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1. Overview of the nature of VAT
VAT is an indirect tax that is levied on the value added to a product at each phase of production, distribution of goods and provision of services, whenever such a good or service is supplied either to another business or to the final consumer.
VAT is charged as a percentage of the consideration and therefore the tax burden is generally visible at each stage in the production and distribution chain.
Despite the aforesaid, the accumulation of the VAT element is prevented by allowing certain taxable persons (i.e. the sellers in this case) to deduct the tax they have incurred on their expenses from the VAT they collect on their supplies.
Except for specific types of situations (such as the ‘reverse charge mechanism’), VAT is generally charged and collected by the seller of the goods or services.
VAT is normally referred to as a ‘consumption tax’ because it is ultimately borne by the final consumer. Furthermore, VAT is generally not considered to be a business cost since any VAT incurred on the expenses incurred by a business should normally be recovered (except for VAT incurred in respect of: ‘blocked supplies’; ‘exempt without credit supplies’; expenses not incurred in the furtherance of one’s economic activity or supplies that are outside the scope of VAT).
VAT charged by a business on the supply of goods or services is referred to as ‘Output VAT’ (or ‘Output tax’) and VAT incurred by a business on purchases of goods and services is referred to as ‘Input VAT’ (or ‘Input tax’).
2. Value Added Tax Malta - key notions
2.1. Subject to VAT in Malta
VAT is charged, levied and collected on behalf of the Government upon:
- every supply of goods and services that takes place in Malta for a consideration by a taxable person acting as such (other than a supply made by a person registered under Article 11);
- every intra-community acquisition made for a consideration by a taxable person acting as such who is registered under Article 10 or Article 12 or a non-taxable legal person who is registered under Article 12, and;
- every importation that takes place in Malta.
2.2. ‘Taxable person’
The charging provision of the Value Added Tax Act Malta provides that VAT is charged on every supply of goods and services that is made by a ‘taxable person’ ‘acting as such’.
A ‘taxable person’ is a person who carries on an economic activity, whatever the purpose or result of that activity. Thus both physical persons (i.e. individuals) as well as bodies of persons (such as corporate entities) may qualify as taxable persons for VAT purposes. The term ‘economic activity’ refers to an activity carried on by a person, other than an employee, acting as such and includes:
- any trade or business,
- any profession or vocation and the provision of any personal services,
- the exploitation of tangible or intangible property for the purposes of obtaining income on a continuing basis,
- subscriptions charged by a club, association or organisation to its members, and;
- the admission of persons to any premises for a consideration.
2.3. The meaning of “…for a consideration”
A supply only falls within the scope of the Value Added Tax Act Malta, and therefore is subject to VAT, if it is made for a consideration.
The concept ‘made for a consideration’ means that:
- there must be a direct link between the consideration and the services supplied;
- the consideration must be capable of being expressed in money terms and therefore any supplies made by way of gratuity are excluded from the scope of VAT.
The receipt of a dividend in respect of a holding in a company.
This is exactly a scenario when a person who does not carry out any economic activity, receives a payment. It is clear that there is no direct link between the consideration and the transaction provided because no supply of good or service is being supplied.
If a company only holds shares in other companies, no economic activity is considered to be undertaken (i.e., no services are being supplied) and thus the holding company cannot be deemed to be a taxable person from a VAT perspective.
As a result, given that VAT is a consumption tax and not a tax on wealth and income, distributions such as dividends are not considered to fall within the scope of VAT and thus not subject to VAT.
2.4. Intra-Community acquisition
An ‘intra-community acquisition’ (“ICA”) is defined in the Value Added Tax Act Malta as being any of the following:
- the acquisition of goods (not services) which are transported by or on behalf of the supplier or the person acquiring them from another EU Member State to the person acquiring them in the other EU Member State, or
- the use of goods in Malta by a taxable person for business purposes, which goods were transported by that person or on his behalf from another EU Member State where the goods were produced/acquired/imported by him, and where the transport of those goods would, if made from Malta to another EU Member State, be treated as a an ‘intra-Community supply’. Indeed transfers of assets from a branch in one EU Member State to another branch of the same trader in another EU Member State is also considered to be an ICA.
- the acquisition by a non-taxable legal person, of goods that have been imported by him into the EU and subsequently transported to another EU Member State.
An ‘importation’ is defined in the Value Added Tax Act Malta as being the entry into the EU of goods that are transported from a country outside the EU.
2.6. Taxable supplies
According to the Value Added Tax Act Malta, a ‘taxable supply’ is defined as being a supply which is chargeable in terms of Article 4 of the Value Added Tax Act Malta and which is not exempt from tax in terms of Article 9 of the VAT Act.
Given that VAT is to be charged on every supply of goods and services that takes place in Malta for a consideration by a taxable person acting as such, at this stage, we must therefore understand the difference between a ‘supply of a good’ and a ‘supply of a service’. It is important to distinguish between what constitutes supplies of goods and what constitutes supplies of services because it allows us to determine the place where a particular transaction is deemed to take place.
A ‘supply of a good’ is the transfer of the right to dispose of tangible property as owner.
The Value Added Tax Act Malta sets out the following supplies that are to be specifically treated as supplies of goods:
- the supply of electricity, gas, heating or cooling energy and other sources of energy;
- the transfer of immovable property (except for an emphyteutical grant of less than 50 years);
- the delivery of the possession of goods pursuant to an agreement for the sale of those goods on deferred terms;
- the delivery of the possession of goods pursuant to an agreement for the hire of those goods for a certain period where the agreement specifically considers that the ownership of those goods will be transferred at a time that is not later than the date on which an agreed price has been paid in full;
- the transfer of goods pursuant to a contract under which the commission is payable on purchase or sale;
- an exchange of goods where each party makes a supply of goods to another;
- the transfer by a taxable person of goods forming part of his economic activity for consideration including: the sale of goods by judicial auction pursuant to proceedings exercised by creditors; and the transfer of goods by order made in the name of a public authority or in pursuance of the law against compensation, and;
- the private use by a person registered under Article 10 VAT Malta, or by his staff, of goods forming part of his economic activity (or even the disposal free of charge of such goods), where the VAT on the said goods was deducted by the taxable person (exception in the case of gifts of negligible value and samples).
A ‘supply of a service’ is defined as being a supply that is not a supply of goods.
The Value Added Tax Act Malta sets out the following supplies that are to be specifically treated as supplies of services:
- the assignment of any rights over property or of any intangible property;
- the transfer of immovable property by means of an emphyteutical grant of less than 50 years;
- the delivery of goods pursuant to a contract of works, including a construction contract (except in “special circumstances” as may be prescribed);
- an obligation to refrain from an act or to tolerate an act or situation;
- an exchange of services where each party makes a supply of services to another;
- the use of goods forming part of an economic activity of a taxable person registered under Article 10 VAT Malta by that person himself or by another person other than for the purpose of that economic activity (notwithstanding the fact that the transactions involve goods).
2.7. VAT treatment of a ‘transfer of a going concern’
It is important to distinguish between supplies of goods and supplies of services since this can impact whether a supply is considered to take place in Malta (and thus subject to VAT in Malta) or otherwise. This distinction is important since in determining the place of a transaction, the Value Added Tax Act Malta contemplates different sets of rules for goods, services as well as ICA and importations.
With respect to a ‘transfer of a going concern’ (i.e., the transfer by a person of assets of his economic activity), the said transaction shall neither be treated as a supply of goods nor as a supply of services (and therefore not subject to VAT), if the said transfer satisfies the following conditions:
- the transfer is made to a person that is registered under Article 10 VAT Malta;
- the economic activity (or part thereof) that is being transferred is capable of separate operation as a going concern;
- the assets that are transferred are to be used by the transferee in carrying out the same kind of activity;
- the transfer is recorded in the records of the transferor indicating the VAT registration number of the transferee.
