New guidelines on transition measures for supplies becoming VAT taxable

Background

The Malta Tax & Customs Administration (MTCA) has issued guidelines on the transitional VAT measures applicable where the VAT treatment of a supply changes from exempt without credit to taxable (the ‘Guidelines’).

Overview of the key features and salient points of the Guidelines

a)      Determination of VAT treatment and VAT reporting

The VAT treatment of supplies of services spanning the transition period will depend on when the services are performed or used (irrespective of the date of issuance of the relevant invoice), while the normal tax point rules still determine when VAT must be reported. For continuous supplies spanning the transition period specifically, these would need to be apportioned between the pre-transition and post-transition periods.

b)     Input VAT recovery and partial attribution

Taxpayers moving from VAT exempt without credit to taxable status may, for the first time, recover input VAT on costs linked to their newly taxable supplies, subject to the normal recovery rules under the Tenth Schedule to the VAT Act. However, input VAT on costs fully used for exempt supplies before the transition period cannot be retrospectively attributed to taxable supplies.

c)      Capital goods adjustments

Taxpayers moving from VAT exempt without credit to taxable status should also assess whether capital goods adjustment rules may apply.

d)     Reverse charge obligations

Reverse charge requirements shall continue to apply to supplies received from suppliers not established and/or not VAT registered in Malta, with the same transitional principles applying in these cases.

Next steps

Given the technical nature of the transition, early review of contracts, procurement flows, attribution methodologies, and pre-transition VAT reporting will be important to pro-actively address any relevant issues whilst reducing the risk of exposure to non-compliance sanctions as a result of errors in the VAT treatment, reporting and input VAT recovery in connection with supplies falling within a transition period.

This is particularly relevant for online gaming and betting sector, given that following the enactment of Legal Notice 86 of 2026, with effect as from 1 October 2026 the supplies of most gambling and betting operators shall in principle be treated as VAT taxable, subject to certain very narrowly defined exceptions (which shall retain their VAT exempt without credit status).

Reach out to us so that we can support you in effectively managing this change and unlocking the maximum possible value for your business.