Malta: Country VAT Essentials

Transcription

1 Malta: Country VAT Essentials July 2013

2 Contents The contacts at KPMG in connection with this report are: [Name] [Group] Partner, [Location], [KPMG member firm] Tel: + Fax: + name.surname@kpmg.[...] [Name] [Group] Partner, [Location], [KPMG member firm] Tel: + Fax: + name.surname@kpmg.[...] [Name] [Group] Partner, [Location], [KPMG member firm] Tel: + Fax: + name.surname@kpmg.[...] Scope and Rates Registration VAT Grouping Appendices Returns VAT Recovery International Supplies of Goods and Services Invoices Record Keeping Requirements Transfers of Business Options to Tax Head Office and Branch transactions Bad Debt Anti-Avoidance Penalty Regime Tax Authorities Miscellaneous Page 1

3 Scope and Rates What supplies are liable to VAT? Value added tax (VAT) is due on any supply of goods or services made in Malta, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. "Supply" is not restricted to the provision of goods and services by way of sale, but can equally apply to other forms of transaction, including the leasing or hire of goods, the grant, assignment or surrender of a right, or even an agreement not to do something. It does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example, giving business gifts and the private use of business assets. What is the standard rate of VAT? The standard rate of VAT is 18 %. Are there any reduced rates, zero rates, or exemptions? Yes. There is a reduced rate of 7 percent for the letting of, or provision of accommodation in, premises which for the purpose of the provision of that accommodations are required to be licensed by the Malta Tourism Authority (MTA). Furthermore, there is a reduced rate of 5 percent applicable to the following goods and services: electricity confectionary and other edible items medical accessories printed matter items for the exclusive use of the disabled certain works of art, collectors items and antiques minor repairing of bicycles, shoes and leather goods, and clothing and household linen domestic care services and care of the young, elderly, sick or disabled persons admission to museums, art exhibitions, concerts and theatres There is a considerable list of exempt with credit (that is to say, zero rated) supplies, including: exports and like transactions international goods traffic intra-community supplies international transport and ancillary services supplies of certain qualifying vessels and aircraft, the chartering thereof and certain services provided thereto investment gold food pharmaceutical goods local scheduled transport supplies of goods on board cruise liners 2

4 The list of exempt without credit supplies includes: immovable property, with certain exceptions, including: o accommodation for which an MTA licence is required o parking areas o the leasing of property by a limited liability company to a Maltese VAT registered person for the purposes of the lessee s economic activity insurance services credit, banking and financial services cultural and religious services lotteries and gambling services public postal services health and welfare services education public broadcasting water by a public authority What are the other local indirect taxes beside VAT? Other local indirect taxes in Malta include: duty on documents and transfers (stamp duty) customs duty excise duty eco-contribution motor vehicle registration tax 3