The above treatment could also apply if the transfer of the assets is made to a person that is not registered under Article 10 VAT Malta and provided that the transferor did not qualify for an input tax credit in relation to the acquisition and accumulation of the assets being transferred (however, this is subject to an approval obtained from by the Director General VAT).
2.8. VAT rate in Malta
In terms of the relevant provisions of the Value Added Tax Act Malta, VAT is calculated as a percentage of the taxable value of a supply, ICA or importation.
The standard rate of VAT in Malta is 18% (the second lowest standard VAT rate in the EU), but there are also two reduced rates of 7%, 5% and further more exempt supplies (0%).
The reduced rate of 7% is applied to tourism accommodations, if a license from the Malta Tourism Authority (MTA) has been obtained.
The 5% reduced rate applies to medical equipment, electricity, certain foods, care services for minors, old or sick persons, works of art, printed materials, access fees in museums, concerts and theatres.
The services with zero-rated rates include local bus services, inter-island transport, foreign passports, human consumption food, etc. Exempt with credit supplies (Zero-rated VAT) means that the business would charge no tax to its consumers, but the business entity can claim back its incurred VAT.
2.9. Exempt transactions
The Value Added Tax Act Malta distinguishes between different types of exemptions by reference to the rights granted to the person providing the transaction and the availability to claim input tax incurred in connection with the said transactions.
Exempt with credit supplies:
The Value Added Tax Act Malta lists a number of goods and services which are considered to be ‘exempt with credit’ supplies. Suppliers providing similar transactions do not charge VAT on those particular transactions, however, the supplier is still entitled to recover input VAT incurred on expenses and overheads that are directly connected with the provision of such supplies.
Supplies of goods and services that are considered to be ‘exempt with credit’ are listed in Part One of the Fifth Schedule to the Value Added Tax Act Malta and includes:
- exports (supplies of goods that are transported from Malta to a destination outside the EU);
- the supply of goods (and the supply of services consisting of work on movable goods) intended to be placed (or while they are placed) under a customs duty suspension regime.
- intra-community supplies of goods to a taxable person who is identified for VAT purposes by an active VAT number of another EU Member State other than Malta.
- international transport, including: the international transport of persons inclusive of their luggage and motor vehicles, and the supply of services related to the international transport of passengers; the transport of goods from a country outside the EU and the supply of services connected to such transport, where the value of these transport and ancillary services are included in the taxable value of the importation of those goods; the transport of goods which is directly connected with the export of those goods outside the EU; the transport of goods which will be placed in a customs duty suspension regime; the provision of services relating to the loading, unloading, transshipment, handling, stowage, weighing, measuring, control, valuation, storage, supervision or delivery in connection with certain transport of goods, and; the provision of services relating to customs formalities on importation into or exportation outside the EU or on transit.
- the service of brokers and other intermediaries when acting in the name and account of another person, when these persons take part in other specific operations (including exports, sea vessels, food etc.).
- the supply of vessels (including services connected to such vessels such as maintaining, chartering, fueling etc.): used for navigation on the high seas and carrying passengers for reward or for the purpose of commercial, industrial or fishing activities; used for rescue of assistance at sea or for coastal fishing, and of war.
- the supply of aircraft destined to be used by airline operators for reward chiefly for international transport of passengers and/or goods (including services connected to such aircraft such as maintaining, chartering, fueling etc.);
- the supply of gold to the Central Bank of Malta and the supply of investment gold.
- the supply of food for human consumption, excluding food supplied in the course of catering.
- the supply of pharmaceutical goods.
- the supply of certain domestic transport such as for example, the supply of transport by the scheduled bus service on scheduled routes, the supply of inter-island sea transport by authorized carriers, and the carriage of school pupils or workers in specific circumstances;
- the supply of goods for consumption on board cruise liners.
Exempt without credit supplies:
The Value Added Tax Act Malta also lists a number of goods and services which are considered to be ‘exempt without credit’ supplies. The provision of such supplies does not trigger the charging of VAT on the particular transaction but on the other hand the supplier is not entitled to recover the input VAT incurred on expenses and overheads that are directly connected with such supplies.
Supplies of goods and services that are considered to be ‘exempt without credit’ supplies include:
- the letting of immovable property, excluding (i.e., the letting of immovable property is in general an exempt without credit supply, however, if any of the following exceptions apply the letting shall fall outside the exemption and shall be subject to VAT); the letting of or the provision of accommodation in any premises which is required to be licensed in virtue of the Malta Travel and Tourism Services Act; the letting of premises and sites for parking vehicles where such premises or sites have been designated by the Director General VAT as parking areas; the letting of permanently installed equipment and machinery and the hire of safes; the letting of property by a limited liability company to a person registered under Article 10 VAT Malta for the purpose of the economic activity of that person; the letting of immovable property for not more than thirty days by a taxable person in the course of an economic activity (certain other specific restrictions apply in this case).
- the transfer of immovable property.
- the supply of insurance and re-insurance services by licensed persons (including road assistance services provided by a taxable person who undertakes to cover the risk of breakdown or accident for a fixed subscription).
- the granting and negotiation of credit and other similar banking services.
- the supply of services consisting of the management of any investment scheme (as defined), provided that the services are limited to those activities that are specific and essential for the core activity of the scheme.
- the supply of cultural and religious services.
- the supply by non-profit making organizations of services related to sport or physical recreation.
- the supply of services by non-profit making organizations to their members (subscriptions).
- the supply of public postal services, including postage stamps.
- the supply of health and welfare services by persons in the exercise of any profession that is regulated by the Health Care Professions Act or the Psychology Profession Act and other supplies of medical or surgical treatment in any government hospital or institution.
- the provision of education, including distance learning, by a government school or institution, by the University of Malta, by a school or institution registered under the Education Act or by any other establishment recognized as such by the Director General VAT, and other similar educational services.
- the activities of public radio and television bodies, other than those of a commercial nature.
- the supply of water services by a public authority.
- Government lotto and lotteries, the supply of agency services related thereto, and such other supplies related to gambling as may be approved by the Minister.
The Value Added Tax Act Malta also contains items that are considered to be exempt in a transaction involving an intra-community acquisition of goods.
The exempt items include:
- the intra-acquisition of goods by a taxable person not established in Malta and who is identified for VAT purposes in another EU Member State, if all the following conditions apply: the acquisition of the goods is made for the purpose of a subsequent supply of those goods in Malta by that person; the goods acquired have been directly transported from an EU Member State other than that where that person is identified for VAT purposes to the person to whom the subsequent supply is made; the person to whom the subsequent supply is made is either a taxable person or a non-taxable legal person that is registered under Articles 10 or 12; the person to whom the subsequent supply is made is liable for the payment of the tax on that supply.
- the intra-community acquisition of goods the supply of which if made by a taxable person in Malta would be an exempt supply or the importation of which if made into Malta would be an exempt importation;
- the acquisition of goods by a person who is not registered under Article 10 VAT Malta, where that person would be entitled to a refund of the tax if that acquisition was not exempt;
- the intra-community acquisition of goods intended to be placed under a customs duty suspension regime;
- the intra-community acquisition of food.
The Value Added Tax Act Malta also contains items that are considered to be exempt transactions involving importations. The exempt items include:
- the importation of goods the supply of which by a taxable person would, in all circumstances, be exempt;
- the importation of: goods that are exempt from custom duties in Malta, and goods that are intended to be placed under a customs duty suspension regime;
- the importation of goods transported from a country outside the EU and imported into Malta, where the supply of these goods by the importer is subsequently followed by an exempt supply either as an intra- community supply of goods or as a transfer of own goods to another EU Member State;
- the importation into ports by sea fishing companies of their catches before being supplied;
- the re-importation of goods into Malta by the person who exported them outside the EU: either in the state in which they were initially exported outside the EU or which have undergone repair, transformation or adaptation, or after having been made-up or reworked abroad, provided that such exemption is limited to the value of the goods at the time they were exported outside the EU;
- the importation of food;
- the importation of gas through a natural gas system or any network, or fed in from a vessel transporting gas.
