Malta: Tax Updates Further To Budget 2017 And The Implementation Act

Last Updated: 13 December 2017
Article by Anthony Pace

An overview of the changes introduced by the Budget Measures Implementation Act and a reduction in payable on donations of marketable securities and immovable property used for business purposes.

Full imputation system in relation to dividend from listed shares

Dividend income derived by individual shareholders with a holding of less than 0.5% of the paid-up share capital in a company listed on a stock exchange recognised under the Financial Markets Act, may benefit from the imputation system (with no limit) upon receipt of dividends from profits made during basis year ending 2017 or after. The limitation on the application of the imputation system will therefore be phased out with respect to dividends from companies listed on a recognised stock exchange. This amendment was most likely introduced to incentivise investment on recognised stock exchanges.

Exemption from capital gains on transfer of listed shares

The Act re-introduced an exemption from capital gains on the listing of shares on a stock exchange recognised under the Financial Markets Act. The exception in relation to listed shares was also extended to transfers of shares listed on any stock exchange.

Tax on inherited property sold through a judicial sale by auction

A Final Withholding Tax of 7% on the transfer value will apply to immovable property situated in Malta inherited on or after the 25th November 1992, where the immovable property is sold through a judicial sale by auction.

Reduced Tax rate on rental income derived from rental of immovable property under a scheme administered by the Housing Authority

A reduced Final Withholding Tax rate of 5% shall apply on rental income derived from the rental of immovable property to another person for at least 7 years under a scheme administered by the Housing Authority.

Changes to the Duty on Documents and Transfers Act

In an acquisition of property in a Special Designated Area, the 3.5% reduced rate of duty applicable on the first EUR 150,000 on acquisition of one's sole ordinary residence does not apply to buyers who would have required a permit for the purposes of the Immovable Property (Acquisition by Non-Residents) Act had the acquired property not been situated in a special designated area.

The Act introduces a widening of the tax bracket for the 3.5% reduced rate of duty applicable on transfers causa mortis in relation to a transferor's dwelling house which at the time of transfer is also occupied by the transferee/s. The 3.5% duty rate shall apply to a value which exceeds EUR 35,000 but which does not exceed EUR 150,000 (instead of EUR 70,000).

A widening of the bracket of the 3.5% reduced duty rate on transfers of dwelling houses (not being the TRANSFEROR'S dwelling house) which at time of transfer are inhabited by the transferees. This has been extended to the first EUR 150,000 (instead ofEUR 70,000) of the value of such dwelling house.

Exemption from duty upon a transfer of an undivided share of a dwelling house from the heirs of the deceased co-owner to the other co-owner, provided that the property was acquired by the co-owners for the purpose of establishing (or constructing) their sole ordinary residence, and the property in question came to the heirs of the deceased co-owner through a transfer causa mortis and the respective duty (if any) has been paid, and declarations in terms of Article 33 were made.

The Act has introduced expiration periods for determinations attained in terms of Article 47 of the Duty on Documents and Transfers Act in line with Tax Guideline issued by the Inland Revenue Department on 1st December 2016. Determinations contemplated in Article 47 are to be issued for a period of three years from date of determination. Determinations issued prior to 1st December 2016 shall be valid until 30th November 2019. Upon the lapse of such validity periods, determinations may be renewed for further periods of three years.

The Act also made some additional changes to the Article 47 to limit the applicability of the respective exemptions contemplated within the same article.

The exemptions from duty applicable to life insurance policies that are not renewable annually have been extended to annually renewable life insurance policies.

Duty on Donations of Marketable Securities and Immovable Property Used for Business

Reduction in duty from 5% to 1.5% in the case of a transfer of immovable property being a commercial tenement used in a family business for at least 3 years preceeding the transfer or marketable securities by gratuitous title (donation) from an individual to their spouse, descendants and ascendants in the direct line and their relative spouses, or in the absence of descendants to brothers or sisters and their descendants. This reduced rate of duty is applicable for transfers made by public deed between 1st April 2017 and 31st March 2018.

The law provides for a claw-back of benefits in the event that the marketable securities or business property are transferred intervivos within three years from the date of the gratuitous transfer, or if the business property is not used for business purposes for a period of three years after transfer.

In the case of business property which upon acquisition was subject to the 1.5% reduced rate of duty in terms of these rules and is so replaced within 1 year by property used for a similar purpose the 1.5% duty paid may be allowed as a deduction against duty chargeable on the acquisition of the replacement property.

Other Important Amendments

The Act contains a provision enabling the Minister to introduce rules for allowing a deduction in respect of equity financing aimed at approximating neutrality between debt and equity financing. In addition, deemed distributions provisions were introduced, in relation to profits subject to the said deduction and which are attributable to an individual resident in Malta.

An extension of an exemption previously granted solely to married women shall now also apply to married men whereby their employment income shall be exempt from tax for a period of five consecutive years of assessment provided they:

  • are over forty years of age and returning to employment after having been absent from gainful occupation for at least five years;
  • are subject to tax jointly with their spouse;
  • were not listed on the unemployment register as established by JobsPlus at any time during their absence from gainful occupation; and
  • said income does not exceed 9,500 per annum.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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