VAT, GST and Sales Tax in Malta

Summary

Name of the tax Value-added tax (VAT)
Local name It-taxxa fuq il-valur mizjud
Date introduced 1-Jan-99
Trading bloc membership European Union (EU) Member State
Administered by Ministry of Finance (http://www.vat.gov.mt)
VAT rates
Standard 18%
Reduced 5% and 7%
Other Exempt with credit and exempt without credit
VAT number format MT12345678
VAT return periods Quarterly (Commissioner for Revenue may prescribe longer or shorter periods)
Thresholds
Registration None
Recovery of VAT by non-established businesses Yes

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods and the rendering of services in Malta by a taxable person for consideration, in the course or furtherance of an economic activity
  • Intra-Community acquisition of goods (subject to certain con­ditions; see the chapter on the EU)
  • Intra-Community acquisitions of new means of transport (see the chapter on the EU)
  • Intra-Community acquisitions of excise goods
  • The importation of goods into Malta (other than exempt impor­tations)

Who is liable

A taxable person is any person that carries on an economic activ­ity, regardless of the purpose or result of that activity.

Group registration. To date, VAT group registration is not allowed under the Maltese VAT law. Legal entities that are closely con­nected must register for VAT individually.

Non-established businesses and tax representatives. A “non-established business” may be any of the following persons:

  • A taxable person that has not established its economic activity
  • A taxable person that has no fixed place of establishment in Malta
  • A physical person who has not established his or her economic activity in Malta
  • A physical person who does not have a fixed place of establish­ment in Malta, has no permanent address in Malta or does not usually reside in Malta

A non-established business that makes supplies in Malta may appoint a tax representative or may be required by the Maltese tax authorities to do so. The Commissioner for Revenue may designate, by means of a written notice, a person resident in Malta with whom the non-established business has a business relationship to be the tax representative of the non-established business, unless the non-established business has already desig­nated a representative. The representative must be nominated in writing to the VAT authorities. A tax representative is jointly and severally liable with the person represented.

Registration procedures. A taxable person established in Malta who carries on an economic activity (or a non-Maltese estab­lished taxable person who is liable to charge Maltese output VAT on his supplies) is liable to register for Maltese VAT under Article 10 within 30 days of making a supply for consideration in Malta, other than an exempt-without-credit supply.

Maltese established taxable persons that qualify as a small under­taking may register under Article 10 but also may opt for a sim­pler VAT registration under Article 11, depending on the type of economic activity involved and the level of turnover, as follows:

  • For new registrants who principally supply goods: those with annual turnover lower than EUR35,000 (the “entrance thresh­old”) may register as a small undertaking. Taxpayers currently registered under the normal regime may reregister as a small undertaking if their turnover falls below EUR28,000 (the “exit threshold”).
  • For new registrants who principally supply services with rela­tively low value added, those with annual turnover lower than EUR24,000 may register as a small undertaking. Such taxpay­ers currently registered under the normal regime may reregister as a small undertaking if their turnover falls below EUR19,000.
  • For new registrants who principally supply other services, those with annual turnover lower than EUR14,000 may register as a small undertaking. Such taxpayers currently registered under the normal regime may reregister as a small undertaking if their turnover falls below EUR12,000.

Moreover, anyone who carries on an economic activity is not registered under Article 10 and intends to make an intra-Commu­nity acquisition in Malta is liable to register for Maltese VAT under Article 12, by not later than the date of that acquisition if his total intra-Community acquisitions in Malta during that cal­endar year exceed EUR10,000.

A taxable person established in Malta who is not registered under Articles 10 or 11 and who supplies services within the territory of another Member State for which the tax is payable solely by the recipient shall apply to be registered under Article 10 by not later than 30 days from the date on which he makes a supply for consideration. Moreover 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 the tax (reverse-charge mechanism) shall apply to be registered under Article 12 by not later than the date on which he receives a service.

A Maltese VAT registration should be accompanied by the neces­sary due diligence documentation and is usually processed within 5 to 10 working days from when all information is made available to the Maltese VAT Department.

Late-registration penalties. Penalties are assessed for late regis­tration or for failure to keep records or submit returns. A penalty for late registration is assessed on an amount equal to the higher of the following:

  • 1% of the excess, if any, of the output tax due over input tax (and any allowable deductions) for the first VAT period follow­ing registration
  • EUR20 for every month or part of a month that the registration is late

The penalty is capped at a maximum of 20% of the output tax due over input tax (and any allowable deductions) for the first VAT period following registration.