5 Registration Who is required to register for Maltese VAT? Maltese Entities If a business makes taxable supplies in Malta or supplies services within the territory of another EU Member State which are subject to VAT in the Member State where the customer is established by way of reverse charge and its turnover exceeds the small undertakings threshold of EUR 12,000 to EUR 28,000 per year, it will be required to register and account for Maltese VAT. If it trades below the threshold but its turnover is in excess of EUR 7,000 per annum, it is still required to register for VAT but may opt out of the VAT system (whereby it will not charge VAT and will not be entitled to claim any input VAT back). If turnover does not exceed EUR 7,000 per annum, companies are not required to register at all (in which case they will not charge VAT and will not be entitled to claim any input VAT back), although they may optionally register for VAT and thus opt into the VAT system. If a business makes exempt without credit supplies only, then it cannot register for VAT. If a business has an establishment in Malta and makes supplies outside Malta, which would be taxable or exempt with credit if made in Malta, then it may elect to register for Maltese VAT. Non-Maltese Entities The registration rules that apply to Maltese entities also apply to non-maltese entities making taxable supplies in Malta. However, the registration thresholds mentioned above are not applicable to overseas businesses not established in Malta. To deal with its VAT affairs, an overseas business may appoint a VAT representative with joint and several liability to the tax authorities. If a business is not registered for VAT in Malta but sells and delivers goods from another EU Member State to customers in Malta who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 35,000, it is required to register and account for VAT in Malta. If a business is established outside the EU and supplies telecommunication or electronically supplied services to nontaxable customers established in Malta and the effective use and enjoyment of those services takes place in Malta, then the place of supply is Malta. The supplier will then have to register for Maltese VAT. If, however, it supplies the same services to customers in other EU Member States it can opt to register for VAT in one Member State rather than all of them. In this case, it still has to account for VAT on supplies at the rate prevailing in the Member State of its customer but it only has to deal with one Member State for filing and payment purposes. The VAT registration form can be accessed on the Maltese VAT Department's web site: Are there penalties for not registering or late registration? There are penalties for failing to register for VAT promptly, which increase with time. These penalties are calculated as a multiple of the net tax for the period commencing when the business should have applied to be registered. The net tax is the output tax that should have been charged less the input tax that your business would have been entitled to recover. A penalty may be waived/mitigated where it can be shown that there is a reasonable excuse for the late registration. Is voluntary VAT registration possible for an overseas company? Yes. If an overseas company makes supplies outside Malta, which would be taxable or exempt with credit if made in Malta, then it may elect to register for Maltese VAT in the same way as a Maltese entity. Registration allows input VAT to be claimed through the VAT return system.. Registration means that Maltese VAT must be accounted for on all taxable sales made in Malta, including those where the customer would have been liable under the reverse charge mechanism if the overseas business was not registered for VAT in Malta. 4

6 Is there any other kind of VAT registration? Yes. A non-registered taxable person or a non-taxable legal person effecting intra-community acquisitions in Malta is liable to register if these exceed the acquisitions threshold of EUR 10,000. Likewise, a taxable person established in Malta who receives services for which he is liable to pay VAT in Malta is required to register. Can a business recover an input VAT incurred prior to the registration? If a business has incurred Maltese input VAT before the actual VAT registration takes place, it may be possible for the business to register for VAT retrospectively so as to be able to recover the input VAT in question in its VAT returns submitted retrospectively. However, a claim for input VAT must be backed by a tax invoice, which must include the VAT identification number of the recipient of the supply in order to be valid. Are there any simplifications that could avoid the need for an overseas company to register for VAT? If a business makes supplies of goods or services in Malta, then it is required to register and account for Maltese VAT. However, it is possible to avoid registering and accounting for Maltese VAT when making certain supplies. In the following examples the obligation to account for the VAT due can be shifted to the customer provided that it is registered for Maltese VAT. Triangulation If a business is an intermediate supplier to a Maltese buyer of goods which it purchases from a business in an EU Member State other than its own and such goods are delivered from there to Malta, VAT due can be accounted for by the Maltese customer (see section Invoices). Call-Off Stock The call-off stock simplification is not applicable in Malta except on a case-by-case basis upon application to the local VAT office. Fixed Assets The sale of fixed assets is not included in the calculation of turnover for the purpose of the small undertakings threshold. Supply and Install If a business supplies goods and installs or assembles them in Malta, the customer can account for any VAT due, in effect, as an acquisition. It must be registered for VAT in another EU Member State, and not otherwise required to be registered in Malta. In addition, the goods must be shipped from within the EU (see section Invoices). Reverse Charge Services These services are covered in more detail in chapter International Supplies of Goods and Services. Bear in mind that these provisions are subject to particular requirements. Does an overseas company need to appoint a fiscal representative? The appointment of a fiscal representative is not mandatory in Malta, except where the Commissioner so designates in the case of a person who is not established in Malta and is not established elsewhere in the EU who is or is required to be registered for VAT in Malta. What documentation does an overseas company need for the VAT registration? The Application Form VAT Form 001 is the application form to be used for VAT registration. Access VAT Form 001 (VAT registration form) on the Maltese VAT department's website: 5