2.10. Taxable value
‘Taxable value’ of supplies:
In the case of a supply of goods / services, the taxable value shall be the total value of the consideration paid or payable to the supplier by the purchaser, the customer or any other person for the supply.
Furthermore, the taxable value shall:
- include taxes, duties, levies, fees and other charges (excluding VAT);
- include incidental expenses such as commissions, packing, transport and insurance;
- exclude discounts for early payment, rebates and other price reductions allowed by the supplier and accounted for at the time when the tax becomes chargeable, penalties and interests charged for late payment after the time of the supply, disbursements and any amount charged to the customer by way of a deposit on returnable packing of goods where the deposit is lower than the cost of the packaging.
Despite the above, the Value Added Tax Act Malta provides the possibility for the taxable value to be reduced if, after a supply takes place, any of the following scenarios occur:
- if the consideration for that supply is reduced by way of a price discount or rebate allowed to the customer for commercial reasons, or;
- if the consideration for that supply is not payable, or;
- if the amount due as consideration for that supply becomes a bad debt (subject to conditions stipulated in the Bad Debt Guidelines issued by the VAT Department).
When the consideration is payable wholly or partly in kind, or where the value of the consideration for a supply cannot be readily determined, the taxable value of that supply shall be its open market value (i.e., the price the goods or services would fetch if sold or provided in the open market).
With respect to transactions involving self-supplies the taxable value of such supply of services shall be deemed to constitute the full cost price to the person making the supply of services.
‘Taxable value’ of ICA:
The taxable value of a taxable intra-community acquisition is the amount that would represent the taxable value of the supply which is made pursuant to that acquisition, and shall include any excise duty (on which the person may claim a refund) which is payable in the other EU Member State by the person making the acquisition. Such excise duty may be reduced from the taxable value if the acquirer qualifies for refund of excise duty.
‘Taxable value’ of an importation:
In the case of importations, the taxable value shall be considered to be the taxable value in terms of the ‘Import Duties Act’, and unless included in the value itself, shall be increased by:
- any taxes, levies, duties, and other charges due outside Malta;
- and import duties chargeable on the said importation under the Local Manufactures (Promotion) Act;
- any excise duty payable under the Excise Duty Act;
- any incidental expenses such as commissions, packing, customs agency costs and transport and insurance costs;
- costs for the transport of the goods to another destination within the EU if that destination is known at the time of importation.
Similarly, to supplies and intra-Community acquisition, the taxable value of an importation shall not include:
- rebates and other price reductions allowed directly by the supplier to the customer and accounted for at the time of the importation, and;
- price reductions by way of discount for early payment.
2.11. ‘Reverse charge mechanism’
The ‘reverse charge mechanism’ is a simplification measure whereby the liability to account for the payment of VAT on a particular transaction is shifted from the supplier to the customer.
This could arise if for instance a supplier (that is not established in Malta for VAT purposes and neither registered for VAT purposes in Malta under Article 10 VAT Malta), provides goods or services which are deemed to take place in Malta, to a customer that is registered for VAT purposes in Malta.
In such a case, contrary to the general rule which provides that it is the supplier’s responsibility to account for the payment of the VAT arising on supplies of goods and services, through this simplification procedure such responsibility is shifted on to the customer who is therefore required to account for Maltese VAT in his VAT return. In other words, the customer is required to account for the VAT element arising from his purchases as though that supply was sold by such customer.
In other words, the customer is required to declare the transaction and the relative output tax due. Subject to the certain conditions being satisfied, the customer may possibly also claim the VAT back as a deduction and therefore the particular supply would result in a neutral transaction. However, for a transaction to result in it being neutral, certain conditions must be satisfied. Generally, this would depend on the economic activities of the customer as well as the type of registration.
—If the customer is registered under Article 10 VAT Malta and engages in solely taxable supplies or a mix of taxable supplies and exempt with credit supplies, the customer should be entitled to recover the full amount of the VAT incurred in so far as the transaction was acquired for business use. However, in the event that the customer’s supplies constitute a mix of taxable, exempt with credit supplies and exempt without credit supplies, the customer may be restricted from recovering the full portion of the VAT incurred.
—If the customer is not registered under article 10 VAT Malta (possibly because the customer is providing exempt without credit goods or services or because the customer is a small undertaking falling below the established turnover threshold and registered under article 11) the customer should be liable to account for the payment of the VAT however in this case the transaction will not be neutral.
Through the simplification measure, the supplier is spared from the obligation to register for VAT purposes in Malta (which would otherwise result in a number of administrative burdens).
3. Types of Malta VAT Registrations
The Value Added Tax Act Malta contemplates three different VAT registrations and each category is administered by rules which are specific to each type of registration. The three categories are as follows:
- the registration under Article 10;
- the registration under Article 11, and;
- the registration under Article 12.
Registration for Malta VAT purposes under
Article 10 of Value Added Tax Act –
requirements and implications
The VAT registration category that is contemplated under Article 10 of the Value Added Tax Act is considered to be the standard VAT registration that applies in most cases.
Registration under Article 10 may be divided into four categories:
Category 1 – Persons who make a supply for a
This category applies to the following two scenarios:
- when a taxable person that is established in Malta, which is not already registered under Article 10 or Article 11, and makes a supply for a consideration in Malta, is required to be registered under Article 10 by not later than 30 days from the date on which he makes such a supply. However, this requirement does not apply in the event that the taxable person makes a supply which is considered to be an ‘exempt without credit’ supply, or
- when a taxable person that is established in Malta which is not already registered under Article 10 or Article 11, and makes supplies of services for a consideration within the territory of another EU Member State, for which the tax on such services is liable to be paid by the customer(s) in that other EU Member State, is also required to be registered under Article 10 by not later than 30 days from the date on which the taxable person makes that supply of services.
Category 2 – Persons who are required to register as a result of a request by the VAT Commissioner.
A taxable person who is established in Malta may be required to register under Article 10 if it is so requested by the VAT Commissioner.
Should this be the case, the taxable person is required to register under Article 10 within 30 days from the date on which the taxable person is served with a notice containing such a request.
Category 3 – Taxable persons that are not established in
A taxable person who is not established in Malta and who is not already registered under Article 10, and who is liable for the payment of the tax on a supply in terms of Article 20 (as further described below), is required to register under Article 10 by not later than 30 days from the date of that supply.
In brief, Article 20 of the VAT Act sets out the following general rules to determine who is liable for the payment of VAT: the payment of the tax on a taxable supply shall be the liability of the person who makes that supply; the payment of the tax on a taxable acquisition shall be the liability of the person who makes the acquisition, and; the payment of the tax on a taxable importation shall be the liability of the person who makes the importation.
As a result, taxable persons that are not established in Malta but who are due to pay tax in Malta, are required to register under Article 10 and simultaneously incur a number of administrative costs and burdens so as to adhere with the reporting requirements that registration under Article 10 entails.
The VAT Act therefore contains a number of in-built simplification procedures that, when applicable, remove the obligation for such taxable persons to register for VAT in Malta.
The simplification procedure referred to above is discussed in Article 20(2) of the VAT Act, and is generally referred to as the ‘reverse charge mechanism’.
Category 4 – Optional registrations.
Any person who is not already registered under Article 10 and who carries on, or intends to carry on an economic activity may apply to be registered under Article 10(5) of the VAT Act.
While the situations set out in categories 1, 2 and 3 above create an obligation to register for VAT under Article 10, this situation does not create an obligation, but the registration is considered to be optional.