Tax representatives. Persons who are not established in Malta and who are required to register for VAT purposes in Malta may nominate a person resident in Malta to act as their fiscal repre­sentative. This is to be made in writing to the Commissioner for Revenue and is subject to his approval. Such a request may also be made by the Commissioner for Revenue himself.

The representative is liable in the same manner and to the same extent as the person for whom he acts as representative, for all obligations imposed by the VAT Act.

Reverse charge. Under the VAT directive, certain supplies received as a customer from a supplier outside Malta are required to be treated in a different way to normal supplies. In such situa­tions, rather than being charged VAT by the supplier, the cus­tomer will account for any VAT due. This is known as the “reverse-charge” mechanism.

Where the reverse-charge mechanism applies, the Maltese recipient must act as both supplier and recipient of the services for VAT purposes. On the same VAT return, therefore, the Malta taxable person must account for output and input tax.

Where a Maltese supplier supplies certain goods or services to a taxable person, no VAT is due, and therefore VAT should not be accounted for.

In order to avoid double taxation, non-taxation or distortion of competition, the Director General of VAT may, with regard to the supply of the services referred to in Articles 44, 45, 56 and 59 of the EC Directive 2006/112/EC as from 1 January 2010:

  • Consider the place of supply of any service as being situated outside the EU, if the effective use and enjoyment of the ser­vices takes place outside the EU
  • Consider the place of supply of any service as being situated within Malta, if the effective use and enjoyment of the services takes place within Malta

The penalties for the non-inclusion of this information are the same for any other information and disclosure.

Digital economy. Effective 1 January 2015, new rules came into force regarding the place of supply of telecommunication ser­vices, broadcasting services and electronically supplied services. As a general rule, such services when provided to nontaxable persons will be deemed to take place in the country where the customer is established.

Mini One-Stop Shop. The Mini One-Stop Shop became effective 1 January 2015 and registration started effective 1 October 2014.

The Maltese VAT Department issued a notice stating that persons supplying services under the MOSS in terms of Articles 359 and 369b of the EU VAT Directive 2006/112/EC shall not be required to issue fiscal receipts for such B2C services.

Deregistration. An application for the cancellation of a Maltese VAT registration shall be filed by any Maltese VAT registered person who is no longer required to remain registered for Maltese VAT purposes and shall contain the particulars specified in that form.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to VAT (at the standard rate of 18% or the reduced rates of 5% or 7%).

The VAT rates are:

  • Standard rate: 18%
  • Reduced rates: 5% and 7%

The standard rate of VAT applies to all supplies of goods or ser­vices, unless a specific measure provides a reduced rate or an exemption.

Examples of supplies of goods and services taxable at 5%

  • Confectionery
  • Medical equipment and accessories
  • Printed matter (including e-books/audio books as from 1 January 2015)
  • Supply of electricity
  • Items for the exclusive use of the disabled
  • The importation of works of art, collectors’ items and antiques

Examples of goods and services taxable at 7%

  • Tourist accommodation
  • Use of sporting facilities

Examples of exempt with credit supplies of
goods and services (0% rate)

  • Food, excluding catering
  • Pharmaceutical goods
  • International transport
  • Exports of goods and related services
  • Supplies to ships
  • Supply of gold to the Central Bank of Malta

The term “exempt supplies” refers to supplies of goods and ser­vices not liable to tax and that do not give rise to a right of input tax deduction (see Section F). Some supplies are classified as “exempt with credit,” which means that no VAT is due, but the supplier may recover related input tax. Exempt with credit sup­plies include exports of goods and related services to third terri­tories (that is, territories outside the EU).

Examples of exempt supplies of goods and
services (without credit)

  • Letting and transfer of immovable property
  • Health and welfare
  • Education
  • Postal services
  • Banking and insurance
  • Grant and negotiation of credit and the management of credit by the grantor
  • Supply by nonprofit organizations of approved services related to sports or physical recreation
  • Sports
  • Lotteries
  • Broadcasting
  • Water

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is referred to as the “date when tax on supplies becomes chargeable” or “tax point.”

The basic tax point for a supply of goods is the earlier of the date on which the goods are delivered or otherwise made available to the recipient of the supply or the date on which payment is made. The basic tax point for a supply of services is the earlier of the date on which the services are performed or the date on which payment is made.

