Budget Measures Implementation Act, 2026

On 10 March 2026, the Budget Measures Implementation Act, 2026 (the ‘Budget Act’) was introduced to implement several of the measures announced in the Malta Budget 2026 speech, with measures coming into force, unless otherwise stated, on 1 January 2026.

The key legislative changes resulting from the Budget Act are in connection with the Income Tax Act, Chapter 123 of the Laws of Malta (‘ITA’), the Income Tax Management Act, Chapter 372 of the Laws of Malta (‘ITMA’), the Social Security Act, Chapter 318 of the Laws of Malta (‘SSA’), the Excise Duty Act, Chapter 382 of the Laws of Malta (‘EDA’), the Value Added Tax Act, Chapter 406 of the Laws of Malta (‘VATA’) and the Eco-Contribution Act, Chapter 473 of the Laws of Malta (‘ECA’).

Amendments to the ITA

Addition of special limited partnership funds to the definition of “company” for Malta income tax purposes

A new paragraph (4) has been added to the definition of the term “company” in article 2(1) of the ITA, stipulating that any Special Limited Partnership Fund established in accordance with the Investment Services Act (Special Limited Partnerships Funds) Regulation, Subsidiary Legislation 370.53 shall be considered as a company in terms of the ITA where such partnership has elected to be treated as a company in terms of Article 27(6) of the ITMA and for as long as such election remains in form.

This amendment shall be applicable from the year of assessment 2026 and clarifies that, whereas special limited partnership funds shall generally be treated as partnerships for Malta income tax purposes, such funds are also afforded the option to elect into being classified as companies in terms of the ITA (as in the case of partnerships en nom collectif and partnerships en commandite).

Established by means of the Investment Services Act (Special Limited Partnerships Funds) Regulation, Subsidiary Legislation 370.53 published on 7 February 2025, special limited partnership funds are collective investment schemes formed by means of a partnership agreement and consist of two or more partners where at least one partner shall be a general partner and at least one partner shall be a limited partner. Crucially, such partnerships are not afforded separate legal personality and the partnership deed strictly limits their object to the collective investment of partners’ funds in securities and other movable or immovable property, and related ancillary matters.

Expenditure on research, development and innovation activities

As announced during the 2026 Budget speech, a new tax deduction has been introduced through article 14(1)(ha) of the ITA which provides for a deduction on expenditure incurred on research, development and innovation (‘RDI’) activities by a person engaged in any trade, business, profession or vocation by allowing such expenditure to be claimed at one hundred and seventy-five per cent (175%) of the actual amount incurred.

This new rule distinguishes between expenditure of a capital nature and expenditure of a revenue nature by providing that capital expenditure on RDI (where such expenditure does not already benefit from deductions for capital allowances provided for article 14(1)(f) and (j) of the ITA) is to be spread equally over the year in which it is incurred and the following five years, ensuring a balanced and orderly recognition of such costs.

At the same time, the provision expressly excludes deductions for expenditure on plant, machinery and premises where such expenditure already qualifies for capital allowances in terms of article 14(1)(f) and (j) of the ITA, in order to prevent double dips.

Intended to be applicable from year of assessment 2027, this new deduction shall apply from such date as may be prescribed by the Minister for finance by notice in the Gazette. Secondary legislation, and additional guidance, is expected over the course of calendar year 2026.

Personal deduction for fees paid in respect of homes for the elderly or disabled

The Budget Act amends article 14D(b) of the ITA by increasing the capping on such allowable deduction from €2,500 to €4,500.

Revised standard personal income tax rates and bands

As announced during the 2026 Budget speech and as communicated earlier this year by the Malta Tax and Customs Administration, the Budget Act has introduced a significant amendment to article 56(1) of the ITA, revising the standard personal income tax rates and bands applicable to (i) married couples and (ii) other individuals, in each case resident in Malta in the year immediately preceding the year of assessment.

