The following is a brief overview of the new tax provisions introduced in 2018 by the Budget Implementation Act (Act VII of 2018) and other legislative enactments.
An unmarried individual, including a widow/er, and a separated or divorced individual may apply the married rates where:
- He/she maintains under his or her sole custody a child who was not over 18 years of age (previously 16) or not over 23 years of age (previously no age limit) if in full time education at any educational establishment or serving an apprenticeship; or
- Was incapactitated by infirmity from maintaining himself or herself;
Furthermore, the child was not in receipt of income of more than € 3,400 (previously € 2,400). These new rules apply as from year of assessment 2019.
No changes were made to the other conditions.
Maintenance payments paid by a parent to another parent in terms of a public deed regulating the obligations of the parents for the maintenance of that child will now be exempt from tax.
Exempt Pension Income
Where individuals avail of the single rate or parent rate, the maximum pension income exempt from tax is increased to € 13,200.
In the case of married couples in receipt of pension income and availing the married rate, maximum income exempt from tax is increased to € 13,200 as to pension income and € 1,000 as to other sources of income.
Corporate Income Tax
As from year of assessment 2019, companies carrying on insurance business will be allowed to claim group loss relief.
Flat rate foreign tax credit (FRFTC) and Notional Interest Deduction (NID)
It is clarified that as from year of assessment 2018, the limitation applicable to NID is to be determined without the FRFTC gross up of income.
The qualification of a holding as a participating holding was set at a minimum 10% holding which is now reduced to 5%.
In addition, a holding in an EEIG that is not a property partnership and which has not elected to be treated as a company may also qualify as a participating holding provided the other conditions are satisfied. It also similarly applies to a partnership which is not a property partnership and has not elected to be treated as a company.
Investment Income Provisions
An important change was made to reporting by payors of investment income, such as banks, issuers of public bonds and collective investment schemes. Up to 2017, payors reported to the Commissioner investment income paid gross to persons resident in Malta.
As from 2018, payors will also be reporting, in respect of investment income paid net of withholding tax, the name of the account holder, address, income tax number, and the amount of investment income paid and tax deducted.
Payors have to submit their first report in respect of 2018 by not later than 31 January 2019.
A consequential amendment was made to the Income Tax Management Act with regard to the limitation of the power of the Commissioner to request information from banks, insurance companies, collective investment schemes, stockbrokers and persons holding an investment services licence to allow him to receive the said information.
This new reporting will provide the Commissioner with further armour to counter tax evasion.
15% tax on rents
Rents will now include ground rents received from urban or rural tenements. This provision applies retrospectively as from year of assessment 2017. We presume that taxpayers will be entitled to amend their last year's tax return.
Taxation of property transfers
A number of important changes have been introduced.
Definition of project
The term "project" does no longer include land acquired by the owner and divided into more than one transferable unit or divided for transfer into more than one transferable unit, and:
a. The land is transferred by the said owner in the same state as when acquired, that is no excavation or any other works whatsoever have been carried out on the property; and
b. A permit has not been issued by the Planning Authority during the period of ownership by the owner sanctioning the development of the land into more than one transferable unit.
On such transfers, the standard withholding tax regime will apply.
Principal residence exemption
Subject to satisfying the applicable conditions, the transfer of a personal residence is exempt from property transfer tax.
However, the tax exemption will not apply where the said principal residence forms part of a "project" (as defined).
Certain partitions are now taxable even if no owelty is due.
Thus, where co-owners acquire property from a person and the said transfer was exempt from tax in terms of the principal residence exemption, tax will be chargeable upon the partition of the said property by the co-owners. The date of acquisition of the property by the co-owners, and therefore the applicable tax rate, is deemed to be the date of acquisition by the owner that made the tax exempt transfer to the co-owners. The value on which tax is chargeable is the market value of the said property.
This new rule does not apply to the partition of property which was inherited by the co-owners provided that no owelty is due on the division.
Deemed date of acquisition
Where a person transfers property acquired by means of a tax exempt donation from a relative, the date of acquisition of such property, and consequently the applicable withholding tax rate, is deemed to be the date of acquisition of the property by his relative (who made the tax exempt donation).
Similarly, where a person acquires property upon a tax exempt liquidation of a company, the deemed date of acquisition of the property by the said person is deemed to the date of the original acquisition of the property by the company.
These deeming provisions also apply where a person acquired property by way of a donation and transfers the said property within a period of 5 years of the donation. The deemed date of acquisition of the property is the date of acquisition by the donor.
Exemption on restructuring
It was provided that the transfer of property, not held as a capital asset, by one company to another, as part of a restructuring involving the transfer of the whole or part of a company's business to another company was exempt from tax provided that certain conditions were satisfied, including the condition that the property had been owned by the transferring company for a period exceeding twelve months.
The 12 month ownership period is now removed and the amendment is backdated to 1 January 2017.
Where initial and wear and tear deductions have been claimed by a taxpayer on property, such as hotels, industrial buildings and carparks, the said taxpayer is to draw up a balancing statement in the year in which the property is transferred, even if the source of income ceased to exist before the property was sold. Any balancing charge is chargeable to tax at the flat rate of 35% payable in accordance with the standard rules.
The balancing statement is to be submitted together with the tax return.
As from year of assessment 2019 (basis year 2018), the filing of Form TA24 and payment deadline for the special 15% tax on qualifying rental income is brought forward from 30th June to 30th April.
Similarly and from the same year of assessment, the filing of Form TA23 and payment deadline for tax due on part-time self-employment is also due by 30th April.
Changes to the Income Tax Management Act
Order of claiming tax credits
The Business Promotions Regulations set out the order of claiming of tax credits in terms of investment aid regulations.
This rule has now been removed backdated to year of assessment 2015 and the company is therefore entitled to determine the order in which these tax credits or part thereof may be claimed for set-off.
We presume that the taxpayer is entitled to submit tax adjustment forms in respect of tax returns filed in respect of previous years.
The Commissioner is now authorised to serve official notices to a taxpayer be means of a verified email address. So watch your emails.
Tax deductible at source
An amendment to the Act clarifies that where a person fails to withhold tax as prescribed by law, or fails to remit the tax so deducted within the appropriate time limit, the said person will also be subject to the imposition of interest.
The privileged claim of a demand notice issued by the Commissioner in respect of these taxes over the assets of the employer is now extended, in the case of a body of persons, to the assets of a principal officer.
Note of privilege on judicial acts
The Commissioner is now also entitled to file a note of privilege for any amount demanded in a judicial act which note of privilege may be registered in the public registry or land registry by any advocate or notary.
Duty on Documents and Transfers Act
Transfers between spouses
The exemption from duty on transfers immovable property and marketable securities between spouses now applies to:
- Transfers between persons who are, or were formerly, married to each other, when the assets are assigned between them consequent to a consensual or judicial separation or to a divorce between them. For this purpose only, the term immovable property includes immovable property owned by a company which is fully owned by any or both persons;
- Transfers between persons who are, or were formerly married to each other, on the dissolution of the community of acquests between them;
- Transfers between persons married to each other, whether the community of acquests exists between them or otherwise, on any transfer inter vivos of the ordinary residence or part thereof, of any or both of the spouses;
- On the death of one spouse, on any partition of any property held in common between spouses, whether it is community property or otherwise, between the surviving spouse and the heirs of the deceased spouse.