If a VAT invoice is issued before the basic tax point or by the 15th day of the month following the basic tax point, the date on which the VAT invoice is issued becomes the actual tax point. The actual tax point overrides the basic tax point.

Cash accounting. Professional service providers and retailers, as well as civil, mechanical and electrical engineering contractors, may use cash accounting if they have not exceeded the threshold of EUR2 million, subject to the condition that the right to deduct input tax shall be postponed until the tax on the goods or ser­vices supplied to them has been paid.

Imported goods. When goods are, on importation, placed under a customs duty suspension regime the chargeable event takes place and the tax becomes chargeable on the date when they cease to remain subject to that regime.

Reverse-charge services. The basic tax point for a supply of ser­vices is the earlier of the date on which the services are per­formed or the date on which payment is made.

If a VAT invoice is issued before the basic tax point or by the 15th day of the month following the basic tax point, the date on which the VAT invoice is issued becomes the actual tax point. The actual tax point overrides the basic tax point.

Continuous supplies of services. 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 those statements, on the last day of each period to which such state­ments of account or payments refer (basic tax point).

Provided that, when a continuous supply of services does not give rise to statements of account or payments during a year, it shall be regarded as being completed at least at intervals of one year.

Prepayments. The basic tax point for a supply of goods is the earlier of the date on which the goods are delivered or otherwise made available to the recipient of the supply or the date on which payment is made. The basic tax point for a supply of services is the earlier of the date on which the services are performed or the date on which payment is made.

Intra-Community acquisitions. The tax on an intra-Community acquisition becomes chargeable on the earlier of the following two dates — (a) the 15th day of the month following the date of the acquisition; (b) the date on which a tax invoice is issued to the person making the acquisition for the supply of goods in ques­tion.

Intra-Community supplies of goods. The basic tax point for a sup­ply of goods is the earlier of the date on which the goods are delivered or otherwise made available to the recipient of the sup­ply or the date on which payment is made.

If a VAT invoice is issued before the basic tax point or by the 15th day of the month following the basic tax point, the date on which the VAT invoice is issued becomes the actual tax point. The actual tax point overrides the basic tax point.

Leased assets. In cases of leased goods (where the delivery of goods pursuant to a contract for the hire of goods for a certain period or for the sale of goods on deferred terms, which provides that in the normal course of events ownership shall pass at the latest upon payment of the final installment) such supplies shall be treated as supplies of goods with the basic tax point being the earlier of the date on which the goods are delivered (or otherwise made available to the recipient) or the date on which payment is made.

Recovery of VAT by taxable persons

A VAT-registered person may recover input tax, which is VAT charged on goods and services supplied to it for business pur­poses. Input tax is recovered by deducting the amount from output tax, which is VAT charged on supplies made in the same period.

Input tax includes VAT charged on goods and services supplied in Malta, VAT paid on imports of goods and VAT self-assessed for reverse-charge services received from outside Malta.

For a claim for input tax to be valid, the following conditions must be met:

  • The claim must be supported by a tax invoice.
  • The person claiming the expense must have the document in its possession, and produce it to the Director General of VAT if and when requested.
  • The amount of tax claimed must be properly accounted for in the records held by the claimant.
  • The VAT is recoverable to the extent allowable by the VAT Act.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.

Examples of items for which input tax is nondeductible

  • Nonbusiness expenditure
  • Purchase, repair and maintenance, lease, fuel and hire of vehi­cles (excluding commercial vehicles)
  • Business and employee entertainment
  • Tobacco and alcohol
  • Works of art and antiques

Partial attribution (partial exemption). Input tax directly related to the provision of exempt without credit supplies is generally not recoverable. If a registered person makes both exempt without credit supplies and taxable supplies, the person may not deduct input tax in full. This situation is referred to as “partial attribu­tion” or “partial exemption.” The amount of input tax that may be deducted from output tax by a taxable person making exempt without credit supplies is based on the percentage of taxable sup­plies made compared with total supplies made. Attribution is based on a provisional rate in the first year (Year 1) and is then adjusted to a definitive rate, which is based on the level of taxable supplies made compared with total supplies made on an annual basis. The definitive rate (as amended at the end of the first year) is used as the provisional rate in the second year (Year 2).

Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input tax is deducted in the VAT year in which the goods are acquired and first taken into use. The amount of input tax recovered depends on the taxable person’s partial attribution recovery position in the VAT year of acquisition. However, the amount of input tax recovered for capital goods must be adjusted over time if the taxable person’s partial attribution recovery percentage changes during the adjust­ment period or if the use of the capital goods changes.

An adjustment may be necessary to the initial VAT deduction with respect to capital goods and immovable property, resulting from either changes in the circumstances of the business or to changes in the proportion of use of the asset in the business. In the event of such change in circumstances, an adjustment to the initial deduction is made. The adjustment period is five years with respect to capital goods other than immovable property and 20 years with respect to immovable property.

Refunds. If the amount of input tax recoverable in a tax period exceeds the amount of output tax payable in that period, the tax­able person ends up in an excess credit position. A taxable person is entitled to a refund of such excess credit if the excess credit is not set off against any VAT due in the subsequent tax period. The refund must be paid within five months after either the due date of the VAT return or the date on which the return is submitted, whichever is later.

The VAT authorities pay interest on VAT refunds that are paid late at a rate of 0.75% per month or part of a month. Interest is pay­able for the period beginning with the date on which the refund becomes payable and ending on the date on which the refund is paid.

Preregistration costs. As a general rule no amount shall be treated as input tax of a person unless it is supported by a tax invoice (including all necessary details such as VAT identifica­tion number) in respect of the tax relating to goods or services supplied to him.

Write-off of bad debts. A claim for a deduction by way of a bad debt relief shall be subject to such directives as the Maltese VAT Department may give as to the circumstances in which it may be made and the documents or other evidence that should be pro­duced.

Noneconomic activities. Sometimes goods or services are not or will not be wholly used in the course or furtherance of an eco­nomic activity. In those situations, the deductible input tax is such proportion of the tax chargeable on the supplies, intra­Community acquisitions or importations in question, taking into account the proportion of the use of those goods or services in the course or furtherance of the economic activity to their total use.

Recovery of VAT by non-established businesses

The VAT authorities refund VAT incurred by businesses that are neither established nor registered for VAT in Malta, under the terms of Council Directive 2008/9/EC and the EU 13th Directive (see the chapter on the EU). For businesses established in the EU, refund is made under the terms of Council Directive 2008/9/EC. For businesses established outside the EU, refund is made under the terms of the EU 13th Directive.

For the general VAT refund rules under Council Directive 2008/9/EC and the EU 13th Directive refund schemes, see the chapter on the EU.

Claims for refunds by persons established in other EU Member States must be made online in accordance with Council Directive 2008/09/EC. Claims for refund under the EU 13th Directive must be made on an appropriate form and sent to the following address:

Commissioner for Revenue Value Added Tax Department Centre Point Building

Ta’ Paris Road

Birkirkara BKR 4633

Malta

Invoicing

VAT invoices and credit notes. Registered persons must generally provide tax invoices for all taxable supplies of goods and ser­vices made and for exports. Fiscal receipts must be issued for retail sales. A purchaser who receives a fiscal receipt for a supply must retain it for a period of at least 24 hours because the pur­chaser may be required to produce the receipt for inspection by the VAT authorities.

A credit note may be used to reduce VAT charged and reclaimed on a supply. A credit note must be cross-referenced to the original invoice.

Electronic invoicing. Effective 1 January 2013, the VAT law has been amended to permit electronic invoicing in line with EU Directive 2010/45/EU.

Proof of exports and intra-Community supplies. VAT is not charge­able on exports and intra-Community supplies of goods dis­patched to a destination outside of Malta. Both supplies must be accompanied by evidence that confirms the goods have left Malta. Suitable evidence includes the stamped customs exporta­tion documentation.

Foreign-currency invoices. Invoices may only be issued in euros. Foreign currency may only be quoted as a reference. The selling rate quoted by the European Central Bank on the date on which the supply takes place must be used.

B2C invoices. Effective 1 January 2015, new rules apply to the place of supply for supplies of telecommunications, broadcasting and electronic services to non-VAT taxable customers. For fur­ther details of the VAT rules on electronic services in the EU, please refer to the European Union chapter.

