Budget Measures Implementation Act, 2025

On 17 April 2025, the Budget Measures Implementation Act, 2025 (‘Budget Act’) was introduced to implement several of the measures announced in the Malta Budget 2025 speech, with measures coming into force, unless otherwise stated, on 17 April 2025.

Below is a summary of the key legislative changes resulting from the Budget Act 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 Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta (‘DDTA’), and the Value Added Tax Act, Chapter 406 of the Laws of Malta (‘VATA’) and the Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta (‘COCP’).

Amendments to the ITA

Vacation of property for the purpose of the owned and occupied rule

A new paragraph (vii) has been introduced to Article 5(1)(c) of the ITA, clarifying the circumstances under which a property is considered vacated in cases of divorce or separation. Specifically, it addresses situations where the property was jointly owned and occupied by the spouses for at least three years. The property will only be deemed vacated when neither spouse continues to occupy it as their sole ordinary residence. Consequently, if one spouse ceases to reside in the property following the separation or divorce, it will not be treated as vacated until the other spouse also stops using it as his or her sole ordinary residence.

Capital expenditure on the acquisition of business permits, concessions and commercial leases

Prior to this change, no deductions were permitted with respect to capital expenditure incurred on the acquisition of a business permit, concession, or commercial lease. With the introduction of sub-paragraph (ma) to Article 14(1) of the ITA, such expenditure of a capital nature incurred on or after 1 January 2025 by a person carrying on a trade, business, profession, or vocation is now deductible. This applies when such expenditure is incurred in the acquisition of a business permit, concession or commercial lease that is used in generating income chargeable under Article 4(1)(a) of the ITA. Any capital expenditure incurred for the extension, renewal, or modification of the terms and conditions of the acquisition of a business permit, concession or commercial lease is also deductible.

This deduction does not apply to amounts paid for the outright acquisition of a business, business goodwill, intellectual property, rights under emphyteutical concession, or any other tangible or intangible assets apart from the specific business permit, concession, or commercial lease in question. Moreover, for a deduction to be allowable the permit, concession, or lease must be no longer than 15 years and the acquisition must be made by means of a document in writing. Acquisitions from related parties are also not within the scope of this new rule.

The deduction is to be spread evenly over the duration for which the permit, concession or lease has been acquired by the person claiming it. Where the permit, concession or lease may be extended or renewed without any additional consideration, the extended or renewed period will be treated as part of the duration period for deduction purposes.

Moreover, if during the year immediately preceding a year of assessment, the person who acquired the business permit, concession, or commercial lease transfers, assigns, or cedes it, they will no longer be entitled to claim any further deductions. When a person who has claimed a deduction transfers the permit, concession, or lease, any further deduction to which they may be entitled in respect of the acquisition cost shall be reduced by the total amount already claimed in terms of Article 14(1)(ma) of the ITA. However, this reduction shall not exceed the original acquisition price.

This Article empowers the Minister to establish rules that modify or expand the conditions and limitations applicable to the right to this deduction, and to alter the manner in which it may be claimed.

School fees

Deductions allowable with respect to private kindergartens and schools as stipulated in Article 14B of the ITA have increased as follows:

These new increases are applicable as from year of assessment 2026. 

Elective tax

The Budget Act includes the introduction of a new Article 22B to the ITA, with the marginal note describing it as an “Elective Tax”. Article 22B is an enabling provision, meaning that it grants authority to the Minister for Finance to prescribe more detailed rules. Article 22B goes not further than establishing the parameters of the Minister’s rule making power, which is limited to:

1. Establishing the scope, applicability and amount of the elective tax;
2. Establishing the manner in which the elective tax is to be calculated, paid, and collected;
3. Establishing the obligations in respect of the payment of the elective tax; and
4. Such other conditions and consequences in relation to the application of the elective tax.
   

Rate of tax

New rates of tax for married couples, singles and parents have been established. The revised rates are applicable from year of assessment 2026.