A taxpayer has an option to register under Article 10 if: once he becomes so registered, he would be entitled to claim input VAT in terms of the provisions of article 22 of the VAT Act, or if he has made or is likely to make an intra-Community acquisition in Malta for the purpose of operations carried out outside Malta.
Implications of registration under Article 10:
Taxable persons that are registered under Article 10 are required to charge output VAT on their taxable supplies. Furthermore, taxable persons that are registered under Article 10 are entitled to recover input VAT incurred on overheads and expenses that have been, or are intended to be, wholly incurred by the taxable person for the furtherance of his economic activity.
Moreover, taxable persons that are registered under Article 10 are assigned a VAT identification number containing the ‘MT’ prefix followed by an eight-digit number.
Article 10 registered persons are normally required to file a duly completed VAT return on a quarterly basis (but in certain cases even monthly or annually).
VAT registration under
Article 11 of Value Added Tax Act Malta –
requirements and implications.
A registration under Article 11 is considered to be an optional registration and is commonly referred to as the registration that is applicable to small undertakings. Accordingly, a person who qualifies to register under Article 11 may nevertheless decide to register under Article 10 VAT Malta.
Requirements to be registered under Article 11:
The VAT Act sets out the following three criteria which a person must satisfy in order to be entitled to register under this Article:
- the person must be a taxable person established in Malta;
- who is not already registered under Article 11, and;
- who carries on an economic activity which qualifies as a small undertaking.
If the Director General VAT is satisfied that the above three criteria have been satisfied, then the taxable person is obliged to register under Article 11.
In the event that the person is already registered under Article 10, the Commissioner shall, upon the registration of the person under Article 11, cancel the person’s registration under Article 10. However, a person that is registered under Article 10 is not allowed to cancel his registration so as to register under Article 11 during the first 36 months of his registration under Article 10. Indeed, a person may not be registered under Article 10 and Article 11 at the same time, since such registrations are mutually exclusive.
The applicability of the third criterion set out in above is determined by reference to the Sixth Schedule of the VAT Act. The most important requirement that needs to be met is the turnover threshold for the relevant period.
The table in the 6th Schedule of the VAT Act is replicated below.
|Economic Activity||Entry Threshold||Exit Threshold|
|Economic activity consisting mainly of supplies of goods||€35,000||€28,000|
|Economic activity consisting mainly of supplies of services with low value added||€24,000||€19,000|
|Other economic activities||€20,000||€17,000|
If a new VAT applicant’s estimated turnover meets the applicable entry threshold (depending on the said applicant’s economic activity), then the said applicant is obliged to register for VAT purposes under Article 10. As a result, the new VAT applicant will not be allowed to register under Article 11.
In the case that the turnover of an existing person who is already registered under Article 10 falls to a level of equal to or below the applicable exit threshold, then that person is permitted to exit his registration under Article 10 and register for VAT purposes under Article 11. Therefore, the entry threshold can be considered a benchmark that, if exceeded, creates an obligation for a person to register under Article 10. On the other hand, the exit threshold creates an option (not an obligation) to deregister from being registered under Article 10 and become registered under Article 11.
The Director General VAT is the person who determines within which category a person’s economic activity should fall.
Turnover is defined as the total taxable value of all supplies made by that person in the course or furtherance of his economic activity during the relevant period, excluding:
- exempt without credit supplies;
- a transfer of a business of a going concern;
- transactions which are treated under the VAT Act as supplies made by a person to himself (i.e., self- supplies), and;
- the sale or disposal of fixed assets.
However, the Director General VAT is entitled to adjust the turnover of a person where it appears to him that the turnover of a period has been negatively affected by specific extraordinary circumstances, including the temporary suspension of the person’s economic activity.
Implications of registration under Article 11:
A person who satisfies the relevant requirements and is registered under Article 11 should not charge VAT on his supplies, but does not have the right to recover any input VAT suffered on purchases and overheads. As a result, a person registered under Article 11 is generally considered to be an ‘exempt person’.
Article 11, unlike Article 10 VAT Malta, is a purely local registration. As a result, the VAT registration number that is assigned to a person registered under Article 11 excludes the ‘MT’ prefix and, as such, does not constitute a VAT identification number. Consequently, if the taxable person intends to make intra community transactions (such as intra-community acquisitions) this type of registration may not be sufficient on its own.
The main benefits for a person that is registered under Article 11 is the clear administrative simplification and reduced compliance costs. However, persons registered under Article 11 are still bound to comply with certain obligations. In particular, persons registered under Article 11 are required to submit a declaration (instead of VAT returns). This declaration is to be submitted on a calendar year basis and falls due by the 15th February of the following year.
From a pricing point of view, prices charged by persons registered under Article 11 may be cheaper given that no VAT would be passed on to the consumer. However, one must also take into account the fact that input VAT incurred is not recoverable which in certain cases may put a person that is registered under Article 11 at a competitive disadvantage.
Persons registered under Article 11 are required to issue fiscal receipts instead of invoices.
Registration for Malta VAT purposes under
Article 12 of Value Added Tax Act –
requirements and implications
Registration under Article 12 is mandatory in the following cases:
- when a taxable person that is not registered under Article 10 VAT Malta or a non-taxable legal person intends to make an intra-community acquisition in Malta, and, on account of that acquisition, the value of his intra-community acquisitions exceeds the acquisition’s threshold (of €10,000) in a calendar year. In such a case, he shall apply to be registered under Article 12 by not later than the date of that acquisition.
- when a taxable person established in Malta, other than a taxable person registered under Article 10, who receives services for which he is liable to pay VAT by way of reverse charge. In such a case, the taxable person is required to register under Article 12 by not later than the date on which he receives the supply of services.
When a taxable person becomes registered under Article 12, a valid EU VAT registration number shall be issued (therefore the VAT number will include the ‘MT’ prefix).
An Article 12 registration may be optional in certain circumstances. Indeed, a taxable person who is not registered or liable to be registered under Article 10 or a non-taxable legal person may, unless he is registered under Article 12, at any time apply to be registered.
A person who is obliged to register under Article 12 in lieu of the circumstances mentioned above may apply for the cancellation of his registration at any time after the expiration of the first full calendar year following that in which he was registered. On the other hand, a person registered under Article 12 in lieu of the circumstances mentioned above may apply for the cancellation of a registration at any time if he no longer receives supplies of services for which he is liable to account for the payment of the tax.
In all other cases (in the case of an optional registration) the prescribed time window is of two consecutive years and the de-registration is possible if the value of the intra-community acquisitions did not exceed the acquisitions threshold in the year in which the application for de-registration is filed or in the preceding calendar year.
If a person is registered under Article 10, an Article 12 registration is not required. Indeed, these two types of registrations are also mutually exclusive and the Commissioner would cancel an Article 12 registration if a tax payer registers for Article 10. On the other hand, there could be situations whereby a person would be both registered under Article 11 and Article 12 at the same time.
4. Determining whether output VAT is due on a transaction
When determining whether a particular transaction is subject to output VAT or otherwise, a series of criteria must be evaluated including: whether a transaction is within the scope of Maltese VAT, the place of supply of a transaction, whether the transaction is subject to an exemption, as well as who is liable to pay the VAT.
In this regard, reference is generally made to five basic questions, which one should scrutinize for each particular transaction:
Is the supply made by a taxable person?
Is it a supply within the scope of VAT?
Where is the place of supply?
Is there any exemption?
Who is the person liable to pay the VAT?
5. Determining the place of supply of goods and services, ICA and importations
The place of supply rules are set out in the Third Schedule of the Value Added Tax Act Malta and have a bearing on:
- whether a taxable person established in one EU Member State has an obligation to register for VAT purposes in another EU Member State and;
- whether the taxable person is required to charge VAT on the supply (and if so at which rate) or whether the reverse charge mechanism shall come into play whereby the responsibility to account for and pay the VAT is passed onto the customer.
