On 17 April 2025, Malta enacted the Budget Measures Implementation Act of 2025 ("Budget Act"). The Budget Act incorporates various tax proposals announced during the 2025 Budget, held on 28 October 2024.
In a nutshell, key changes include:
- Increased scope of the deductibility of capital expenditure rules to commercial leases, business permits and concessions;
- Minister empowered to impose an elective higher tax rate for Maltese entities;
- Failure to file a tax return is a criminal offence;
- Expanded offences for non-filing; and
- Updates to VAT rules for succession of businesses.
Income Tax Amendments
- Deductibility of Capital Expenditure on Leases, Permits and Concessions.
Businesses can now deduct certain capital expenses incurred from 1 January 2025 for acquiring business permits, concessions, or commercial leases, provided these are used to generate taxable income. The deduction is spread over up to 15 years or the term of the permit/ lease, whichever is shorter. Restrictions apply; the deduction does not cover outright business or goodwill purchases, indefinite or long-term (over 15 years) leases, or related-party transactions. The Minister may further regulate these rules.
- Introduction of an Elective Tax
A new enabling provision empowers the Minister to introduce an elective higher tax rate for profits of Maltese entities, with details to be set by regulation. This could target specific sectors or business models in the future.
- Revised personal income tax bands
The income tax-exempt bracket will be increased as follows:
- Single taxpayers: from €9,100 to €12,000;
- Married taxpayers: from €12,700 to €15,000; and
- Taxpayers who are parents of a dependent child: from €10,500 to €13,000.
Savings are expected to range between €345 to €650. Similarly, the 15% income tax bracket was widened by roughly €1500 to single taxpayers, €1800 for married taxpayers; and €1,700 for parent taxpayers. The revised personal income tax bands can be accessed here.
- Increase in Permissible Deductions for Independent School Fees
The maximum tax deduction allowed for private independent school fees per child has been increased:
- Kindergarten: from €1,600 to €3,500;
- Primary School: from €1,900 to €4,600; and
- Secondary School: from €2,600 to €6,500.
- Definition of "Endangered Tax"
The Budget Act clarifies that if tax has already been paid under the Final Settlement System, it will not be considered "endangered tax" even if not declared, reducing the risk of double penalties.
- Property Transfer Rules for Separated or Divorced Couples
A new provision clarifies that when a property has been the residence of a married couple for at least three years, and due to divorce or separation one spouse leaves, the property is only considered vacated for tax purposes when both spouses have left. This change prevents premature tax consequences for the spouse who remains in the home.
Income Tax Compliance Amendments
- Disclosure of Information in Legal Proceedings
The Budget Act now explicitly allows the Commissioner to disclose tax information during judicial or quasi-judicial proceedings if ordered by a court or tribunal.
- Expanded Offences for Non-Filing
The list of offences now includes failure to file a required tax return, document, or statement. This is intended to strengthen enforcement and encourage compliance.
- Penalties for Failure to File
The Budget Act clarifies that failing to file a return or required document is an offence, not just omitting information from a return.
VAT Amendments
- Streamlined Registration Dates
VAT registration for non-Article 10 taxpayers now takes effect from the first day of the month in which the Commissioner receives the application, or from the start of economic activity, whichever is later. This provides clarity on when VAT obligations begin.
- Amendments to Registration and Other Provisions
Several technical changes have been made to ensure consistency with EU directives and to clarify the application of VAT rules, including:
- Registration and Succession: When a VAT-registered person dies, the person inheriting the business or assets (such as a spouse, child, or other heir) may need to register for VAT if they continue the economic activity. The Budget Act now provides clearer rules on the effective date of registration and the transfer of VAT obligations, ensuring that there is no gap in compliance during the transition from the deceased to the heir.
- Transfer of Economic Activity: If the successor continues the business, they step into the shoes of the deceased for VAT purposes. This means that the successor is responsible for any outstanding VAT liabilities and must account for VAT on any subsequent supplies or disposals.
- Other: (i) adjustments to the timing and effect of VAT registration; and (ii) clarifications on the application of VAT in special cases (e.g., inheritance, minors).
- Disclosure of Information in Court
The Commissioner may now disclose VAT information during judicial or quasi-judicial proceedings if ordered by a court or tribunal, mirroring changes in the Income Tax Management Act.
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.