7 Additional Documentation A copy of the identity card/passport of the applicant (or in the case of a company, of the authorized representative vested with legal representation thereof) must be presented together with the application form. In the case of a company or registered partnership, a copy of the statutory documents (memorandum and articles of association) should be produced (translated into English, if necessary). Additional Requirements A declaration contained in the application form must be signed by the person applying for registration, or in whose name registration is being made, or who is vested with legal representation of the company in the case of a limited liability company. Notification of a Successful Application When a VAT registration is completed, a certificate of registration will be issued to the business. This specifies, among other things, the VAT registration number and the effective date of the registration. What rules must be complied with in order for the triangulation simplification to be applied? Triangulation is when goods move directly from a supplier (A) in one EU Member State to the final customer (C) in another EU Member State on the instructions of A or the intermediate supplier (B) in a third EU Member State. Simplification avoids the need for B to register in C s country. The Initial Supplier (A) is Located in Malta The initial supplier (A) must treat the transaction in the same way as any other intra-community supply, zero rating it subject to the usual conditions. The Intermediate Supplier (B) is Located in Malta For the simplification to apply, the Maltese intermediate supplier (B) must: provide his/her Maltese VAT identification number to the original supplier (A); and issue the final customer (C) with an invoice, which along with the normal invoicing requirements must refer to the triangular transaction by means of the designation Triangulation. The intermediate supplier (B) should not report details of triangular transactions on its VAT return or Intrastat returns. However, the intermediate supplier must report triangular transactions separately on its EC sales list, quoting the VAT identification number of the customer in the Member State of destination of the goods. The Intermediate Supplier (B) is Located in Another Member State and the Customer (C) is in Malta For the simplification to apply, the foreign intermediate supplier (B) must issue the final customer (C) with an invoice, which along with the normal invoicing requirements must refer to the triangular transaction and incorporate its Member State s required reference to the triangulation simplification procedure. The simplification can be applied to foreign intermediate supplier s supply in Malta only if: the intermediate supplier is a foreign entrepreneur who does not have a fixed establishment in Malta and who does not have a VAT registration number in Malta the intermediate supplier uses for the acquisition a VAT identification number which has been issued in another Member State the intermediate supplier purchases the goods for the purpose of resale taking place in Malta the customer (C) is an entrepreneur or other legal person, who is entered in the VAT register in Malta The goods are delivered directly from a Member State other than the State in which the intermediate supplier is registered to a customer in Malta; and The customer in Malta is liable to pay tax on the resale. 6

8 Is call-off stock implemented in your country? Yes. Call-off stock simplification Call-off stock: goods which are the subject of a contract of sale under which the unit prices are already agreed, are shipped to the buyer s country to be held in a stock awaiting call-off by the buyer for use in a manufacturing process or resale. This stock is usually held on premises controlled by the buyer or may be at premises under the seller s control (such as rented/leased). Under the agreement, risk in the goods remains with the seller until the goods are called-off, at which time risk (and probably title) passes to the buyer who will typically be invoiced at agreed intervals, such as weekly, for the goods called-off. In the case of call-off stock that is transferred by a foreign supplier established in another EU Member State to the customer s premises in Malta, it is possible to apply to the VAT office so as to use the reverse charge mechanism, with the liability for the payment of the tax lying with the customer calling off the stock. As a result, the supplier would not be required to register for VAT purposes in Malta. Is consignment stock implemented in your country? No. How the supply of goods installed or assembled is treated? The supply of goods which are installed or assembled in Malta is deemed to take place in Malta. Local Purchases in Malta If a foreign supplier purchases raw materials or services from Malta sub-contractors for the installation project, the supplier is entitled to recover Malta input VAT incurred on the local purchases through its Maltese VAT returns. Purchases from other EU Member States If the supplier is VAT registered in Malta, the purchase should be deemed to be an intra-eu acquisition. The supplier is entitled to recover Malta VAT incurred on the intra-eu acquisitions through its Maltese VAT returns. Purchases from Outside the EU If the supplier is VAT registered in Malta, the purchase should be deemed to be an import. The supplier is entitled to recover Malta VAT incurred on importation of goods through its Maltese VAT returns. Is a foreign company who is supplying goods locally liable to register for VAT? Yes, unless the reverse charge mechanism applies. 7

