In his introduction to the 2018 Malta Budget Speech of October 9, 2017, the Minister of Finance, Prof. Edward Scicluna, presented the 2018 Budget. This summary provides a brief overview of the measures announced by the Minister of Finance and the Notional Interest Deduction Rules published on October 5, 2017.
A tax refund of between €40 and €68 will be granted to all employees with an income lower than €60,000 per annum. The rate of the said refund shall be based on the annual gross salary of the employee earned during the calendar year 2017. The reduction in tax shall be in the form of a cheque.
Pensioners whose pension income is not more than €13,200 shall not be subject to tax. A weekly adjustment of €2 to pensions was also announced.
Individuals who are under the age of 40 years and decide to continue their studies equivalent to a MQF7 and MQF8 will not pay any income tax for up to two years subsequent to finishing their studies.
Value Added Tax and other Indirect Taxes
The concept of VAT Grouping for the Regulated Financial Services Sector and the Gaming Sector will be introduced. Through VAT Grouping entities having an independent legal personality, a Maltese fixed establishment, and are regulated to operate in the financial and gaming sector, can register as a single entity for VAT Purposes. This would mean that intragroup supplies will fall outside the scope of VAT.
The exemption threshold from the charging of VAT on services provided by SMEs shall be increased from €14,000 to €20,000.
The refund scheme on VAT paid on bicycles and pedelec bicycles will be extended by another year, and the scheme will also be opened for companies which offer such bicycles for hire.
No vehicle registration will be payable on electric cars, and the purchaser of such cars will also be exempted from paying a road licence for the first five years.
The excise duty rates of steel bars and rods under the HS Code will be adjusted in order to ensure a level playing field compared to similar products.
Duty on Documents and Transfer
The tax scheme for first time buyers introduced in 2014 and resulting in no duty due on the first €150,000 will be extended for another year.
Individuals, termed second time buyers, who sell their residential home, being their sole owned immovable property, and acquire another, shall receive a refund up to €3,000 of the duty on documents paid on the acquisition of the second home. The said refund shall amount to €5,000 if the buyer is a person with special needs.
The rate of duty on documents applicable on the acquisition of immovable property in Gozo will remain at the rate of 2% instead of the default 5%.
Changes to the MicroInvest and Business START Schemes were announced. Assistance under the MicroInvest scheme will be increased from €30,000 to €50,000 for companies based in Malta, and to €70,000 if the company is based in Gozo or predominantly owned by women. The scheme will also be extended to companies that employ more than 50 full-time employees.
The Individual Investment Programme will be extended for another year to attract more investment into Malta.
The benefit for families where only one of the parents is in employment will be increased from €350 to €450 for each child.
The Government will be setting up a Task Force as a centre of excellence in Blockchain technology.
A working group has been set up to explore the opportunities that may come about with Brexit.
An extra day of leave will be granted to all employees, from 24 days to 25 days.
Notional Interest Deduction
The awaited rules relating for the Notional Interest Deduction (‘NID’) was published by the Minister of Finance on October 5, 2017. The provisions regulating NID can be found in Article 14(1)(o) of the Income Tax Act, and in Legal Notice 262 of 2017. The rules regarding NID came into force with effect from year of assessment 2018.
Under the concept of NID the ‘undertaking’ (a company or a partnership resident in Malta or a permanent establishment situated in Malta of a company or a partnership that is not resident in Malta) have the option to claim a deduction of notional interest deemed to be incurred on the risk capital against their chargeable income. The NID is calculated by multiplying the ‘notional interest rate’ and the total ‘risk capital’ of the undertaking as at financial year end.
For the purpose of calculating NID, the notional interest rate shall mean the risk free rate set by reference to the current yield to maturity on Malta Government Stocks with a remaining term of approximately 20 years plus a 5 % premium, and the risk capital of the undertaking includes mainly share capital, share premium, reserves and interest free loans.
Election for the NID is at the discretion of the undertaking. The maximum deduction in any given year cannot exceed 90% of chargeable income. Any excess can then be carried forward to the following year.