Guidelines in relation to Fringe Benefits for Beneficial Loan Arrangements

On 14 February 2025, the Malta Tax & Customs Administration (the ‘MTCA’) published Guidelines in relation to Beneficial Loan Arrangements (the ‘Guidelines’) in terms of the Fringe Benefit Rules, Subsidiary Legislation 123.55 of the Laws of Malta (the ‘FBR’).

Applicable from year of assessment 2025, the Guidelines seek to provide the benchmark rate of interest on a beneficial loan falling within the scope of the FBR provided by a qualifying Maltese licensed bank or authorised financial institution to their employees. By way of background, the relevant provisions pertaining to beneficial loan arrangements within the FBR had been amended by virtue of Legal Notice 298 of 2023.

Through the Guidelines, the MTCA set out the benchmark rates of interest on beneficial loan arrangements falling within the scope of regulations 26 and 27 of the FBR, typically in the form of reduced or interest-free loans. Accordingly, the Guidelines have established a distinction between various loans and the interest benchmark rates that may be used, as follows:

1. By reference to the average interest rate on overnight deposits as published by the Central Bank of Malta (the ‘CBM’) in the context of loans for the purchase of a primary residence;
2. By reference to the average interest rate on lending for house purchases as published by the CBM in the context of other home loans; and
3. By reference to the average interest rate on Consumer Credit and other Lending as published by the CBM in the context of any other loans.

The Guidelines determine that the average rates applicable to the above loans shall be calculated by reference to the specific interest rates prevailing at the end of each month during the twelve (12) month period ending on 30 September of the previous year to that year in which the benefit is deemed to arise, as published by the CBM in the statistics database on interest rates and other key financial market rates.

Furthermore, the changes brought about by the Guidelines also override other previous guidance notes related to the benchmark rate of interest of beneficial loan arrangements, including the previous rate applicable on the main refinancing operations and on the rate of interest of any other loan, previously established at 6.5% per annum.

The annual value of the beneficial loan arrangements will continue to be subject to the in-house benefit reduction in terms of article 27 of the FBR.
 

Deloitte view

The changes brought about by the Guidelines are expected to impact duly qualifying employers, predominantly Maltese licensed banks or authorised financial institutions. Such changes to the benchmark rates should have an impact on the value of the benefit provided to qualifying employees, as well as the income tax withholding through payroll.

Deloitte remains available to assist impacted employers in navigating the changes and ensuring that these changes are implemented accurately.