The place of supply rules is split into four categories: place of supply of goods, place of supply of services, place of ICA, place of importations.
5.1. Place of supply of goods
The general rule for the purposes of determining the place of supply of goods is split into 3 branches:
- a supply of goods that are not transported is considered to take place where the goods are at the time when they are placed at the disposal of the person acquiring those goods;
- a supply of goods that are transported is considered to take place where the goods are at the time when the transport of those goods begins;
- when the transport of goods begins outside the EU and ends in an EU Member State, the supply of those goods by the importer and any subsequent supply up to the acquisition of those goods is considered to take place in the EU Member State where they are imported.
5.2. Place of supply of services
Determining the place of supply of a transaction in the context of services requires the understanding of the concepts of ‘established his business’ and ‘fixed establishment’ of the provider or the customer and the concepts of ‘permanent address’ and ‘usually resides’.
‘Established his business’:
The place where the business of a taxable person is established is generally considered to be the place where the functions of the business’ central administration are carried out. In order to determine the place where a taxable person has ‘established his business’, account is taken of: the place where essential decisions concerning the general management of the business are taken; the place where the registered office of the business is located, and; the place where management meets.
A ‘fixed establishment’ is any establishment, other than the place where a taxable person has ‘established his business’ described above, which is characterized by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to: either receive and use the services supplied to it for its own needs or provide the services which it supplies.
The fact that a taxable person has a VAT identification number shall not in itself be sufficient to consider that a taxable person has a fixed establishment.
The ‘permanent address’ of a natural person is considered to be the address which is entered into the population or similar register, or the address indicated by that person to the relevant tax authorities, unless there is evidence that this address does not reflect reality.
The place where a natural person ‘usually resides’ is the place where that natural person usually lives as a result of personal and occupational ties. Where the occupational ties of a natural person are in different country from that of his personal ties, or where no occupational ties exist, the place of usual residence shall be determined by personal ties which show close links between the natural person and a place where he is living.
‘B2B’ transactions: the place of supply of services that are supplied to a taxable person acting as, is the place where that taxable person has established his business, i.e., where the customer is established for VAT purposes.
However, if those services are provided to a fixed establishment of the customer (who is a taxable person acting as such) which is located in a place other than the place where he has established his business, the place of supply of those services is the place where that fixed establishment is located.
In the absence of such a place of establishment or fixed establishment, the place of supply of those services is the place where the taxable person who receives such services has his permanent address or usually resides.
‘B2C’ transactions: the place of supply of services that are supplied to a non-taxable person, is the place where the supplier of the services has established his business, i.e., where the supplier is established for VAT purposes.
However, if the supply of services is provided from a fixed establishment of the supplier which is located in a place other than the place where he has established his business, the place of supply of those services is the place where that fixed establishment is located.
In the absence of such a place of establishment or fixed establishment, the place of supply of services is the place where the supplier has his permanent address or usually resides.
Apart from the general rules mentioned above, a number of exceptions exist, most of them are dealing with the place of supply of services relate mainly to transactions involving B2C type of transactions.
Among these exceptions, mention may be made of the supplies of the following services: transfers and assignments of copyrights, patents, licenses, trademarks and similar rights; advertising services; the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information; services by intermediaries; banking, financial and insurance transactions including reinsurance; cultural, artistic, sporting, scientific, educational, entertainment and similar services; restaurant and catering services (including cases for consumption on board ships, aircrafts or trains); e-services to non-taxable persons; ancillary transport services and valuations of and work on movable property; the provision of access to a natural gas system situated within the territory of the EU; supply of transport; hiring of a means of transport; services connected with immovable property.
In these terms, it is impossible not to mention about the use and enjoyment rules.
Effective use and enjoyment takes place where a recipient actually consumes the services, irrespective of the VAT place of supply rules. Such a scenario corrects instances of distortion that arise as a result of considering only where the provider and the customer belong, and not where the service is actually consumed.
This is because it would be distortive if, for example, supplies such as telecommunications services that are actually consumed outside the EU are actually subject to EU VAT.
In the same manner, it would be distortive if there would be no EU VAT on services that are actually consumed in the EU.
In view of the above, in certain cases, the VAT Commissioner may depart from the default rule for determining the place of supply of certain services in the following two scenarios:
- consider the place of supply, if situated within the EU, as being situated outside the Community, if the effective used and enjoyment of the service takes place outside the EU, and;
- consider the place of supply, if situated outside the EU, as being situated within Malta if the effective use and enjoyment takes place in Malta.
5.3. Place of ICA
The general rule relating to the place of ICA is deemed to take place where the goods are when the transport of the goods to the person acquiring them ends.
Therefore, if a taxable person established in Malta acquires goods from another EU Member State, and such goods are transported to Malta, the acquisition of such goods is considered to take place in Malta. This rule applies unless such a taxable person establishes that the acquisition of the goods is to be treated as taking place in another EU Member State and subject to VAT in that other EU Member State.
An intra-community acquisition in one EU Member State is said to be the mirror image of an intra-community supply that is taking place in another EU Member State.
As a result, there is a close linkage between the place of supply of an intra- community acquisition and the place of supply of an intra-community supply.
The place of supply of an intra-community supply of goods that is transported is deemed to be the place where the goods are at the time that the transport begins.
On the other hand, the place of supply of an intra-community acquisition of goods is deemed to be where the goods are at the time when the transport of the goods ends.
In reality although the same transaction triggers two separate transactions from a VAT perspective (i.e. an intra-community supply from one end, and intra-community acquisition from another end), in practice this does not mean that VAT is payable twice on the same transaction.
5.4. Place of importations
An importation of goods takes place where the goods are at the time when the chargeable event takes place.
6. Determining the time of supply of goods and services, ICA and importations
The time of supply rules determine the date when a transaction is considered to take place. In other words the time of supply is the date when the VAT on a particular transaction must be accounted for, and the date when the right for a claim for input VAT on the purchases arises. Such rules are also important to determine whether the relevant thresholds have been reached (such as the thresholds for distance sales, or intra-community acquisition).
The Value Added Tax Act Malta provides the following two relevant and distinct points in time that are important to determine the time of a supply:
- the date of the chargeable event, and
- the date when the tax becomes chargeable.
The ‘date when the chargeable event takes place’ is defined as the occurrence by virtue of which the legal conditions for VAT to become chargeable are fulfilled whereas ‘the date when the tax becomes chargeable’ refers to the date when the tax authority becomes entitled to claim the tax from the person liable to pay the tax even though the time of payment may be deferred.
6.1. Date of the chargeable event in the case of supplies of goods
In the case of a supply of goods, the chargeable event is considered to take place on the date when the goods are delivered.
When the delivery of the goods gives rise to successive statements of account or payments, the goods are to be considered as delivered on the last day of each period to which such statements of account or payments refer4. However, when a continuous supply of goods does not give rise to statements of account or payments during a year, it shall be regarded as being delivered at least at intervals of one year.
However, the above treatment does not apply to the delivery of goods in connection with a contract for the hire of goods for a certain period or for the sale of goods on deferred terms.
The continuous supply of goods over a period of more than one calendar month which are dispatched or transported to another Member State and which are supplied VAT exempt or which are transferred VAT exempt to another Member State by a taxable person is regarded as being completed on expiry of each calendar month until such time that the supply comes to an end.
6.2. Date of the chargeable event in the case of supplies of services
In the case of a supply of services, the chargeable event takes place on the date when the services are performed.
When the supply of services gives rise to successive statements of account or payments, they shall be treated as performed, up to the value covered by such statements, on the last day of each period to which such statements of account or payments refer.
However, the VAT law Malta further provides that when a continuous supply does not give rise to successive statements of accounts or payments during a year, it shall be regarded as completed at least at intervals of one year.