9 VAT Grouping Is VAT grouping possible? No, it is not possible. Can an overseas company be included in a VAT group? Not applicable. 8

10 Returns How frequently are VAT returns submitted? Most registered businesses are required to submit VAT returns on a quarterly basis. However, if a business supplies predominantly/only zero-rated goods and services, it may seek to opt to submit monthly VAT returns. Failure to furnish VAT returns and settle any outstanding VAT payments on time may result in additional tax and interest. For example, one late VAT return and VAT payment will give rise to a 1.75 percent monthly penalty of the tax due. To mitigate additional tax, a business must show a reasonable excuse for the default. Are there any other returns that need to be submitted? EC Sales List (Recapitulative Statements) If a business supplies goods which are shipped from Malta to VAT registered businesses in other EU Member States and it wishes to zero rate the supply (see section International Supplies of Goods and Services), it is required to complete Recapitulative Statements. Recapitulative Statements are also required in the case of supplies of services (other than services that are exempted from the tax in the Member State where the transaction is taxable, and for which the recipient is liable to pay the tax) provided to taxable persons and non-taxable legal persons identified for VAT purposes. Recapitulative Statements are completed on a monthly basis where they include goods, and on a calendar quarter basis in relation to services only. However, it is also possible to opt for quarterly Recapitulative Statements in relation to goods where the quarterly value of intra-eu supplies of goods does not exceed EUR 50,000. Intrastat Supplementary Declarations VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States that exceeds a threshold of EUR 700 per calendar year must complete supplementary declarations each month. The Intrastat penalty regime is a criminal one and could result in proceedings in Court, although the authorities normally prefer to compound any proceedings. This involves the offer of an administrative fine in lieu of Court proceedings. The forms VAT/AS/101/2004 Supplementary Declaration Arrivals and VAT/DS/102/2004 Supplementary Declaration Dispatches can be accessed on the Maltese National Statistics Office web site: If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT/GST reporting purposes? (e.g. central bank s exchange rate applicable on the date of the invoice) The applicable rate is the last European Central Bank (ECB) exchange rate applicable before the date whe the supply takes place. 9

11 VAT Recovery Can a business recover VAT if it is not registered? Yes. If a company is established in another EU Member State, then it should make a claim in terms of EU Directive 2008/9/EC through the electronic portal maintained by the Member State of establishment. A non-eu business should recover the VAT under the 13th Directive procedure. Under both of these provisions, there are strict time limits for making claims. Does your country apply reciprocity rules for reclaims submitted by non-established businesses? No. Are there any items that businesses cannot recover VAT on? Yes. There are certain items that businesses cannot recover VAT on. For example: Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required. Motor cars (excluding commercial vehicles): with certain exceptions, businesses cannot recover VAT on the purchase of a motor car; similarly businesses cannot recover VAT on any lease charges. Business entertainment: VAT is not recoverable on business entertainment costs including staff entertainment and subsistence costs. Purchases falling within the Tour Operators Margin Scheme. The VAT on goods and services which fall under this scheme cannot be reclaimed. Goods sold under one of the margin schemes for second hand goods. There are a number of schemes which provide for VAT to be accounted for on the goods sales margin, but do not allow VAT recovery on the purchase of those goods. Can a business recover input VAT on certain employee expenses? Domestic Air Travel No. International Air Travel No. Rail Travel No. Taxi Fares No. Car Rental Input VAT incurred in the provision of transport to employees is recoverable only insofar as the car concerned has a seating capacity of at least seven persons. Fuel No. Car Parking In principle yes, although in practice this has recently been challenged by the VAT authorities. 10

