VAT in Malta

Value-added tax (VAT) applies to most transactions. The standard rate is 18 per cent with reduced rates for some products and services. Most financial services are not subject to VAT and for clients outside the EU VAT does not apply.

Value added tax (VAT) in Malta was first introduced in 1995, and has undergone various changes since then. When Malta became an EU member in 2004, VAT in Malta was harmonized with the EU’s Council Directive regarding VAT.

VAT in Malta is applied to all goods and services imported by Maltese companies and it is collected by the Comptroller of Customs. Products and services made in Malta are also subject to VAT. Taxable goods and services in Malta extend to the leasing or hiring of products or services, or attributing or rendering a right. In order to avoid double taxation, Malta has signed numerous double taxation treaties with over 70 different countries.

The following article answers queries related to VAT Registrations in Malta, VAT Registration Types in Malta, VAT Rates in Malta, VAT Declarations and Returns in Malta, De-registering from VAT in Malta, Tax Credits and Refunds, Tax Documentation in Malta.

VAT Registrations in Malta

If you are a person performing an economic activity, whatever the result or scope of that activity, then you are considered as a taxable person. Under normal circumstances, you are required to register for VAT Malta under article 10. If your annual turnover does not exceed the established threshold (see below) then you may opt to register under article 11 as an exempt person.

A copy of the I.D Card/Passport of the applicant or in the case of a Limited Liability Company, of the authorised representative vested with the legal representation must be presented at the time of VAT registration. In the case of a limited liability company or a registered partnership, a copy of the Memorandum and Articles of Association should be produced.

What is an economic activity?

An economic activity means an activity carried on by a person, who is not an employee (see article 5(5) for the definition of employee), and consisting of any one or more of the following:

    • any trade, business, profession or vocation and the provision of any personal services;•    the exploitation of tangible or intangible property for the purpose of obtaining income there from on a continuing basis;
    • the provision by a club, association or organisation of the facilities or advantages available to its members for a subscription or other consideration;
    • the admission of persons to any premises for a consideration.

The activities of a public authority assuming functions assigned to it by law shall not be deemed to be an economic activity except as and to the extent provided in the First Schedule of the VAT Act and except where such treatment as non-taxable persons would lead to significant distortions in competition.

VAT Registration Types in Malta

There are three types of Registrations for VAT Malta as follows:

  1. If you are supplying goods or services and your annual turnover exceeds the established exempt threshold below, you have to register for VAT under article 10, by which you would be liable to charge VAT on your taxable supplies and you could claim back the VAT you incur in the course of your taxable activity under certain conditions.

A person registered under article 10 would:

  • have a VAT number with the prefix MT
  • have to issue fiscal receipts or tax invoices, as the case may be, on all supplies made by him
  • normally submit a VAT return for a tax period of three months by the not later than 6 weeks after the end of the tax period, or as directed by the Commissioner.
  1. If you are supplying goods or services and your annual turnover does not exceed the established entry threshold (see below), you may register for VAT as exempt under article 11. You will not charge VAT on your supplies and will not be able to claim back the VAT you incur in the course of your economic activity. However, you may instead opt to register for VAT under article 10 to charge VAT and claim a deduction of the VAT incurred in the normal way. If you decide to opt for the latter option, then you are required to remain under article 10 for a minimum of thirty-six months. It is only after that period that you would be able to register under article 11 and provided that the exit threshold is not exceeded.

A person registered under article 11 would

    • have an identification number without the MT prefix
    • have to issue fiscal receipts or tax invoices, as the case may be, on all supplies made by him
    • submit a declaration (simplified tax return) at the end of each calendar year which must be submitted by the 15th March of the following year.
  1. If you are a non-taxable legal person or a taxable person not registered under article 10, and you make intra-community acquisitions of goods in Malta the value of which exceed €10,000 since the start of the year, then you are liable to register for VAT under article 12 and pay VAT in Malta each time you make such intra-community acquisitions.

If you are registered under article 11 as an exempt taxable person and you intend to make Intra-Community Acquisitions and pay VAT thereon in Malta, then you need to register also under Article 12 to obtain a valid identification number for this purpose and qualify for such an arrangement.

Entry and exit thresholds

The entry threshold is the amount of turnover per annum under which a person could opt to register as an exempt person under article 11 (see above). This threshold depends on whether you are supplying goods, services with high value added, or services with low value added. The exit threshold is applied in the case where a person who is registered under article 10 would change his registration to article 11 (exempt).

Services with low value added are those services where the value of the service includes goods which are incorporated in the value of that service, e.g. an electrician or catering services. Other services are services usually with high value added where the value of the service has a very high content of value added, i.e. the value of the goods incorporated with the supply are minimal, e.g. services of an accountant or a lawyer.

The different thresholds are as follows:

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 €14,000 €12,000

Where a person registered under article 11 provides both goods and services, the applicable threshold shall be determined in accordance with the principal nature of the supply, taking account of the total value of all the supplies.

