies mainly undertaking business activities outside Malta.

The exemption from the payment of duty on life insurance contracts has now been extended to those instances where the policy holder is a licensed retirement fund or retirement scheme the income of which is exempt from tax in Malta and that holds the policy in the capacity of a trustee or other fiduciary where the life assured and the persons who can benefit under the policy are all not resident in Malta.

Back to top of article


Duty on assignment of property on a separation

The duty exemption on the assignment of immovable property between spouses consequent to a consensual or judicial separation has been extended so as to also include the assignment of immovable property owned by a company which is fully owned by any or both spouses. An exemption from income tax on such assignments already exists in the Income Tax Act.

Back to top of article


Duty on purchase of own residence

Where a person acquires property for the purpose of establishing therein or constructing thereon his sole, ordinary residence, a reduced rate of duty (3.5 percent instead of 5 percent) applied on the first €117,000 of the value of such property. The property value which is subject to the reduced rate of duty has now been increased to €150,000.

Back to top of article


Duty chargeable on property donations 

 A donation of a property to a person’s descendants in the direct line was chargeable to duty at the reduced rate of 3.5 percent of the property’s value. The reduced rate only applied to the first such donation and the property must be one in which the descendant intended to establish, or on which he/she intended to construct his/her sole, ordinary residence.

As a result of the Budget amendments, the first €200,000 of the value of such property is now exempt from duty, while the remaining value continues to be subject to duty at 3.5 percent. If, however, the immovable property is disposed of within five years by the said descendant, duty shall be levied on the amount which was previously not subject to duty, at the rate of 3.5 percent.

Back to top of article


Duty exemption on inheritance of ordinary residence

An exemption from duty has been introduced on the transfer causa mortis of a dwelling house which has been the deceased person’s ordinary residence for at least three years before death, where such residence is transferred to the deceased person’s descendants in the direct line. This exemption is subject to certain conditions such as the requirement for the deed of the transfer causa mortis to be made within one year from the relative succession.

Back to top of article


Removal of claw back on transfers of inherited property

The transfer causa mortis of a dwelling house consisting of the ordinary residence of a person to his/her surviving spouse is exempt from the payment of duty. 

Similarly, the transfer causa mortis of a dwelling house to a person who is on the Register of Persons with Disability where such property was, at the time of transmission, the ordinary residence of the deceased and the person with disability, is exempt from the payment of duty.

In both cases, if the inherited property was transferred within 10 years, the duty that was not levied upon the inheritance was payable upon the subsequent transfer of such property.

As a result of the Budget amendments, such claw back of previously exempted duty has been removed.

Back to top of article


Duty on transfer of foreign securities

Following the Budget amendments, duty will now also be payable on the transfer to or by any individual ordinarily resident and domiciled in Malta (or by any person controlled by such individual), of foreign marketable securities held in a company having, directly or indirectly, more than 50 percent of its business interests in Malta irrespective of whether the transfer of these securities is effected through a local bank or through a person holding an Investment Services license.

Back to top of article


Additional duty on declarations

The Commissioner is empowered by the Duty on Documents and Transfers Act to raise duty assessments where, in his opinion, the value of property as declared in a deed of transfer or in a declaration of a transfer causa mortis does not reflect the real value of the property. Before the Budget amendments, the additional duty chargeable by way of penalty was equivalent to the duty which the Commissioner deemed to have been underpaid. The law provided for proportionate reductions in the penalty, depending on how soon agreement was reached and the taxpayer paid the duty (where applicable), and the penalty.

The penalty regime has now been changed. The additional duty that will be applied following the Budget amendments amounts to 20 percent of the duty assessed by the Commissioner. In addition, interest at 0.75 percent per month will be charged on any unpaid duty. However, such additional duty and interest shall in no case exceed 50 percent of the duty assessed by the Commissioner.

Back to top of article

 

This article is also available in PDF format using the 'download' button above.

For more information please contact:

Mark Grech
mgrech@deloitte.com.mt
Director
Deloitte Malta

 

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte Malta refers to a civil partnership, constituted between limited liability companies, and its affiliated operating entities; Deloitte Services Limited and Deloitte Audit Limited. The latter is authorised to provide audit services in Malta in terms of the Accountancy Profession Act.A list of the corporate partners, as well as the principals authorised to sign reports on behalf of the firm, is available at www.deloitte.com/mt/about.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

© 2013. For information, contact Deloitte Malta.

 

Contacts

Name:
Mark Grech
Company:
Deloitte Malta
Job Title:
Leader Indirect Tax
Phone:
+356 2343 2704
Email
mgrech@deloitte.com.mt

Related links