12 Hotels Input VAT incurred in the provision of hospitality is blocked, except where the said provision is made for consideration in the normal course of that person s economic activity. In practice, the VAT authorities may allow recovery of input VAT on hotel accommodation expenses incurred purely for business purposes. Client Entertaining Input VAT incurred in the provision of entertainment is blocked, except where the said provision is made for consideration in the normal course of that person s economic activity. Staff Entertaining Input VAT incurred in the provision of entertainment is blocked, except where the said provision is made for consideration in the normal course of that person s economic activity. Client Meals No. Staff Meals No. Telephone Calls No. Can expenses related to only partially taxable business be deducted? Where VAT relates to both taxable/zero-rated and exempt without credit supplies, an apportionment is needed. There is a standard method which businesses can use provided it gives rise to a fair and reasonable recovery of VAT. However, it may be possible for businesses to agree a special method with the VAT authorities to arrive at an attribution and recovery of VAT that reflects their business. 11

13 International Supplies of Goods and Services How are exports of goods and services treated? Goods If a company sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the removal of those goods from Malta (either by the supplier or its customer) to that Member State, then no VAT is chargeable as this is a zero-rated intra-community supply. The supplier must obtain its customer's VAT identification number and quote it on the invoice. It should also obtain evidence of the removal of the goods from Malta. If a company sells goods to a customer who is not registered for VAT in another EU Member State, it will have to charge Maltese VAT. If its sales exceed a certain threshold for that Member State, it may have to register in that Member State under what is known as the Distance Selling Scheme. If a company exports goods to a customer (business or private) outside of the EU, then it does not need to charge VAT but, as for intra-community sales, it should make sure that in all cases it keeps proof of dispatch/delivery to support the zero rating. Services If a company supplies services to a business customer established outside Malta (whether in another EU Member State or outside of the EU), no VAT is generally chargeable in Malta. In the case of customers established in another EU Member State, the supplier must obtain the customer's VAT identification number and quote it on its invoice. It will also need the customer's VAT identification number for the purposes of the Recapitulative Statement. Furthermore, certain services do not attract VAT in Malta when provided to a non-business customer outside of the EU: transfers and assignments of copyrights, patents, licenses, trademarks, and similar rights advertising services services of consultants, engineers, consultancy bureaus, lawyers, accountants and other similar services, as well as data processing and the supply of information obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right referred to in this list banking, financial, and insurance transactions including reinsurance the supply of staff the hiring out of movable tangible property with the exception of all forms of transport telecommunications radio and television broadcasting services electronically supplied services the provision of access to a natural gas system situated within EU territory or to any network connected to such a system, to the electricity system or to heating or cooling networks, or the transmission or distribution through these systems or networks, and the provision of other services directly linked thereto. How are goods dealt with on importation? When goods are imported into Malta from outside the EU, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from customs control. How are services which are brought in from abroad treated for VAT purposes? If a business buys in services from outside Malta, it will generally be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Malta. Under the reverse charge, the recipient is required to account for a notional amount of VAT as output tax on its VAT return covering the period in which it made the payment and it recovers this VAT as input tax on the same return. If the recipient is able to recover all of its VAT, the reverse charge has no cost effect and is a VAT compliance matter only. However, if it is partly exempt, there is likely to be a VAT cost depending on the level of recovery allowed under its partial exemption method. 12

14 What kind of written evidence is required for the supply of goods to abroad? Intra-Community Supply of Goods In order to support the zero-rating of intra-community supply of goods, the supplier must be able to show that the goods have physically been transported from Malta to another EU Member State. This can be done by means of transportation documents. What kind of written evidence is required for the supply of goods to abroad? Intra-Community Supply of Goods In order to support the zero-rating of intra-community supply of goods, the supplier must be able to show that the goods have physically been transported from Malta to another EU Member State. This can be done by means of transportation documents. Export of Goods In order to support the zero-rating of exportation of goods, the supplier must be able to show that the goods have physically been transported from Malta to a destination outside the EU. This can be done by means of export documents, such as the stamped customs declaration (SAD form). How is VAT on purchase of goods from abroad paid and recovered? Intra-Community Acquisition Where goods are received by a Maltese VAT registered person from another EU Member State, the Maltese person must account for acquisition VAT. The rate of VAT due is that applicable to the supply of identical goods in Malta (that is, 18 percent or 5 percent). If the supply would normally be treated as zero-rated, then no acquisition VAT is due. The Maltese person must account for acquisition VAT in the periodical VAT return and recover the said VAT according to the normal VAT recovery rules. Importation of Goods Maltese VAT (and possibly customs duty) is payable on the importation of goods. VAT is levied at the border as part of the customs procedure. The VAT on importation is paid to the Maltese Comptroller of Customs. VAT is charged at the same rate as if the goods had been supplied in Malta. In certain cases, the importation is exempt from VAT. The VAT payable on the importation may be recovered according to the general VAT recovery rules. The claim is normally made on the VAT return of the relevant VAT period. 13

