Dalli Announces VAT Increase In Malta Budget
by Robert Lee, Tax-News.com, London
26 November 2003

Delivering his budget speech on Monday, Malta’s Finance and Economic Affairs Minister John Dalli announced the expected increase in Value Added Tax (VAT) from 15% to 18%, as well as changes to the way in which property is taxed.

“Change will be introduced in the way property tax is charged. These changes will be introduced as part of our enforcement against tax evasion,” Mr Dalli announced. According to the Finance Minister, the budget proposals will affect:

-Tax exemption on restructuring of companies

“Provisions for exemption of duty on documents and on capital gains in cases of restructuring of businesses are being repealed. This exemption was made in order to facilitate ways for companies to restructure their operations to be able to list their shares on the Stock Exchange. Yet, not only have we not seen Maltese Companies listing their shares on the Exchange for public participation but these provisions were used instead for evading tax on property speculation."

“With immediate effect all transactions involving restructuring or partitions involving property must be published by a notarial act.

”When property is transferred between companies within the same group, exemption on tax and on stamp duty will continue to apply. However, we emphasise the current situation whereby no re-evaluation will be considered for tax purposes when capital gains are computed on sale of property outside the group.”

- Share transfers of companies whose main assets are real estate

“An amendment to the Income Tax Act will be clarifying the Inland Revenue Department’s interpretation that share transfers in a company whose main assets are real estate will be considered as property sales. “Therefore, for the purposes of income tax, capital gains tax and duty on document, the tax due will be computed as if there was a transfer of property without any reference to liabilities or price residue. Any reduction in the seller’s share value through an increase in capital or similar transactions is considered as a tax evasion scheme and will be ignored by the Inland Revenue Department.”

- Property acquired ‘causa mortis’

“With immediate effect when property acquired ‘causa mortis’ is sold, it will be subject to tax as much as any other property. The purchase value that would be considered for calculating gains will be the value declared.

“For purposes of equity, in cases of property inherited before the 25 November, 1992, (the date of repeal of succession duties) and on which, therefore, succession duty might have been charged at high rates, there will be a final tax of 7% on the proceeds.”

- Change in the method of calculating capital gains

“At present, in calculating tax on capital gains on property purchased before the 25 November, 1992, taxable gains are currently computed as a proportion of the number of months between that date and the date of sale and the number of months between the date of purchase and the date of sale. With immediate effect, this method of computation will cease and all gains will now be subject to tax.”

- Notification of a promise of sale

“Promise of sale related to sale of property or any other transfer will be notified to the Inland Revenue Department. Upon notification, there will be paid 1% provisional duty on documents on the value of the property being transferred. This payment will be deducted from the total payment made on the deed of sale or will be refunded whenever the promise of sale is cancelled.

“This will apply as from 1 January, 2004. Existing promises of sale will have to be notified under these new provisions by 30 June, 2004. Promises of sale for contracts that will be published before this date do not need to be so notified.”

- VAT

“The higher VAT rate will be increased from 15% to 18%. This will come in place with effect from 1 January 2004. This means, that there will be no change in the VAT rate charged on products and services that are exempt with credit or on those with a reduced rate of 5%. “All receipts from this increase which are expected to amount to Lm21 million, will be credited to the Health Account. It is important that every Maltese citizen will do his or her best to see that VAT is collected in order to secure the sustainability of the health services for the future.”

.