Value Added Tax (VAT) was first introduced in Malta in 1995 although the system has gone through many changes since its conception. Most notably, was when Malta joined the European Union (EU) in 2004 and the VAT rate was aligned to the rate dictated by the EU’s Council Directive. The current VAT rate is 18% and the tax is paid on most transactions that occur on the island, although some products and services attract a lower rate. VAT is applied not only to products and services made on the island but also to goods and services that are imported into the country, with VAT being collected when the goods arrive in Malta by the Controller of Customs. Malta has treaties in place with over 70 counties to avoid the risk that consumers might have to pay tax twice on goods and services that they import onto the island. Read on to answers to common VAT queries including, VAT registration, VAT declarations and returns, deregistering from VAT and tax credit and refunds within Malta.
VAT Registration in Malta
Maltese law requires that anybody who performs an economic activity is registered for VAT as per Article 10. This is regardless of the scope or the result of the activity that you perform. Those who produce economic activity but do not exceed annual thresholds (provided further down) in regard to their income are able to use Article 11 to register for VAT, this gives them exemption from VAT payments. Applicants for VAT registration need to be able to supply their ID card or passport at the point of registration, with these documents being supplied by an authorised representative with legal representation should they be a Limited Liability Company. The Memorandum along with a copy of Article of Association should also be produced when registering for a Limited Liability Company or a registered partnership.
What exactly counts as economic activity?
For VAT registration purposes economic activity is classed as an activity performed by anybody with self-employed status and which match any of the following descriptions:
- Trade, business, profession, vocation or the delivery of personal services.
- Use of property, either tangible or intangible, in order to extract a profit and which occurs on a continuing basis.
- Clubs, Associations or organisations that charge for use of facilities on a subscription basis or through other means.
- Charges for admission to any premises such as for concerts or other forms of entertainment.
- A public authority providing services which are required of it by law will not require VAT registration although there are some exceptions which the VAT Act provides for under the First Schedule. Exceptions are also made in this provision for public authorities if it is deemed that allowing them to continue providing a service whilst not paying tax makes them too competitive so that other suppliers cannot compete.
What are the entry and exit thresholds?
The amount of turnover that a self-employed person or business entity has to create in order to be liable for VAT registration is referred to as the entry threshold. Anybody with an annual turnover under this amount is able to register as an exempt person under Article 11. The exit threshold refers to cases when a person registered for VAT under Article 10 can apply for exempt status due to fluctuations in turnover. Threshold amounts depend on the services or goods that the business is providing be that the supply of goods, services which are classed as adding high value and services which are classed as adding low value. For clarification purposes services with high added value normally refer to those where the value of goods supplied in providing the service is low and for services with low added value the goods supplied in the transaction are normally of a high value. To illustrate this, services provided by lawyers or accountants are normally classed as high-value because there are no goods involved whereas the services of professions such as electricians or plumbers are classed as low-value because they also provide a range of high-value goods. It is worth noting, that where a person or business operates in such a way that they provide both goods and services to their consumers then it is the principal activity of the business that will determine what the entry and exit threshold are. For example, a hotel business which sells a range of souvenirs will need to consider the thresholds for high-value services because this would be the main part of their business. The thresholds are currently as below:
- Economic activity concentrating on the supply of goods has an entry threshold of €35000 and an exit threshold of €28000.
- Economic activity concentrating on the supply of low-value services has an entry threshold of €24000 and an exit threshold of €19000.
- Economic activity concentrating on the supply of high-value services has an entry threshold of €14000 and an exit threshold of €12000.
It is useful at this point to clarify what earnings count towards turnover. Typically, turnover is the value of all sales although there are some exceptions allowed. These include:
- The selling off of any fixed assets.
- The proceeds involved in transferring a business that is a growing concern.
- Credit supplies.
- Services or goods provided by another part of the business that are costed for under reverse charge principles.
Entry and exit thresholds for VAT registration for each category of economic activity are determined by the Controller of Customs and apply to each and every business providing goods or services within that category, there are no exceptions.
The standard VAT rate payable for most goods and services within Malta is 18% of the value. There are some goods and services that attract reduced VAT rates, however, some at 7%, some at 5% and some even have no VAT liability. Examples of goods that attract VAT at 7% include:
Hotel or guest house services.
Services that offer accommodation where it is a requirement that the premises where that accommodation takes place are licensed under the Travel and Tourism Act under Maltese law.
There are also various goods and services that benefit from a reduced VAT rate of only 5%, these include:
- Electricity supply.
- Confectionary and non-essential food supplies.
- Medical supplies.
- Goods in printed form such as books.
- Many items which are used exclusively by disabled consumers.
- Services offering minor repairs to goods such as bicycles, shoes, leather goods, clothing or household linen.
- Domestic care services for the sick, elderly or disabled.
- Admission prices to cultural or historical sites including museums, art exhibitions, the theater or concerts.
The following are exempt from VAT and allow for the registered person to claim back any VAT aid in the provision of the supply:
- Essential food items.
- Pharmaceutical supplies.
- Bus services.
- Inter-island sea transport.
The following supplies are also exempt from VAT but the supplier is not able to claim back any VAT paid in the provision of the supply:
- Water supplied by a public authority.
- Buildings and land for building purposes.
- Health and welfare services.
- Insurance and finance.
- Renting of permanent property unless it the business is letting for leisure or business purposes.
It is important to note that none of these lists are intended to be exhaustive and that they do not replace official VAT legislation.