Value Added Tax is the system of turnover tax in all member states of the European Union. It was introduced in Malta on 1 January 1999 and in view of Malta's accession to the EU on 1 May 2004, the VAT Act was amended to bring it into line with the European Acquis.

At its simplest, VAT is a tax on consumption and is a multi-stage tax (ie applied at every stage of the production process), which is applied to both goods (ie tangible property) and services. Additionally, although the tax is ultimately borne by the consumer (by getting included in the price paid), the responsibility for charging, collecting and passing the tax on to the tax authorities, rests with the supplier.

How does the tax work?

Basically, a business will pay VAT (input tax) on its purchases and charge VAT (output tax) on its sales. The difference between the two will be the amount of VAT due from the business (ie Tax on the Value Added).

For example:


Is it really as simple as that?

Unfortunately no! Whilst the principles of the tax are reasonably simple, applying the tax in practice is far more complicated. Output tax is not chargeable on all sales and input tax cannot be reclaimed on all purchases. At the same time, dealing with the VAT consequences of every transaction, submitting returns on time and finding the funds to pay the tax can prove a significant drain on business resources.

Why should I be interested in VAT?

VAT affects every transaction and, with the current standard rate being 18 per cent, mistakes can be costly and involve large amounts of tax. In addition, there are penalties and interest charges for mistakes and the late submission of returns.

Therefore, all businesses need to ensure that they are dealing with their VAT affairs properly, are collecting the right amount of tax and are submitting and paying tax returns on time.

Small Businesses

Depending on your type of economic activity and annual turnover, you may be entitled to register as an exempt person (article 11 registration). This means that you do not charge VAT to your customers but at the same time, you do not recover VAT on your costs.

As an exempt person, you are still obliged to furnish invoices and submit an annual declaration. Special rules apply should you exceed the small business sales threshold.

How can Grant Thornton help you?

Grant Thornton has an experienced team of VAT specialists with the practical experience and technical knowledge to deal with all aspects of the tax.

We can help you comply with all your VAT obligations, deal with the authorities on your behalf and help you understand and cope with the increasing complexities of the tax. We can also act as a support function on a daily basis, when you have questions or require help. Above all, we can offer you peace of mind.


VAT Grouping

The possibility of VAT grouping in Malta was introduced through the VAT Grouping Regulations published by Legal Notice 162 of 2018 and entered into effect as of 1 June 2018. Grant Thornton's team of tax professionals are equipped to help those entities interested in VAT Grouping to navigate through this new regime. Contact us today to find out more.