The revised framework retains the progressive structure of the personal income tax system, while updating the applicable thresholds and introducing specific computational outcomes where certain child-related and status-based conditions are satisfied.

In particular, the amended provisions set out distinct rate computations for married couples (subject to carve‑outs where a separate return under article 49A or a separate computation under article 50 applies), as well as for parents and other qualifying individuals, with the introduction of wider tax bands in cases where a taxpayer maintains under custody one child or at least two children (and, for certain categories, where maintenance is paid in terms of article 12(1)(t)).

The new provisions also introduce eligibility conditions in certain cases, including by reference to EU/EEA nationality or immigration status in Malta and, where relevant, birth conditions in respect of the child(ren).

Amendments to the ITMA

Signature of notices issued by the Commissioner for Tax and Customs

An amendment to article 28(1) of the ITMA dealing with the signature of notices issued by the Commissioner for Tax and Customs (CfTC’) was introduced to modernise and clarify the rules governing the formal validity of such notices and to align them with current administrative practice, particularly the use of electronic communication. The core principle remains that, as a general rule, every notice issued under the ITA and the ITMA (including receipts for payment of tax) must be issued in the name of the CfTC and signed either by the CfTC himself or by a person appointed by him for that purpose, and such notices continue to be valid where the relevant signature is printed, stamped or written. This preserves the existing framework for traditional paper notices while streamlining the drafting and updating terminology (for example, referring to “information” rather than “particulars”) without changing the substance of the CfTC’s powers.

In relation to written notices that require a person to furnish information or to attend before the CfTC, a personal signature by the CfTC or an authorised person is still required. The main change is the introduction of a new rule providing for the possibility of electronic notices; any notice provided electronically by the CfTC does not need to be signed and is valid where it is either made available through the CfTC’s designated web portal or sent from an official or authorised electronic address, including generic addresses.

Modernised service of notices procedure

Article 29(1) of the ITMA regulates the procedure underpinning the service of notices and has been amended to broaden the ways in which notices may be validly served, in particular by recognising electronic means alongside traditional methods. Under the previous version of the article, service could be effected personally, by post to the person’s last known business or private address, or, where the taxpayer could not be found or for other reasons attributable to him, by publication of a notice in the Government Gazette and in one or more daily newspapers inviting the taxpayer to call for the notice at the CfTC department. Service by post was deemed to take place, unless the contrary was proved, by the third day after posting for persons resident in Malta, and on the day on which the notice would have been received in the ordinary course of post for non‑residents, with proof of service satisfied by showing that the letter was properly addressed and posted.

The amended text retains these presumptions and proof rules for postal service but expands the permitted modes of service to also include:

(i) electronic service to the person’s email address as provided to the CfTC; and

(ii) service by making the notice available through the web portal designated by the CfTC for that purpose.

The amendment also updates the substitute service mechanism so that, where a notice is not served because the person cannot be found or for other reasons attributable to that person, the CfTC may either publish a notice on the designated web portal or publish a notice in the Government Gazette and in one or more daily newspapers, stating that a notice has been given and may be collected from the location indicated by the CfTC, in which case the notice is deemed to have been duly served.

Extension of time limit for filing adjustment forms

Further to an amendment to article 31(2A) of the ITMA, the time limit within which a person who disagrees with the CfTC’s determination may file an Adjustment Form (‘AF’) has been extended. Previously, the ITMA allowed such a person to file an AF, in the form determined by the CfTC, within five years from the date on which the person was notified of the determination. Following the amendment, reference to this 5-year period has been replaced by a 10-year period, thereby doubling the period available to taxpayers to seek an adjustment to the CfTC’s determination.

Amendments to the VATA

Refunds & set-offs

Article 24(2) of the VATA provides that where a person to whom a VAT refund is due fails to submit his income tax return by the date required to be submitted in accordance with the provisions of the Income Tax Management Act, such VAT refund shall be withheld until the tax return is submitted. In this regard, the Commissioner has been empowered to set off any excess VAT credit against other tax debts, facilitating a more integrated approach to tax settlement and compliance.