15 Invoices Is a business required to issue tax invoices? Yes, tax invoices are required to be issued whenever a person registered for VAT makes a supply (other than an exempt without credit supply) to another person who is identified with a VAT identification number, as well as in respect of distance sales and certain self-supplies. Where a tax invoice is not required to be issued, a fiscal receipt is to be produced instead (again except when making exempt without credit supplies, which do not necessitate the issue of any fiscal invoicing whatsoever.) What do businesses have to show on a tax invoice? A tax invoice should contain the following data: the date of issue a sequential number based on one or more series, which uniquely identifies the invoice the name and address of the supplier and the VAT identification number under which he/she made the supply the name and address of the person to whom the supply is made and the VAT identification number under which he/she acquired the goods or services supplied to him/her a description sufficient to identify the quantity and nature of the goods, or the extent and nature of the services supplied the date on which the supply was made or completed, or the date on which a payment on account of the supply was made, insofar as that date can be determined and differs from the date of issue of the invoice the taxable value per rate or exemption, the unit price exclusive of tax and any discounts or rebates if they are not included in the unit price the VAT rate applied the amount of VAT due expressed in Euros where the person liable for payment of VAT is a tax representative in another Member State, the VAT identification number of that tax representative, together with his full name and address Where appropriate, the following legends must be visible: where the invoice is for the intra-community supply of a new means of transport, a description to identify it as such where no VAT is chargeable, an invoice shall contain a brief reference to the provision in the law under which no VAT is chargeable, distinguishing between: o o o supplies made outside Malta exempt with credit supplies exempt without credit supplies 14

16 where the vendor is an intermediate supplier in relation to a Triangular transaction and wishes to take advantage of the simplification measure to avoid registering for Maltese VAT, then the invoice should bear the legend VAT: TRIANGULATION SIMPLIFICATION INVOICE - Article 20(2)(a) of the Value Added Tax Act / Article 141 of Council Directive 2006/112/EC. when an invoice refers to a supply to which a margin scheme applies, it shall contain an indication to this effect by the inclusion of the words 'Margin Scheme' and a reference to the relevant scheme. where the VAT becomes chargeable at the time when the payment is received, the mention Cash accounting where the customer receiving the supply issues the invoice instead of the supplier, the mention Selfbilling where the customer is liable for the payment of the VAT, the mention Reverse charge It is pertinent to note that, irrespective of the above, if a tax invoice complies fully with the invoicing requirements set out in Council Directive 2006/112/EC, it will be deemed to constitute a valid tax invoice for Maltese VAT purposes. Can a business issue invoices electronically? Yes, subject to acceptance of your customer. Are there any specific requirements for electronic invoicing? the customer must accept electronic invoicing the supplier will need to satisfy the tax authorities that there are sufficient controls in place to guarantee the authenticity of the origin and the integrity of the data flow electronic invoices must contain all the requisite details Is it possible to operate self-billing? Yes. Subject to the satisfaction of certain conditions, when a taxable supply is made to a customer by a taxable person. Are there any specific requirements for self-billing? prior agreement between the customer and supplier a procedure needs to be in place for the acceptance of each tax invoice by the taxable person supplying the goods or services Can a business issue VAT invoices denominated in a foreign currency? Yes, but the tax payable or to be adjusted is to be expressed or translated into Euro. 15