The turnover of a business is the total value of sales, excluding:

  • Exempt without credit supplies
  • The transfer of a business as a going concern
  • The sale of fixed assets
  • Supplies made to the business and deemed to be made by that business under the reverse charge provisions

The thresholds for each economic activity pertaining to the same category are assigned by the Department and apply across the board for that category.

VAT Rates in Malta

In Malta, goods and services are generally taxable at a standard VAT rate of 18%.

However, certain goods and services have a reduced rate of 7% or 5% or 0%.

Supplies that are taxable at 7% are:

  • Accommodation in a hotel or guest house
  • Accommodation in any premises, where for the purpose of that accommodation, it is required that the premises be licensed in terms of the Malta Travel & Tourism Act.

Supplies that are taxable at 5% are:

  • Supply of electricity
  • Confectionery and other edible items
  • Medical Accessories
  • Printed Matters
  • Certain Items for the exclusive use of the disabled
  • Minor repairing of bicycles, shoes and leather goods, clothing and household linen (including mending and alteration)
  • Domestic care services such as home help and care of the young, elderly, sick or disabled
  • Admission to museums, art exhibitions, concerts and theatres.

The following supplies are rated at 0% (i.e. Exempt with credit, where no VAT is charged on the value of the supply but the registered person is entitled to claim back input VAT incurred in the provision of that supply)

  • Food for human consumption
  • Pharmaceutical products
  • Scheduled bus service (tal-linja)
  • Domestic inter-island sea passenger transport
  • International passenger transport
  • Exports
  • Intra-community supplies of goods

(Please note that this information does not replace the provisions of VAT legislation. This list is not exhaustive and reference to VAT legislation would be appropriate)

The following supplies are exempt without credit, where no VAT is charged on the value of the supply but the supplier is not entitled to claim back input VAT incurred in the provision of that supply. In this case the supplier is not required to register with the Department.

  • Supply of water by a Public Authority
  • Supply of buildings and building land
  • Supply of Health and Welfare services
  • Supply of insurance and financial services
  • Letting of immovable property is exempt without credit except in the following situations:
  • Letting for the purposes of accommodation in any hotel or guest house or similar establishment or in any holiday camp or camping site (at 7%)
  • Letting of accommodation in holiday flats required to be licensed in virtue of the Malta Travel and Tourism Act (at 7%)
  • The letting of immovable property by a limited liability company to a registered person for the economic activity of that registered person (at 18%)

(Please note that this information does not replace the provisions of VAT legislation. This list is not exhaustive and reference to VAT legislation would be appropriate)

VAT Declarations and Returns in Malta

  • The electronic process for VAT Declaration / Return takes approximately 15 minutes to complete.
  • The process of vetting and processing of the submission takes a maximum period of 90 working days. If a refund due to you is not paid to you in time, you will be paid interest of 0.75% per month
  • The electronic process for VAT Refund (8th Directive) takes approximately 20 minutes to complete.
  • The process of vetting and processing of the submission VAT Refund (8th Directive) takes a maximum period of 4 months. If a refund due to you is not paid to you in time, you will be paid interest of 0.75% per month

Tax Returns

The fiscal year is the calendar year. Malta operates a self-assessment tax system. Taxpayers are required to declare their income and calculate their tax, taking into account payments in advance and any other tax credits. The tax payable must be settled at the time that the self-assessment is filed. For individuals, the deadline is 30 June each year. For companies, the tax return date is nine months after the financial year-end (ten months if the return is filed electronically), but not earlier than 31 March of each year. Companies’ tax returns must be accompanied by an auditor’s certificate. Revenue assessments may be raised when a return is not filed or where the Commissioner of Revenue disagrees with the self-assessment. 

Change in Tax Status

If you are operating below the threshold and you have opted to be classified as an exempt person, you are duty bound to inform the Department that you no longer qualify to be classified as exempt as soon as it becomes evident that you will exceed the applicable threshold.

This can be arrived at by calculating the annual turnover for the previous twelve months at the end of each calendar quarter. When it results that the applicable threshold is exceeded, you should inform the Department within thirty days of occurrence, and VAT has to be collected immediately after the lapse of this period.

Passing on/selling a business together with the VAT registration number – is this possible?

If you are a sole trader then you are required to de-register your business while a new application for VAT registration shall be drawn up by your son or any person who takes over your business, unless that person is already registered for VAT.

However, if the business is a limited liability Company, then the transfer has to be carried out through the Malta Financial Services Authority (MFSA), and the VAT Department must be advised as to the change in the Directors and Shareholders of the Company, by means of a certified copy of the memorandums supplied by the same MFSA.

De-registering from VAT in Malta

In order to de-register from VAT you are required to call at the Customer Care Unit of the Department to complete the appropriate form. An application for de-registration cannot be processed unless you have all VAT returns and payments up to date, and any pending matters settled with the Department.

It is pertinent to point out that if you are registered as non-exempt (under article 10) you shall be deemed to have supplied to yourself all remaining business assets belonging to your business, immediately before the cancellation of your registration. In this regard you must therefore account for the VAT due thereon in your last VAT return.