Maltese suppliers of these B2C services are not required to issue a tax invoice to nontaxable customers but are required to issue a fiscal receipt. Moreover the Maltese VAT Department issued a notice stating that persons supplying services under the MOSS in terms of Articles 359 and 369b of the EU VAT Directive 2006/112/EC (effective 1 January 2015) shall not be required to issue fiscal receipts for such B2C services.

VAT returns and payment

VAT returns. In most cases, registered persons file VAT returns quarterly. VAT returns must be filed within one-and-a-half months after the end of the tax period to which they relate.

Payment in full is required on the same date. Return liabilities must be paid in euro.

Recently Maltese VAT law was amended to ensure that busi­nesses sending their VAT declarations and making payments online are not charged interest and administrative fines if the declaration or payment is sent within seven days after the current deadline.

Special schemes. The Maltese VAT Act, in the 14th Schedule, contemplates the following special schemes:

  • Professional services. A special scheme restricted for warrant holders whereby they can apply the cash accounting system for VAT accounting (as opposed to accrual accounting)
  • Secondhand goods, works of art, collectors’items and antiques. A special scheme whereby VAT is mainly charged on the profit margin generated on the supply of such goods
  • Supplies by retailers and by civil, mechanical and electrical engineering contractors. A special scheme whereby these con­tractors can apply the cash accounting system for VAT account­ing (as opposed to accrual accounting)
  • Travel agents. The tour operators/travel agents margin scheme
  • Tax in danger. A scheme that allows the domestic reverse-charge mechanism only in connection to construction-related supplies and subject to approval by the Maltese VAT Department
  • Investment gold. A special scheme regarding the VAT account­ing for investment gold
  • Electronically supplied services. The Mini One-Stop Shop for non-EU established service providers of electronically supplied services

Electronic filing and archiving. VAT returns may be filed elec­tronically and there are certain benefits to incentivize the use of electronic filing (mainly a seven-day extension for the filing of the VAT return and the payment of the respective VAT due, if any).

With respect to electronic archiving, invoices shall be stored in the original form in which they were sent or made available, whether paper or electronic. Additionally, in the case of invoices stored by electronic means, the Maltese VAT Department may require that the data guaranteeing the authenticity of the origin of the invoices and the integrity of their content shall also be stored by electronic means.

Annual returns. Not applicable.

Penalties

Interest is assessed on VAT paid late. The current rate is 0.54% for each month or part of a month. The interest rate may change.

A penalty for default in submitting a tax return equals the greater of the following two amounts:

  • 1% of the excess, if any, of the output tax over input tax for the period (disregarding any excess credit brought forward from a previous tax period and any allowable deductions)
  • EUR20 for every month or part of a month that the return is late
  • Capped at EUR250

For the filing of a tax return containing errors that are discovered during a VAT inspection, a penalty equal to the sum of the follow­ing is imposed:

  • 20% of the excess, if any, of the correct amount of output tax over the output tax declared in the return
  • 20% of the excess, if any, of the deductions declared in the return over the correct amount of the deductions

If an error is voluntarily disclosed before it is discovered by the VAT Department, the penalty is reduced to 10%. This reduction also applies if the person involved cooperates with the Commissioner for Revenue, accepts an agreement and pays the amounts due within one month after signing the agreement.

EU filings

Intrastat and EU Sales Lists. A taxable person that trades with other EU countries must complete statistical reports, known as Intrastat returns and EU Sales Lists (ESLs). Penalties may be imposed for late, missing or inaccurate Intrastat returns and ESLs.

Recapitulative statement. In general, recapitulative statements must be prepared for each calendar month with respect to the following:

  • Intra-Community supplies of goods
  • Intra-Community supplies of services made to a customer that is liable to pay the tax on that service in the EU Member State in which it is established, except when such service is exempt in that Member State

Recapitulative statements must be submitted online to the VAT Department by the 15th day of the month following the relevant calendar month.

However, recapitulative statements may be submitted online for each calendar quarter by the 15th day of the month following the end of the quarter if the total amount of the supplies of goods, excluding VAT, did not exceed in the relevant quarter or in any of the four preceding quarters EUR50,000. If the EUR50,000 threshold is exceeded, the recapitulative statements must be sub­mitted by the 15th day of the month following the relevant month.

Notwithstanding the above, if a person provides only supplies of services, it may submit an online recapitulative statement for each calendar quarter regardless of the total value of services supplied.

The values of supplies of goods or services required to be report­ed in the recapitulative statement must be declared in the period of submission over which VAT was due.