Furthermore, when a supply of services for which VAT is payable pursuant to article 20(2)(b) of the Value Added Tax Act Malta is supplied continuously over a period of more than one year and it does not give rise to statements of account of payments during the period it shall be regarded as being completed on expiry of each calendar year until such time that the supply comes to an end.
6.3. Date when the tax on supplies of both goods and services becomes chargeable
The tax on a supply of goods or services which takes place in Malta, other than an exempt intra-community supply, becomes chargeable on the earlier of the following dates:
- the date when the chargeable event takes place, and;
- the date when a payment is made for the supply to the extent covered by that payment.
However, where a tax invoice is issued by the fifteenth day of the month following the earlier of the two dates mentioned above, the tax becomes chargeable on the date of the invoice.
In the case of an exempt intra-community supply, the tax becomes chargeable on the earlier of the following dates:
- the fifteenth day of the month following the date when the chargeable event takes place, and;
- the date on which a tax invoice is issued for that supply.
6.4. Date of the chargeable event and when the tax becomes chargeable in the case of ICA
In the case of ICA of goods, the chargeable event is considered to take place on the date, which would be the date of the chargeable event, had those goods been supplied in the EU Member State where the acquisition is made. In effect, an intra-community acquisition of goods in Malta will be considered to take place on the date when the goods are delivered.
The tax on an intra-community acquisition becomes chargeable on the earlier of the following two dates:
- the fifteenth day of the month following the date of the acquisition, and;
- the date on which a tax invoice is issued to the person making the acquisition for the supply of goods in question.
6.5. Date of the chargeable event and when the tax becomes chargeable in the case of importations
∗In the case of goods which, upon importation, are placed under a ‘customs duty suspension regime’, the chargeable event takes place and the tax becomes chargeable on the date when they are released into free circulation (i.e. when they cease to remain subject to the customs duty suspension regime).
A ‘customs duty suspension regime’ means any of the following arrangements and procedures to the extent that they provide (under the customs legislation of an EU Member State) for the temporary exemption from duty chargeable on the entry of goods into that EU Member State while the conditions required under those arrangements and procedures are met:
- the temporary storage of goods;
- the placing of goods in a free zone or free warehouse;
- customs warehousing or inward processing;
- the admittance into territorial waters of goods on drilling and production platforms;
- the temporary entry of goods into that EU Member State;
- external transit procedures; and
- internal transit procedures.
∗In the case of goods which, upon importation, are subject to customs duties and other Community duties, the chargeable event takes place and the tax becomes chargeable when the chargeable event for those Community duties takes place and when those duties become chargeable.
∗In the case of goods, which upon importation, is not subject to any duties, the chargeable event takes place and the tax becomes chargeable when, had the importation been subject to any duties, the chargeable event for those duties would take place and those duties would become chargeable.
7. Deductions. Input VAT recovery
The deduction system which is incorporated in EU VAT law has been designed to relieve businesses from the burden of the VAT payable or paid in the course of their economic activities. The common system of VAT consequently ensures that all economic activities (whatever their purpose or results, provided that they are themselves subject to VAT or give rise to a right to claim input VAT), are taxed in a wholly neutral way.
The right of input tax deduction is fundamental to the neutrality of VAT to businesses. As a result, VAT is ultimately borne by the end customer, and not by businesses, and therefore, VAT is generally not considered a business cost.
The input tax of a taxable person is the tax that becomes chargeable on:
- supplies made to him;
- ICA made by him, and;
- importations made by him;
to the extent that the supplies so made and the goods so acquired or imported have been or are intended to be wholly used by him in the course or furtherance of his economic activity.
The amount of excess credit of a business registered in terms of Article 10 for a tax period shall be a refund payable to that business by the Director General. The excess credit is payable by not later than 5 months from the expiration of the time allowed for the furnishing of the tax return for that period, or from the day on which the said return has been actually furnished, whichever is the later. Interest shall be due on any tax which is not paid by the date on which it becomes payable, at the rate of 0.75% (up to 31 December 2013) and 0.54% (applicable from 1 January 2014) for each month or part thereof during which that tax remains unpaid.
Subject to certain conditions being satisfied, the Commissioner may waive the interest (and administrative penalties) due by a taxpayer when such interest and administrative penalties were not paid due to a reasonable excuse.
A taxable person that is not registered or liable to be registered in terms of Article 10, and who is not established in Malta but is established in another EU Member State may claim a refund of his input tax by means of a prescribed form.
A taxable person who is not registered or liable to be registered in terms of Article 10, and who is not established in the EU, may claim a refund of his input tax if, in terms of the laws of the country in which the person is established, a taxable person that is established in Malta would be entitled to a comparable benefit in that country.
Businesses that are registered for VAT purposes in terms of Article 10 are entitled to recover input VAT that is attributable to:
- taxable supplies;
- exempt with credit supplies, and;
- supplies which take place outside Malta which would, if made in Malta, be treated as taxable supplies or as exempt with credit supplies, or supplies taxed outside Malta which if made in Malta would have been treated as exempt without credit supplies.
Therefore, businesses that provide solely exempt without credit supplies (e.g. insurance companies and banks) as well as businesses who are classified as exempt in terms of Article 11, are not entitled to recover input VAT incurred on purchases relating to their business.
However, there is a specific provision in the Value Added Tax Act Malta which entitles businesses that provide specific exempt without credit supplies to customers that are established outside the EU to recover input VAT incurred on purchases relating to their business. In the event that a business provides certain exempt without credit supplies to a non-EU customer, such a business may be entitled to recover input VAT that is directly related to such supplies or recover partial claims in accordance with the partial attribution ratio (as discussed in further detail in section 7.3 below).
Every business that is registered in terms of Article 10 who furnishes a tax return for a tax period shall have the right to deduct the input tax for that period from the output tax.
The right to claim input VAT must be supported by a tax invoice.
When the input tax deductions that are entitled to be recovered by a business registered in terms of Article 10 for a tax period exceed the output tax of that person for that period, the excess shall be an excess credit of that business for that period as well as other deductions which may be allowed in terms of the partial attribution rules.
Even though a business may engage in taxable supplies or is exempt with credit supplies (or both), no input tax may be recovered on the acquisition of the following items (referred to as ‘blocked supplies’):
— tobacco, or tobacco products (unless purchased for resale in the course of business);
— alcoholic beverages (unless purchased for resale in the course of business);
— works of art, collectors’ items and antiques (unless purchased for resale in the course of business);
— motor vehicles, vessels or aircraft including the supply thereof for hire or leasing arrangements (certain exceptions apply including but not limited to the purchase of such assets for resale in the course of business, or when used for the purpose of the carriage of goods/passengers for consideration);
— goods and services for the purpose of repairing, maintaining, fuelling and keeping motor vehicles, vessels or aircraft (subject to exceptions);
— goods and services used in the provision by that taxable person of receptions, entertainment or hospitality;
— (unless made for consideration in the normal course of that person’s economic activity); and
— goods or services used in the provision by that taxable person to its officers or employees of transport or entertainment (unless the transport is provided to employees on vehicles with a seating capacity of not less than seven).
Furthermore, no VAT may be claimed in respect of a supply, ICA or importation made by a person in the name and for the account of another person in respect of disbursements paid for such other person.
8. Compliance obligations
Persons that are registered for VAT purposes are required to comply with a number of obligations as set out in the Value Added Tax Act Malta.
The Value Added Tax Act Malta contemplates two principal types of compliance obligations – the maintenance of proper books and records and the filing of VAT returns.
8.1. Record keeping
The maintenance of adequate books and records ensures that persons that are registered for VAT purposes are in line with what is required from them at law, and also provides such persons with the possibility of winning VAT inspections initiated by the Maltese VAT Department.