VAT-inclusive pricing

Article 49 of the VATA has been substituted by a new article in terms of which the price / consideration payable for goods or services by persons registered or required to be registered in accordance with the VATA shall be deemed to be inclusive of VAT.

This provision expressly excludes situations where the tax chargeable cannot be determined at the time the price / consideration is indicated, and where the supply is made to another person who identifies himself by means of a valid VAT identification number, provided that the seller expressly specifies that the price indicated is exclusive of VAT.

Related party transactions

A new item 8A has been introduced in the Seventh Schedule to the VATA to regulate how the taxable value should be determined for supplies of goods or services between related persons.

Under this new provision, where goods or services are supplied to a related person and the consideration paid is lower than the open market value, the taxable amount for VAT purposes must be set at the open market value if either: (a) the recipient does not have a full right of deduction in accordance with the Tenth Schedule; or (b) the supplier does not have a full right of deduction and the supply is subject to an exemption under Part Two of the Fifth Schedule. Furthermore, if the consideration is higher than the open market value and the supplier does not have a full right of deduction, the taxable amount must again be set at the open market value. These rules ensure that VAT is not avoided or artificially manipulated through undervaluation or overvaluation in related party transactions.

The term "related persons" is defined broadly to include family members, employees and their families, cohabitants, joint owners, persons with common shareholdings (over 50%), and those with shared rights to profits or voting. Immediate family members of a related person are also considered related for these purposes.

The "open market value" is the price a customer would pay under fair competition to an arm’s length supplier in Malta. If no comparable supply exists, the open market value is at least the purchase or cost price for goods, and at least the full cost to the supplier for services.

Deemed supply of services

Item 15 of the Second Schedule to the VATA has been substituted with a new item in terms of which the deemed supply rule applicable to the use of business goods free of charge has now been extended to also cover supplies of services carried out free of charge.

Accordingly, the supply of services free of charge, in respect of which VAT was claimed, for the private use of the taxable person, for the use of the taxable person's staff, or for purposes other than those of the taxable person's business activity, shall be considered a supply subject to VAT, unless the supply is VAT exempt in terms of the Fifth Schedule to the VATA.

Electronic notices

Notices, communications, and decisions from the Commissioner may now be served electronically, including via the designated web portal or email, and are valid without signature. The Act also regulates the deemed service dates and procedures for notices sent by post or published online.

Amendments to the EDA

Duty Exemptions for Low-Value Imports

Amongst other amendments to the EDA, Article 3 has been amended to exempt certain non-harmonised excisable goods from excise duty, subject to the satisfaction of the relevant conditions laid out in the EDA. These conditions include, among others, that consignments must not exceed €150 in value and that the goods are intended solely for the private use of the consignee or their family members.

Amendments to the ECA

Eco contribution on accommodation services to tourists

Through an amendment to the Second Schedule of the ECA, with effect from 1 July 2026, the eco contribution on accommodation services (i.e. tourist tax) shall be increased to €1.50 per night per person. This applies to persons who are eighteen years of age or older, and is subject to a maximum of €22.50 per person per visit.

Amendments to the SSA

A number of technical amendments have been introduced to align the SSA terminology with the current institutional framework. In particular, the definition of “Director” in article 2(1) has been updated by replacing references to the “Commissioner for Inland Revenue” with references to the “Commissioner for Tax and Customs”, together with consequential updates to the relevant references within the SSA.

These changes are primarily administrative in nature and are intended to ensure consistency of terminology.

Extended eligibility of Medical Aid

With effect from 1 January 2026, a person who has reached 65 years of age and is benefitting from a Supplementary Allowance (in accordance with article 73) shall be eligible for Free Medical Aid without the need to satisfy the means test previously required under Part III of the Second Schedule.

