Value Added Tax (VAT) is an important component of the tax framework in Malta, which has an impact on local businesses and also international entities conducting business in Malta. VAT, is an indirect form of taxation derived from EU legislation which is more easily understood as a consumption tax that is charged on most goods and services provided in Malta, as well as imports into Malta. In effect, only getting charged for what you use or provide. For businesses, it is important to know the basic nuances of VAT registration to ensure tax compliance and to optimise their financial operations. This article provides a quick summary overview of VAT registration in Malta, procedures and key considerations.
Value Added Tax (VAT) in Malta
In Malta, the obligation to register for VAT depends on the nature of the business activity carried out, otherwise known as the economic supply. An economic supply can be caught under the legislation for VAT with a company having to register and charge VAT. It is important to understand that not all economic supplies are mandatory for VAT registration and there are several supplies that could qualify as exempt with credit (does not charge VAT but can claim input VAT back) or exempt without credit (does not charge, but does not claim input VAT back).
Value Added Tax (VAT) Rates and Forms in Malta
The standard rate of VAT in Malta is 18%, with reduced rates of 7%, 5% and 0% applicable to certain services such as accommodation, electricity and certain food items.
There are three forms of VAT registration in Malta. The standard VAT registration in Malta falls under Article 10 of the VAT ACT, Article 11 VAT registration allows for small businesses that do not exceed certain thresholds to opt for a simplified VAT registration and Article 12 VAT registration is for businesses that wish to carry out Intra-Community supplies in the EU and who do not register under Article 10.
Registering for VAT in Malta is fairly straightforward once it is understood if your business activities require VAT registration and what type of VAT registration is needed. Businesses can register online through the VAT Departments portal and the process is managed by the Malta Tax and Customs Unit. Identification, details about your business activity and proof of physical substance in Malta may be required as part of the registration process. The VAT registration process can be completed in a matter of days if everything is on hand and the correct VAT registration is applied for. Once registered for VAT, the business will receive a VAT number, which should be included on all sales invoices and other VAT-related documents. The business will also receive an official VAT Certificate upon successful registration.
Value Added Tax (VAT) Compliance and Reporting in Malta
Once the business is VAT registered, it is required to file periodic VAT returns and this can be monthly, quarterly and annually and is usually linked to annual turnover of the company or the activities carried out. The VAT return outlines the VAT that is charged on sales invoices and the VAT paid on purchases by the business. Once completed the business then either pays the difference to the Malta Tax and Customs Department if the sales VAT is higher or claims back the difference as a VAT refund if the purchase VAT is higher. Whilst the VAT is payable at the point of filing the VAT return if the sales VAT is higher, if a VAT refund arises because the purchase VAT is higher it usually takes a few months for the Malta Tax and Customs department to settle. This is usually via bank transfer to a business bank account.
Penalties can incur on late registration, non-compliance or errors in the VAT filing and these can be in the form of fixed penalties or penalty interest. Hence, it is important to maintain accurate financial records and adhere to the filing schedule.
Other Considerations
For foreign businesses, the VAT registration process and requirements depend on whether they are conducting economic activities in Malta. Non-EU businesses without a physical presence but providing electronic services to Maltese consumers need to register and charge VAT under the Mini One Stop Shop (MOSS) scheme, now integrated into the One Stop Shop (OSS) since July 2021.
Conclusion
VAT registration in Malta is an important element of running a business that is compliant within tax compliance. Understanding the business and whether the business transactions are captured under VAT legislation will help a business understand better the requirement of their VAT registration requirements and obligations. This in turn will allow the business to manage its operations and financial obligations better. As always in the tax world regulatory and tax legislation is always changing and updating, meaning that businesses must stay informed to ensure that they meet all regulatory requirements and are able to take advantage of any opportunities for tax optimisation. Seeking a competent tax advisor or accountant who can assist in VAT is advisable.
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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