Introduction

The Minister of Finance, the Economy and Investment, the Hon. Mr. Tonio Fenech delivered the 2011 Budget Speech on the 25th October 2010 and announced a number of fiscal measures aimed at incentivising internationalisation, investment and business, amongst others.

These measures are being introduced against a backdrop of positive economic growth registered by Malta as a result of the country's strong performance in the external sector and growth in the domestic sector. The Minister of Finance acknowledged that the tough measures introduced in the previous year's budget had clearly paid off but emphasised the need to exercise continued caution in the context of the current state of the world's economies, including the stark economic realities being faced by a number of EU Member States. Accordingly, said measures are primarily intended to:

  • Promote internationalisation, investment, research and development and environmental protection;
  • Tighten anti-abuse provisions primarily to curb abuse in relation to the group relief relative to tax losses;
  • Further incentivise women to return to the labour market;
  • Introduce certain beneficial provisions relative to VAT compliance.

This brief update looks at some of the more interesting fiscal measures announced in the 2011 Budget Speech as these will affect the business community.

Incentives for Business

A number of new incentives will be provided to incentivise the internationalisation of the goods and service offering of Maltese businesses. These incentives include the allocation by government of funds for the implementation of the Malta Enterprise 'Gateway to Export' programme aimed at assisting companies to export to foreign markets; the funding of a quality improvement programme entitling persons investing in the quality of their product or service offering to claim a tax deduction of 150% of the relative amount, capped at €10,000; small businesses employing up to 10 people and creating new investment opportunities and jobs to continue to benefit from a 40% tax credit, capped at €25,000; the allocation of funds to Malta Enterprise for the introduction of various incentive schemes to industry, including incentives for the commercial sector to invest in renewable energy; the allocation of funds towards participation in Eurostarts so as to assist local SMEs in relation to R&D initiatives; the provision of assistance to industry in respect of training and consultancy in connection with the franchising of local products in foreign markets, amongst others.

Value Added Tax

In addition to proposing to raise the VAT rate on hotel and private accommodation from the current 5% to 7% with effect from 1 January 2011 (as an alternative to the 2010 budgetary proposal to impose a 50 cents tourist tax, now being dispensed with), the government is proposing a number of measures aimed at easing the burden of VAT compliance. One such measure involves giving taxable persons with an annual turnover not exceeding €7,000 the option not to register at all for VAT purposes. Amendments will also be introduced to the VAT Act to provide for an extension of the statutory deadlines for the submission of VAT returns and VAT payments when effected using the VAT Department's online facilities.

Women in the labour market

A number of incentives will be provided to further incentivise women returning to the labour market. One such incentive sees the tax credit applicable to women returning to full employment remaining in force during 2011. Self-employed women will also be granted the option to pay a 15% pro rata social security contribution on their income as opposed to the minimum stipulated by law, thus entitling the contributor to a pro rata entitlement to certain social benefits.

Incentives relative to the Environment

The government has introduced a series of new measures that shall complement those already in place with a view to protecting the environment. These incentives include: a tax deduction equivalent to 125% of the amount spent by companies on electrical vehicles; a new subsidy available when old vehicles are scrapped in favour of vehicles with low emissions; beneficial registration taxes applicable on the acquisition of hybrid vehicles; and the re-introduction of a subsidy available in relation to the installation of solar water heaters.

Focus on Creative Sectors of Economy

Following on the series of measures announced in the 2010 Budget, the 2011 Budget once again addresses the creative sectors of the economy. The most important step to be taken in this area in 2011 involves the establishment of a new creativity trust which is intended to facilitate the pooling of contributions effected by the public and private sectors with a view to sustaining existing and new investments related to cultural and creative matters. Enterprises funding this creativity trust will be entitled to benefit from certain fiscal incentives.

Other Fiscal Measures

Other fiscal measures include family-related measures, such as an increase in the private school fees personal tax deduction; a revision of various vehicle registration taxes as well as of various excise duties, including the introduction of a new excise duty on cement.

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.