Article 56(1)(a) – Married rates

Article 56(1)(b) –  Single rates

Second proviso to Article 56(1) – Parent rates

The second proviso now allows the rates to apply regardless of whether the child is gainfully occupied or earns an income exceeding €3,400.

Endangered tax

A new proviso has been introduced to the definition of "endangered tax" within the Schedule of the ITA, effective retroactively from 1 January 2025. The proviso stipulates that if the CfTC is satisfied that the tax, or any portion thereof, has been paid under the Final Settlement System (FSS) Rules, such payment shall not be considered endangered tax, even if it has not been formally declared.

Amendments to the ITMA

Offences

Article 51 of the ITMA lists several offences which may trigger liability to a fine of a criminal law nature on the person convicted and to pay double the amount of tax which has been undercharged. With the introduction of paragraph (c) to this article, every person who without reasonable excuse fails to furnish a return which he is required to furnish in accordance with the Income Tax Acts shall be guilty of an offence.

Furthermore, under Article 52(1)(a) a person may now be liable to a fine of a criminal law nature, to treble the amount of tax which has been undercharged and/or imprisonment even in cases of failure to furnish a return or any other document or statement which he is required to furnish by the Income Tax Acts.

CfTC’s consent prior to prosecution

With the repeal of Article 56 of the ITMA, the CfTC is no longer required to sanction the prosecution of offences under the Income Tax Acts. As a result, the police can now initiate prosecutions independently and ex officio, whereas previously, they required the consent of the CfTC to proceed.

Amendments to the VATA

Effective date of registration under Article 11

The Budget Act amends the proviso to Article 11(2) of the VATA to stipulate that the registration of small enterprises shall become effective on the first day of the month in which the CfTC receives the application or from the date of commencement of the economic activity, whichever is later. Prior to this amendment, the registration would take effect from the date notified by the CfTC to the taxable person (applicant).

Nevertheless, the registration of a small enterprise shall become effective on the first day of the month succeeding the month in which the Commissioner receives the application, if such application relates to a taxable person registered under Article 10 of the VATA which is applying to switch to the special scheme for small enterprises.

Extending the special privilege of CfTC

The special privilege conferred upon the CfTC under Article 62 of the VATA to recover any VAT due is extended to encompass all types of assets of a person, rather than being limited to the assets associated with the economic activity of the individual.

Legal representation of minors

Pursuant to Article 66(1) of the VATA, it is clarified that minors shall be represented by either any parent or guardian for VAT purposes.

Professional secrecy 

Article 19(6) of the DDTA, Article 4(2) of the ITMA, and Article 56(2) of the VATA establish the duty of professional secrecy, which binds all employees and officials operating under the administration of the particular Act. Nonetheless, this obligation is subject to certain exceptions, which now includes cases involving judicial or quasi-judicial proceedings, where disclosure is ordered by a court or tribunal.

Amendments to the COCP

Directive 12010/24/EU

EU Council Directive 2010/24/EU of 16 March 2010 establishes rules for mutual assistance among EU Member States in recovering claims related to taxes, duties, and other measures. It aims to enhance the efficiency and effectiveness of recovery procedures, ensuring fiscal neutrality and safeguarding the financial interests of Member States. The directive replaces previous arrangements with clearer and more precise rules, promoting wider information exchange and cooperation. It includes provisions for the notification and recovery of claims, precautionary measures, and the use of electronic communication for requests and documents.

Any request for recovery must be accompanied by a uniform instrument permitting enforcement in the requested EU Member State.

Executive titles

As a preface to the below amendment, an executive title is legal proof that something needs to be enforced without the possibility of being challenged.

A new paragraph (j) has been added to Article 253 of the COCP. In effect, the uniform instrument permitting enforcement in accordance with Council Directive 2010/24/EU now qualifies as a specific executive title and no court proceedings are necessary to enforce the uniform instrument requesting the information.