17 Record Keeping Requirements How long the records and invoices must be retained? Records and invoices must be retained for a period of at least six (6) years from the end of the year to which they relate. However, records of goods subject to the capital goods scheme, including a list of the capital goods subject to an adjustment are required to be kept for eleven (11) years (in the case of movable property) and twenty-six (26) years (in the case of immovable property) from the end of the year during which the right to deduct input VAT arises. Can the invoices be stored abroad? Maltese VAT legislation does not as yet provide for specific rules regarding the place of storage of invoices. 16

18 Transfers of Business Is there a relief from VAT for the sale of a business as a going concern? Yes. If a company sells its business as a going concern, then VAT may not be due. Is transfer of business exempt from or out of the scope of VAT? A transfer by a person of assets of his/her economic activity falls outside the scope of VAT in Malta if the prescribed conditions are met. What are the main requirements for the relief? The prescribed conditions are: the sale must cover the whole business or at least a separate functional business operation and thus the relief does not apply to a supply of assets and/or inventory only the assets transferred must be used by the transferee in carrying on the same kind of business as that of the transferor the transferee must be a taxable person registered for Maltese VAT purposes under Article 10 of the Maltese VAT Act the transfer must be recorded in the records of the transferor indicating the VAT identification number of the transferee It should be noted that, by virtue of a legislative amendment during 2011, it is possible to seek the authorization of the tax authorities for the application of this relief even where the transferee is not registered under article 10 of the VAT Act, subject to the additional condition that the transferor should not have benefited from a credit of input VAT on the acquisition of the assets being transferred.. 17

19 Options to tax Are there any options to tax transactions? If a company produces investment gold or transform any gold into investment gold, then it has a right of option for taxation of supplies of investment gold to another taxable person which would otherwise be exempt with credit. 18

20 Head Office and Branch Transactions How are transactions between head office and branch treated? If a head office makes a charge to its branch or vice-versa in respect of services, that is not treated as a supply for Maltese VAT purposes. A transfer of goods to/from another Member State would be treated, respectively, as a deemed (exempt) intra-community supply/deemed (taxable) intra-community acquisition. 19

21 Bad Debt Is a business able to claim relief for bad debts? If a company is able to prove that a debtor balance will not be recoverable and the output tax on the sale thereto has already been paid or is payable, then it may claim the corresponding bad debt relief. If the bad debt in respect of which a deduction has been allowed is subsequently recovered, it will be treated as a taxable supply taking place upon recovery. What conditions must a supplier fulfil in order to make a bad debt relief claim? The supplier is to be registered as a taxable person for Maltese VAT purposes. Output tax in respect of the relative supply is to have been paid or be payable by the supplier. The supplier must show to the satisfaction of the VAT authorities that the amount has become a bad debt. In this respect, we understand that in practice, the VAT authorities generally require a high standard of proof, namely evidence that legal action has been taken against the defaulting debtor and that the debtor is not in a position to honour the payment. How does a business make a bad debt relief claim? Maltese VAT law makes provision for the issuance of official directives in relation to bad debt relief claims. However, no directives have been published as of the date of writing. In the circumstances, the procedure is to make the claim by writing to the local VAT office. What evidence must a business hold in order to make a bad debt relief claim? A claimant must have a copy of the VAT invoice relating to the supply and hold evidence that the VAT has been accounted for, and that the amount has been written off as a bad debt. The appropriateness of such evidence is at the discretion of the VAT authorities. Is there any requirement to issue a notice to debtor when claiming a bad debt relief? No, there is no requirement to notify the debtor when claiming bad debt relief. 20

22 Anti-Avoidance Is there a general anti-avoidance provision under VAT law? No anti-avoidance provisions are expressly included in the Maltese VAT Act and subsidiary legislation. 21

