Following last week's budget speech by the Minister of Finance, Bill No. 247 was published, which Bill includes provisions to implement some Budget Measures for the Financial Year 2022 and other administrative measures. We highlight herein the salient income tax measures proposed in such Bill. The Bill, as is or with amendments, would be expected to be enacted in the first quarter of 2022.
Amendments to the Income Tax Act
Exemption on transfers of listed securities
The Bill proposes an amendment to secure the same tax exemption on transfers of securities listed on stock exchanges in the European Union / European Economic Area as that accorded to securities listed on the Malta Stock Exchange. More specifically, the Income Tax Act currently exempts from tax the transfer of shares listed, or in consequence of a listing, and the transfer of securities in a prescribed fund listed on a 'stock exchange recognised under the Financial Markets Act'. The Bill proposes to replace the latter wording with 'stock exchange established under the laws of a Member State of the European Union or of the European Economic Area', thereby clearly enacting equal treatment.
In addition, all other references in the Income Tax Act to 'stock exchange recognised under the Financial Markets Act' are proposed to be replaced by 'stock exchange recognised by the Commissioner for the purpose of [the specific] provision'. One would expect guidance on which stock exchanges will be so recognized by the Commissioner for Revenue and/or whether the stock exchange lists referred to in other Revenue Guidance would apply to the specific provisions.
Exemption on the transfer of certain assets by non-Maltese residents
The Bill proposes that the exemption from tax on gains or profits derived by non-Maltese residents from the transfer of certain securities, partnership interest and units in a collective investment schemes or relating to linked long term business of insurance be extended to 'transfer of any right over' such assets. Such exemption applies as long as the securities / interests or rights therein are not held in a property company or property partnership and provided that the beneficial owner of the gains or profits is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
Tax deduction of intellectual property costs
The Income Tax Act allows a tax deduction of capital expenditure incurred on intellectual property (IP) and IP rights when such are used or employed in the production of the income. The deduction is spread equally over a number of consecutive years, not being less than 3 years. It is proposed that such deduction is capped in instances when such IP/IP rights are/were acquired through an exempt intra-group transfer (falling under Article 5(9) of the Act). The capped amount is the lower of the cost of acquisition and the market value of the IP/IP rights at the time that the exempt transfer takes/took place less any deductions claimed by the transferor with respect to the same IP/IP rights as aforesaid.
Definition of 'car parks'
The definition of 'car parks' is proposed to include such commercial structures even when the provision of parking services is not the main income generating activity of the operator, provided that the operation of the car park involves substantial activity, having regard to (i) the capital employed, (ii) the organisation of the operation and (iii) the income it generates. Such widening of the definition would codify the Guideline issued earlier on this year by the Revenue on the matter. The change in definition is mainly relevant to those enterprises claiming initial allowances and/or capital allowances on expenditure incurred on car park structures.
Tax on employment outside Malta
Changes are proposed to Article 56(17) of the Income Tax Act which provides for a tax rate of 15% on income derived from employment outside Malta where the contract requires the performance of work or duties mainly outside Malta. A new proviso is proposed to be added prohibiting access to the special rate where (i) the contract of employment is for a period of less than 24 months or lasts less than 24 months or (ii) the individual was present in Malta in the relevant year for more than a total of 30 days, disregarding days of vacation or sick leave in Malta and any period preceding the commencement or following the termination of the contract. Such proposal could significantly affect Maltese resident individuals who work abroad.
Tax on income of sport players, athletes and coaches
The article that allows the option to sports players, athletes and coaches to tax their emoluments at 7.5% is proposed to be amended to enact that (a) the tax is chargeable on the gross emoluments and (b) the tax is final and no set-off or refund is granted in respect of the tax so charged.
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.