Every registered taxable person established in Malta is obliged to keep full and proper records of all transactions carried out in the course or furtherance of his economic activity.
Every person who is liable to tax on any transaction or who identifies himself as a person registered under the Value Added Tax Act Malta for the purpose of any transaction is obliged to keep full and proper records of any such transaction.
Every taxable person and every non-taxable legal person shall keep full and proper records of all ICA made by him.
The following records are to be kept by businesses that are registered in terms of Article 10 of the Value Added Tax Act Malta for a minimum of six years:
- proper accounts and records of his economic activity;
- a value added tax account (this account shall be a separate account that is held for each tax period of the taxable person and shall contain all the information that is required to be furnished in the tax return for that period);
- an annual value added tax account;
- copies of all invoices issued by him;
- all tax invoices received by him;
- documentation relating to customs (and excise if applicable) in respect of all importations and exportations;
- copies of all fiscal receipts issued by him;
- all credit notes, debit notes and other documents issued by him or received by him which indicate an increase or decrease in the consideration of a supply, intra-community acquisition or importation;
- a register of goods transported by him or on his behalf out of Malta within the EU;
- a record of movable tangible goods transported to him from another EU Member State by or on behalf of a taxable person identified for VAT in that other EU Member State.
The Director General VAT is entitled to request any taxable person, at any time within the six year period, to produce the records, documents, accounts and electronic data required to be kept by him. In the case where a taxable person submits a tax return after its due date or makes a correction to a previously submitted tax return, the six year period shall start to run from the date on which the tax return is then furnished or a request for the correction is received by the Commissioner.
8.2. VAT return
- Every person registered under Article 10 of the Value Added Tax Act Malta is obliged to furnish the Commissioner with a tax return for every tax period by not later than the fifteenth day of the second month following the month during which that tax period.
- A tax return furnished by a person registered under Article 10 of the Value Added Tax Act Malta shall contain a declaration of the output tax, the input tax and any other declarations and particulars for that tax period that are required in terms of the Value Added Tax Act Malta.
- Furthermore, a tax return shall be furnished either on the form as prescribed by the Minister, or electronically through the established web portal designed by the Director General VAT.
- A tax return shall not be considered to be furnished unless it is full and complete in all material respects, and unless the tax which is required to be payable in accordance with the declarations made has actually been paid to the Director General VAT.
- A person registered in terms of Article 10 of the Value Added Tax Act Malta, who has made an incorrect declaration in a tax return furnished to the Director General VAT for a tax period, may correct the declaration by the delivery of such form as the Minister may prescribe (guidance on how to complete a correction of a VAT return using the prescribed form is available on the VAT Department’s website).
- An incorrect declaration in a tax return may be corrected by means of an adjustment in a subsequent tax return, without the need for the delivery of the prescribed form provided for in LN 128 of 2016, if a person registered in terms of Article 10 of the Value Added Tax Act Malta, in a return furnished to the Director General VAT:
- overstates or understates the output tax and the overstatement or understatement does not exceed 5% of the output tax declared in the said return, and/or;
- overstates or understates the credit for input tax and the overstatement or understatement does not exceed 5% of the credit for input tax declared in the said return.
- However, the correction may only be made in such tax periods commencing not later than 6 months from the expiration of the tax period to which the error refers.
- In the event that an incorrect declaration in a tax return may not be corrected by means of an adjustment in a subsequent tax return (i.e. if the understated/overstated tax exceeds 5% of the output/input tax declared in the incorrect tax return), a person registered in terms of Article 10 of the Value Added Tax Act Malta shall be liable to an administrative penalty of 10% on the excess of output/input tax between the correct amount (as per the corrected tax return) and the amount actually declared in the incorrect tax return.
- This administrative penalty may be increased to 20% if the person correcting his tax return does so after to being served with a provisional assessment.
- In addition to the above, a person registered in terms of Article 10 shall also be liable to administrative penalties if he does not furnish a tax return by the stipulated deadline and/or if he does not effect a tax payment by the stipulated deadline.
- Persons that are registered in terms of Article 12 of the Value Added Tax Act Malta are obliged to submit a special tax return also referred to as a notice of payment (which is referred to as a VAT Form 004). The said return must be accompanied by payment of VAT due and it should reach the VAT department by the earlier of the 15th day of the second month next following the date of invoice or the date when the supply was received or in the case of intra-community acquisition the 15th day of the month following that during which the tax becomes chargeable.
- Furthermore, persons registered in terms of Article 12 of the Value Added Tax Act Malta must also file a VAT Form 005 on an annual basis. This form must show the total of value of intra community acquisitions and value of services purchased from foreign established suppliers made in any one year.
- A person registered in terms of Article 12 shall also be liable to administrative penalties if he does not furnish the appropriate notice of payment or declarations by the stipulated deadline and/or if he does not effect a tax payment by the stipulated deadline.
8.3. Recapitulative statements
- Every taxable person is obliged to make a recapitulative statement on a form and at such intervals as prescribed by the Minister for the following supplies:
- exempt intra-community supplies of goods, and;
- services, other than services that are exempted from the tax in the EU Member State where the transaction is taxable, and for which the recipient is liable to pay the tax;
- made to both taxable persons and non-taxable legal persons identified for VAT.
- The amounts that are reported in the recapitulative statement of a taxable person are, in general, equivalent to the amount reported in Box 1 of the VAT return.
- The recapitulative statement captures information which is required by the EU VAT Information Exchange System in order to combat VAT fraud. Therefore, the main purpose of the recapitulative statement is to ensure that the customer does effectively account for reverse charge VAT in his country.
- Recapitulative statements must be filed on a calendar quarter basis through the VAT Department’s web portal. However, in the case of intra-community supply of goods exceeding €50,000 per quarter, then the recapitulative statement must be submitted monthly. In the event that no transactions have been entered into by the taxable person for a particular quarter, then no statement is required to be submitted (i.e. nil returns are not required).
- Every taxable person is obliged to make a recapitulative statement on a form and at such intervals as prescribed by the Minister for the following supplies:
8.4. Tax invoice and fiscal receipt
- Tax invoice:
Every person registered in terms of Article 10 of the Value Added Tax Act Malta, who makes a supply other than an exempt without credit supply, to another person who identifies himself for the purpose of that supply by means of a VAT identification number shall provide that other person with a valid tax invoice.
A tax invoice is required to be issued by not later than the fifteenth day of the month following that in which the chargeable event occurs or the date on which a payment is received, whichever is the earlier.
A tax invoice shall contain the regulatorily-required particulars.
A simplified invoice, rather than a tax invoice, may be issued if the amount of the invoice, inclusive of the tax, is not higher than €100.
Currency: a tax invoice may be drawn up in any currency; however, any Malta VAT chargeable must be expressed in Euro.
- Fiscal receipt:
Every person who makes a supply, other than an exempt without credit supply and except where he is required to issue a tax invoice in respect of that supply, is required to issue a fiscal receipt for the consideration paid to him for that supply.
Such fiscal receipt shall, unless issued before the payment is made, be issued and delivered to the person who effects the payment or to the person to whom the supply is made immediately after payment has been effected, to the extent covered by that payment.
Furthermore, persons supplying services under the Mini One Stop Shop are not required to issue fiscal receipts for such services supplied.
Any person who fails to account for a fiscal receipt in the manner prescribed in the provisions of the Thirteenth Schedule shall be presumed to have failed to account for a taxable supply (unless the contrary is proved).
8.5. Assessments, objections and appeals
The VAT system is based on a self-assessment system.
The taxable person himself determines his liability to tax.
However, the Director General VAT is empowered to assess the liability to tax of any person in specific instances:
- a tax return has not been furnished, or
- a tax return has been furnished, but the said return does not contain a full and correct statement.