Invalidity Pension – enhancements for highest impairment rating and certain mental health conditions

Prior to these changes, the legislation already catered for highest-impairment cases, however with effect from 3 January 2026, a person awarded the highest impairment rating by the appointed medical panel may be entitled to an uplift in their pension entitlement, up to an amount aligned with the two‑thirds pension where that outcome is more advantageous, subject to contribution-related conditions being met.

The amendment should ensure that the beneficiary is not disadvantaged by the standard rate outcome, but should allow determination of the entitlement by reference to the more favourable two‑thirds pension benchmark, where applicable.

A targeted enhancement is also introduced for claimants suffering from specific mental health diagnoses, subject to satisfying certain evidentiary safeguards. With effect from 1 January 2026, a person certified as suffering from bi-polar condition, depression by psychosis or acute depression may be entitled, subject to conditions, to the full rate of an Invalidity Pension, Increased Invalidity Pension or National Minimum Pension, and may participate in insurable employment on a part-time basis as advised by a qualifying medical professional and confirmed by relevant medical panel. In addition, this measure supports labour-market participation by explicitly allowing limited part time participation without disqualifying the person, where this is clinically advised and confirmed through the established medical-panel process.

Widowhood pension

The amendment updates the conditions for the child-related increase to a widow’s/widower’s pension rate. Previously, this increase applied only where the widow/widower was not in insurable employment and not self‑occupied, and where the child had not yet reached 18 years of age. Following the amendment, the employment/self‑occupation restriction is removed and the age threshold is extended so that the increase may apply where the child/children have not yet reached 23 years of age.

Increased child birth and adoption bonus

A further proviso has been added establishing that, with effect from 1 January 2026, a parent may qualify for one-time child birth/adoption bonus of:

• €1,000 upon registration of the first child birth or an adoption;
• €1,500 for the second birth or subsequent adoption registered at the Public Registry; and
• €2,000 for every subsequent birth or the adoption of subsequent

Amendments to additional contributions and interest mechanism for late or non-payment

The Budget Act introduces targeted changes to the enforcement rules applicable in cases of late, or non-payment of contributions due, in terms of the SSA.  In particular, with effect from 1 January 2026, where previously penalties imposed on late, or non-payments were referred to as a further contribution under Article 116(1)(c) and (d), this is now being replaced by a monthly interest charge, aligned to the interest framework under the Income Tax Management Act and the Income Tax (Rate of Interest) Rules.

This change is intended to standardise the treatment of late payment or underpayment by shifting from an additional contribution uplift to an interest-based calculation on the difference between the contributions actually paid and the contributions that should have been paid at the relevant time. This may impact the way employers and self-employed/self-occupied persons quantify exposure on historic underpayments, and places greater emphasis on timely and accurate contribution reporting and settlement.

Extension of retrospective payments of contributions

A new proviso governing the circumstances in which a person may be granted the option to regularise historic contribution arrears has been introduced to now also include persons who have attained the age of fifty‑nine (59) years but have not yet reached sixty‑five (65) years, and who are not engaged in insurable employment.

From a practical perspective, this widens the category of individuals who may seek to regularise arrears, as eligibility is no longer confined to persons who remain economically active.

Other amendments

The Budget Act amendments build on measures introduced in previous budgets to address certain anomalies affecting individuals born on or after 1 January 1962 and further support the progressive alignment of key parameters across different age cohorts.

In summary, the amendments maintain targeted National Minimum Pension safeguard provisions which apply in circumstances where standard eligibility conditions are not fully met, including by reference to minimum contribution thresholds and the resulting pension rate. In parallel, they provide for a phased adjustment to the maximum pensionable income parameters applicable to older cohorts, so that these gradually converge with the maximum pensionable income rules applicable to persons born from 1962 onwards, thereby reducing cohort based distortions and supporting a more uniform pensionable income basis over time.

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