Input and Output Tax in Malta

Input tax is the VAT that is paid by the business operator for goods and services he receives in the course of his economic activity. Output tax is the VAT that is charged by the business operator when he himself supplies goods or services to his customers.

VAT Return – Services made outside Malta

In order to determine whether input tax incurred on supplies made outside Malta may be claimed back or not, one must establish whether they would, had they been made in Malta, be treated as taxable supplies or exempt with credit supplies.In the affirmative, the value of these supplies is to be included in the VAT return as exempt with credit supplies.

If no right to claim back input tax exists, their value is to be included in the VAT return as exempt without credit supplies.

Credit/refund of Input VAT in Malta

Persons who are registered with the Department under article 10 (i.e. they have not opted to be classified as exempt persons) are entitled to claim back so much of the input tax as is attributable to taxable supplies, exempt with credit supplies and supplies made outside Malta which, had these been made in Malta, would have been classified as taxable supplies or exempt with credit supplies.

Where the economic activity of a registered person consists in a mixture of taxable/exempt with credit supplies and exempt without credit supplies, input VAT would have to be apportioned by using either the direct method of attribution or the partial attribution method.Where the above methods do not give a fair and reasonable result, the Commissioner is empowered to decide on the percentage of attribution.

However, under the provisions of legislation, certain input VAT incurred on certain supplies is blocked and cannot be claimed back even when incurred on expenses relating to the economic activity.

Blocking of Input VAT

Persons who provide exempt without credit supplies (e.g. insurance companies and education and health and welfare services), and persons who are classified as exempt persons cannot claim back input VAT incurred on purchases relating to their business.

No input VAT can be claimed on the following supplies even when such supplies are purchased in connection with the economic activity of a registered person, namely input VAT incurred on:

  • Tobacco or tobacco products, unless purchased for resale
  • Alcoholic beverages, unless purchased for resale
  • Works of art and antiques, i.e. paintings, drawings and pastels executed by hand, other than hand-painted or hand-decorated manufactured articles; original engravings, prints and lithographs; original sculptures and statuary, in any material; antiques of an age exceeding one hundred years; collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological and ethnographic interest, unless purchased for resale
  • Motor vehicles, vessels or aircraft, excluding vessels and aircraft acquired for the purpose of being provided under a charter or hire agreement, unless purchased for resale or unless acquired and used for the purpose of the carriage of goods or passengers for a consideration.
  • Goods and services for the purpose of repairing, maintaining and keeping motor vehicles, vessels or aircraft and fuel used therein.
  • Car leasing by a lessee, including VAT incurred on fuel
  • The supply of any goods and services used in the provision of receptions, entertainment or hospitality except where that supply is made in the normal course of an economic activity
  • The supply of goods and services used in the provision by a person to his employees of transport or entertainment, except where the transport is provided on vehicles with a seating capacity of not less than seven.

Tax Documentation and Records in Malta

You need to keep the following records and documents:

  • Copies of Fiscal Receipts issued     Fiscal cash register FCR Z Readings
  • All Customs import/export documentation
  • Purchases and Sales Invoices
  • Debit and Credit Notes
  • Cash Books and Petty Cash Books
  • Day Purchases and Sales Ledger
  • Value Added Tax Account and Annual VAT Account
  • Bank Account connected with the business
  • Any other records and documents relevant to your economic activity

You are obliged to retain these records and documents for six years as the Department may request them for inspection.

However in cases where the provisions for adjustment of input tax on capital goods and on immovable property applies, the six years shall start to run from the end of the five year period or twenty years period respectively as the case may be.

VAT Department Inspections in Malta

Inspections by the VAT Department are intended to:

  • Educate registered persons about their rights and obligations vis-a-vis VAT;     
  • Check the tax liability of a registered person to ensure that the right amount of tax is being collected and submitted to the Department;
  • Examine and verify claims for refunds made by registered persons;
  • Exercise control on the business activity of registered persons by examining their business records and books of account to ensure that no under-declaration of output tax and/or over-declaration of input tax is being made;
  • Spot-check registered person’s establishments to ensure that fiscal receipts are being issued to clients on sale of a product/service.
  • VAT and Non-profit Making Organisations

Services made to members of non-profit making organisations are exempt without credit and the organisation is not required to register for VAT.

However, where the organisation provides other services against payment, each supply will have to be considered in the context of VAT legislation.

The following are some examples where a non-profit organisation will be required to register with the Department, and subject to its right and option to be classified as an exempt person, charge and collect VAT:

  • operating a bar for its members
  • renting of space to third parties to be used as a bar
  • selling of advertising space in its magazine

Fund raising activities, except were the beneficiary of such activities will be a health, welfare or education institution. In such cases the Department’s prior permission for the exemption will be required.

If a non-profit making organisation is required to register with the Department and does not opt to be classified as an exempt person, its right to claim input tax is limited to the supplies on which VAT is collected, either by directly attributing its inputs or by partially attributing such inputs.

For further details about VAT please contact the VAT Department. If you are interested in setting up a company in Malta, you may view our Membership Directory for service providers.

Source: VAT Department – Malta