Any person aggrieved by an assessment that has been served upon him may appeal against that assessment to the Tribunal.
If any question arises, other than on an assessment, in relation to any of the subjects below, that question may be referred to the Tribunal by any person who shows to the satisfaction of the Tribunal that he has a direct interest in that question or by the Director General VAT:
- the registration of a person in terms of the Value Added Tax Act Malta or the cancellation of such a registration;
- any tax chargeable on a supply or an acquisition (other than a tax assessment) and any deductions that may be claimed against such tax;
- whether a transaction made or to be made by a person is a taxable supply or a taxable acquisition (or not),
or whether an importation of goods made or to be made by a person is a taxable importation (or not);
any tax chargeable on the importation of goods;
the place, the time or the taxable value of a supply or of an acquisition;
- the amount of deductions allowable to a person registered in terms of Article 10 for any tax period;
- any security required by the Director General VAT in terms of the Value Added Tax Act Malta;
- whether any refund of tax claimed by any person is due or payable to that person or not;
- any question of law not falling under the above;
- any other matter that may be referred to appeal in terms of the Value Added Tax Act Malta or any regulations made thereunder, and;
- the imposition of any administrative penalty imposed for an incorrect tax return.
If any of the parties to an appeal feels aggrieved by the decision of the Tribunal, he/she may, by means of an application to be filed within thirty days from the date on which the decision appealed from is notified to him, appeal against that decision on a question of law as follows:
- where the total amount of tax, administrative penalty and interest for the tax period or tax periods under appeal is less than €1,150,000, the aggrieved party shall appeal to the Court of Appeal (Inferior Jurisdiction) and;
- where the total amount of tax, administrative penalty and interest for the tax period or tax periods under appeal is of €1,150,000, or more, the aggrieved party shall appeal to the Court of Appeal.
Expert AdvicePayment of taxes for items arriving to Malta from outside the EU
The pandemic has changed us forever – now online shopping is a regular occurrence.
There are a lot of benefits in this – time-saving, 24/7 shopping, wide variety of brands, online discounts and voucher codes, home delivery for online orders, and others.
All this is well and good, but it is important to be informed about possible applicable fees and taxes when purchasing goods from abroad (sigh), as soon as you buy goods from a non-EU country, then effectively you become an importer and become liable to Customs and Excise Duty as well as VAT payments.
On the basis of the data provided in the customs declaration, the supporting documents that accompany it and any information which they may request, the competent customs officers determine, impose and collect Customs duties that are due.
Customs duty is calculated as a percentage of the customs value of the goods:
- the percentage or rate varies depending on the type of goods. You can check the tariff applicable in the TARIC database:
- the customs value is made up of the price paid for the goods, the insurance cost and the shipping cost.
Customs Duty is not due for goods, provided directly to the buyer when their value does not exceed 150 Euros.
This exception does not apply to perfumes and toilet waters, tobacco or tobacco products and alcoholic products which are subject to special limits on the quantity provided.
VAT, Customs and Excise duties are to be paid on top of the advertised purchase price.
The goods will be held by the Malta Customs Authority at entry into your country, pending the payment of excise duty.
The Rates of excise duty are set by each individual Member State.
Cigarettes and hand-rolling tobacco must bear health warnings and fiscal marks, and containers of spirits that are larger than 35cl must bear a duty stamp.
Customs Processing Fees:
Different postal operators apply different types of fees which are in addition to any applicable taxes (as referred above).
The below information provides a breakdown of the different types of additional fees applied by DHL, UPC and MaltaPost.
DHL applies an ‘advanced payment/deferment fee’. This fee is payable to DHL and is applied in relation to the prepayments of duties and taxes affected by DHL on behalf of the consumer.
The fee corresponds to 2% of the duty/VAT amount with a minimum charge of €10.17 excluding VAT. This fee will not apply if the total prepayments of duties and taxes are less than €5.
UPS applies a ‘disbursement fee’. This fee is payable to UPS and is applied in relation to the prepayments o duties and taxes affected by UPS on behalf of the consumer.
The fee corresponds to 2% of the prepayment made by UPS or a minimum of €16.00, whichever is greater.
MaltaPost applies administrative fees for collecting the required documentation to present to the Customs Authorities, for clearing goods on behalf of consumers and for effecting the payment of the Customs Dues and VAT. These administrative fees are being summarised hereunder:
Consumers in Malta should be aware that when purchasing items from outside the EU, they are required to pay VAT on all goods purchased unless the imported item is not zero rated.
The import VAT is calculated as a percentage (VAT rate) of the taxable amount.
The taxable amount is made up of the customs value + the duty paid and the transportation and insurance costs.
Significant VAT changes for cross-border e-Commerce from July 2021, the Import One Stop Shop (I-OSS) scheme:
With effect from 1 July 2021, was introduced an Import One Stop Shop Scheme (I-OSS) with respect to distance sales of goods imported from outside the EU together with a special arrangement for logistics companies assisting with same. The new VAT rules introduced certain provisions for taxable persons facilitating supplies of goods or services made by other taxable persons using an electronic interface such as a marketplace, platform, portal or similar means.
Let’s talk how this works for EU consumers on eBay marketplace.
As of 1 July 2021, all goods imported to the European Union are subject to VAT. The previous VAT exemption for orders up to EUR 22 has been removed.
Starting from July 1, 2021 eBay collects the VAT from the buyer based on the country of delivery and remit it to the responsible tax authorities.
eBay is obliged to collect VAT on goods sold through eBay to EU customers in the following circumstances:
- goods imported into the EU, with a parcel value of up to EUR 150.
- goods of any value sold by a non-EU seller and shipped from inventory stored in the EU.
If an order fits either of these criteria, neither sellers nor carriers should collect VAT from buyers in the EU. eBay will collect the VAT from the buyer based on the country of delivery and remit it to the responsible tax authorities.
eBay will not collect VAT if:
- Consignment values are above EUR 150. In practice, the recipient pays import VAT to the shipping agent as part of clearing the package through customs.
- The buyer is VAT-registered and provides their valid VAT registration number. In these cases, eBay will not collect VAT and instead the responsibility to account for VAT will switch to the VAT-registered customer.
- Consignments of goods containing excise goods such as alcohol and tobacco are imported into the EU.
So let’s see how it works in a practical sense.
- As from 1 January 2022 all UK traders must submit customs declarations for all goods exported from the UK, first of all the Company A must submit a customs declaration.
- Maltese buyer doesn’t need to do anything. All VAT obligations will be automatically applied during the purchase flow. You will see final VAT-inclusive pricing (€142) at Checkout, this amount €142 will also be shown separately (€120 + €22 VAT) in the issued invoice.
- Customs Processing Fees are not to be paid as VAT is already paid on purchase.
This is a very common case when you need to be careful, a combined delivery of two different orders from the one seller with total consignment values are above €150.
Facts: 2 different orders (for different items, made and paid in different time, with two different invoices (€120 + €50 = €170), but delivery was combined and this resulted in the total consignment values are above €150.
- In this case, eBay automatically will calculate and take VAT as in the previous example (as this is two different transactions with consignment values up to EUR 150), so you will pay €201.
- Please remind your UK seller to fill up the Customs Declaration with all these details, otherwise Maltese customs will also calculate taxes, and in this case not only VAT, customs fees also, so totally you will pay extra €46.
- Subsequently, you can claim back VAT paid on eBay sending proof of overpayment; usually it takes up to month
Malta VAT Advisory & Compliance:
Our tax services, which can be taken in whole or in part, include:
- VAT Advisory;
- VAT planning for particular complex business transactions;
- Cross border VAT assistance;
- Malta VAT registration;
Preparation and submission of VAT returns to the Malta VAT Department;
- VAT review;
- Liaison with the Malta VAT Department in connection with compliance visits and disputes; and
- Deregistration process.
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