23 Penalty Regime What is the penalty and interest regime like? There are a number of penalties that apply in Malta for compliance failures. Late registration and late VAT return penalties have already been addressed above. If a business makes an error on a VAT return which understates the liability or overstates the entitlement to a VAT credit, a misdeclaration penalty of 20 percent of the error may apply. If, however, it voluntarily discloses the error to the VAT Department, the penalty will be reduced to 10 percent. If it has a reasonable excuse, then the penalty could also be waived. Interest would invariably apply to an error unless there is no overall loss of revenue. This penalty is capped at a maximum of EUR 250 for every VAT return filed late. What penalties can be imposed as a result of certain errors? Penalties for Failure to Register or Late Registration In the event of failing to duly register for VAT, an administrative penalty is levied amounting to 1 percent of the net VAT payable for the first VAT period following belated registration in respect of each month (and part of a month) between the date when the company ought to have applied to be registered and the date on which an application for registration is actually submitted. This penalty is subject to a minimum of EUR 20 for each month (and part of a month) of late registration. Late or Underpayment of the VAT Interest is due on unpaid VAT at 0.75 percent for each month or part of a month during which tax remains unpaid. Late Filings of VAT Return and Late Payment of VAT Late filing of a VAT return elicits liability to an administrative penalty amounting to the higher of: one percent of the excess, if any, of output tax over deductions (disregarding any excess credit brought forward from a previous tax period) as declared in the return)or EUR 20 for every month or part of a month from the date by which the tax return should have been furnished and the date when it is actually furnished. Furthermore, interest is due on unpaid VAT at 0.75 percent for each month or part of a month during which tax remains unpaid. Insufficiency or Omission of VAT Return An understatement of output tax or an overstatement the deductions for a period attracts an administrative penalty of 20 percent of: any excess of the correct output tax over the declared output tax and any excess of the declared deductions over the correct amount of deductions. 22

24 Furthermore, interest is due on unpaid VAT at 0.75 percent for each month or part of a month during which tax remains unpaid. Undisclosed Activity If person subject to VAT has apparently neglected to pay such VAT and/or neglected to provide the information required for imposition of VAT, the tax office may levy the unpaid tax (together with administrative penalties and interest) on the basis of assessment. Voluntary Disclosure Where a person makes a voluntary correction of any understatement of output VAT or overstatement of input VAT, the applicable administrative penalty is reduced from 20 percent to 10 percent of: any excess of the correct output tax over the declared output tax and any excess of the declared deductions over the correct amount of deductions. Reasonable Excuse No administrative penalty is due if a person shows that there is a reasonable excuse for a default. An insufficiency of funds to pay tax due and reliance upon the work of another person do not constitute a reasonable excuse. Mitigation Where a mistake in the output VAT/input VAT does not exceed 5 percent of the amount declared, a correction may be made in the VAT return of a VAT period commencing no later than six months from the expiration of the VAT period to which a mistake refers. In this event, the administrative penalty for understatement of output VAT or overstatement of input VAT would not be levied. What is the reassessment period? The reassessment period in Malta is of six years from the later of the end of the relevant VAT period and the date in which a VAT return in respect of that period is submitted. However, a reassessment which refers to an adjustment made under the capital goods scheme may be served by not later than 6 years from the end of the adjustment period (adjustment period is of 5 years in case of movable property and 20 years in the case of immovable property). 23

25 Tax authorities Tax audits How often do tax audits take place? There is no pre-set frequency for tax audits, which are carried out randomly at the discretion of the authorities. Are there audits done electronically in your country (e-audit)? If so, what system is in use? Tax audits are not performed electronically in Malta. Advance rulings and decisions from the tax authority Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority? No provision is made for formal rulings in Maltese VAT law. However, formal requests for confirmations (informal rulings) are often sought from the VAT authorities. Are rulings and decisions issued by the tax authorities publicly available in your country? No. 24

26 Miscellaneous In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions? Maltese VAT law is based on the EU VAT Directive. Consequently there is no unique VAT regime. Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)? Yes, Maltese VAT law provides for reduced rates of VAT and various exemptions. Malta also operates a very attractive yacht/aircraft leasing arrangement whereby the overall VAT incidence incurred on the acquisition of a yacht/aircraft can be reduced substantially depending on the size and means of propulsion in the case of a yacht and a number of technical features in the case of aircraft. 25

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