The Maltese tax authorities have released comprehensive guidelines on the application of the 12% Value Added Tax (VAT) rate on the supply of custody of securities. These guidelines, effective from January 1, 2024, aim to provide clarity and consistency in the VAT treatment of such services. The guidelines follow the adoption of the VAT Rates Directive (Council Directive (EU) 2022/542) and subsequent amendments to Malta's VAT Act. Legal Notice 231 of 2023 introduced changes to the Eighth Schedule of the VAT Act, ushering in the application of a 12% VAT rate on various services, including the custody of securities.
Key Definitions:
Securities: defined as "any tradable financial instrument included in the Second Schedule to the Investment Services Act (Chapter 370, Laws of Malta)" and categorised into:
- equity securities which confer a property right over legal persons;
- securities representing debt;
- and other securities such as tradable securities confer an intangible right to carry out a further transaction. However, the term securities excludes documents which establish title to goods.
Custody: encompasses control of assets services, depositary services for collective investment schemes, and any other similar services concerning securities as follows:
- Control of Assets which refers to services concerning the holding, safekeeping or control of securities referred to in the Investment Services Act (Control of Assets) Regulations (Subsidiary Legislation 370.05) or the Central Securities Depository (Control of Assets) Regulations (Subsidiary Legislation 345.13);
- Depositary Services (for Collective Investment Schemes) which consist of the safekeeping, cash flow monitoring and oversight of securities in respect of a collective investments scheme as indicated in the Investment Services Act (Custodians of Collective Investment Schemes) Regulations (Subsidiary Legislation 370.32);
- And any other services concerning securities which are not covered by the aforementioned services.
Application of Reduced VAT Rate
The 12% VAT rate applies to services consisting of the custody of securities where the tax becomes chargeable on or after January 1, 2024, and exemptions under item 3 of Part Two of the Fifth Schedule to the VAT Act may still apply to custody services.
Global Custody Services
Global custody services refer to a group of services related to securities that an individual holds. These services may include cash management, securities lending, safekeeping, security settlement, collecting dividends or interest on securities held, corporate action processing (including actions related to scrip and rights issues, and payment against delivery of securities), and supervision (monitoring and oversight) services as outlined in Subsidiary Legislation 370.32 regulations 19, 20, 31, and 33, as may be amended or substituted from time to time.
Nominee Services
In cases where an individual holds securities in their own name on behalf of the beneficial owner with the primary goal of offering the beneficial owner services that are exempt under item 3 of Part Two of the Finance Schedule to the VAT Act, such as receiving, carrying out, and transmitting orders to buy and sell securities, negotiating payments, transfers, and currency exchanges, as well as other ancillary services, such a package of services would be considered exempt to the extent that the services in question constitute a single composite supply.
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.