Value Added Tax (VAT) is the main type of indirect taxation in Malta and is regulated by the Maltese VAT Act, Chapter 406 of the laws of Malta and subsidiary legislation thereto.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply i.e. the sale.
A transaction is within the scope of Maltese VAT if the following conditions are met:
There are four rates of VAT that are applied to goods and services in Malta; the standard rate of 18%, the special rate of 7%, the reduced rate of 5%, and the zero rate.
Businesses that make taxable, zero-rated as well as exempt without credit supplies are unable to claim all the input tax that they incur and have to apply the partial attribution method to determine the amount of input VAT that they may recover. Businesses that make solely exempt supplies are unable to claim any input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.
Most goods imported into Malta from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules). In certain circumstances, and subject to approval by the Commissioner, a taxpayer may apply for a deferral on the VAT payment on importations.
It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the Community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike VAT, once duty has been paid it is not usually recoverable by the importer.
It therefore represents a bottom-line cost to the importing business if it cannot be passed on at higher prices. It is therefore very important to ensure that the correct rate of duty is applied.
VAT is charged on the value of the importation, including any customs duty and other charges such as excise tax where applicable.
A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of his economic activity must register for VAT in terms of article 10 if the value of its taxable supplies in Malta exceeds the annual registration limit, or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded.
For these purposes, a ‘person’ includes an individual and any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities are very different.
Small businesses (i.e. those that do not exceed the annual limit registration) are still obliged to register in terms of article 11 to satisfy local requirements unless they opt to register in terms of article 10.
Taxable persons making solely exempt supplies and non-taxable legal persons must register for VAT in terms of article 12, provided they are not registered in terms of Article 10, if they exceed the intra-community acquisitions threshold or receive services on which VAT is to be accounted for in Malta in terms of the reverse charge mechanism. They may also register on a voluntary basis.
The normal VAT registration limit does not apply to businesses that are not established in Malta, but for the purposes of the tax are making taxable supplies there. Those businesses will need to register for VAT as soon as they commence trading in Malta, irrespective of the level of turnover.
Registration for VAT in Malta may also be required where a non-established EU business is involved with distance selling or if the non-established business has a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to make the supply from Malta. Distance selling occurs when a taxable supplier in one EU country supplies and delivers goods to a customer in another EU country who is not registered or liable to be registered for VAT.
Such customers are known as non-taxable persons and include private individuals and businesses and other organizations that are not registered for VAT (either because of their size, or the fact that they are exempt from having to register due to the nature of their activities). The common examples of distance sales are goods supplied by mail order and via the internet.
Distance sales from another EU country to non-taxable persons in Malta will be subject to VAT at the appropriate rate in the suppliers’ country. However, once the value of those distance sales to all other EU member states exceeds the threshold of €10,000:
Suppliers can choose to make Malta the place where the goods are supplied by registering for VAT voluntarily before the threshold is reached.
Alternatively, non-established businesses may elect to register and account for VAT in the different Member States in terms of the One-Stop-Shop (OSS) special scheme.
On 1 July 2021, the Mini One Stop Shop (MOSS) special scheme was extended to cover all business-to-consumer (B2C) supplies of services taking place in EU Member States where the supplier is not established.
This new One Stop Shop (OSS) will apply also to all distance sales of goods within the EU and to certain domestic supplies of goods facilitated by electronic interfaces under certain conditions. What is more, another new scheme was created for the declaration and payment of VAT on distance sales of low value goods imported from outside of the EU, called the Import One Stop Shop (IOSS).
A taxable person making use of the OSS special scheme shall submit by electronic means to the Member State of identification a VAT return for each calendar quarter, whether or not supplies of goods or services covered by this special scheme have been supplied. The VAT return shall be submitted, together with payment, by the end of the month following the end of the tax period covered by the return.
A taxable person making use of the IOSS special scheme or his intermediary shall submit by electronic means to the Member State of identification a VAT return for each month, whether or not distance sales of goods imported from third territories or third countries have been carried out. The VAT return shall be submitted, together with payment, by the end of the month following the end of the tax period covered by the return.
A person who is not established in Malta and is not established in the Community must appoint a fiscal representative in Malta if the said person is registered or is required to be registered in Malta for the purposes of VAT.
VAT returns (article 10) normally cover an accounting period of three months, ending on the last day of a calendar month.
Businesses that are in a net repayment position (because of the nature of their activities) and those incurring exceptionally high expenditure (e.g. as a result of set up costs or a capital project) can apply to submit returns on a monthly basis to improve cash flow.
All VAT returns have to be submitted by the 15th day of the second month following the month in which the VAT reporting period ends together with any tax due.
Where a person opts to submit the return electronically, taxpayers get a further seven days in which to submit the return and pay the tax due.
Small businesses that register in terms of article 11 submit a prescribed form generally on an annual basis summarising their sales and costs for the relevant year.
Taxpayers registered in terms of article 12 submit the prescribed form with respect to services received from suppliers established in other EU Member States or established outside the EU, the form together with payment of VAT is to be submitted by not later than the 15th day of the second month following either the date of invoice or the month during which the service was received, whichever is the earlier. Where during the relevant period, the taxpayer made intra-community acquisition of goods, the return and payment is to be submitted by the 15th day of the month following that during which the VAT became chargeable.
A default administrative penalty may be imposed by the tax authority if VAT returns are not submitted on time. Interest is also chargeable on late VAT payments.
Businesses that are registered for VAT in Malta and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit Recapitulative Statements. The recapitulative statements must show details of the recipients of the goods and services and values per client, distinguishing between sales of goods and sales of services.
Generally, where the value of goods supplied to businesses in other EU member States exceeds €50,000 in the current or four previous quarters, the recapitulative statements must be submitted every calendar month. Otherwise, the document for goods is submitted for each calendar quarter.
Recapitulative statements for services should be submitted for each calendar quarter unless the taxpayer also supplies goods and has exceeded the threshold. In such cases, the recapitulative statements for services must also be submitted monthly.
Recapitulative statements may only be submitted electronically and have to be submitted within 15 days of the end of the relevant month or quarter.
In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU States is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both.
These declarations have to be submitted up to ten working days after the reference month.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Civil penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes. Criminal proceedings may be brought if the taxpayer fails to comply after being officially notified by the Commissioner.
Yes, it may be possible to reclaim the VAT incurred in certain circumstances.
Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.
The EU cross border refund scheme is available in all EU member States, and enables a business established in an EU country to recover VAT incurred in another member State.
To be eligible to make a claim, the claimant must be a taxable person established in an EU member State other than the one from which the claim is to be sought. In addition, the claimant:
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority from whom the repayment is being sought.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.
Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into Malta or purchases of goods and services used in Malta.
The scheme is available to any person carrying on a business established in a third country, ie outside the EU, provided that in the period of the claim:
Claim forms have to be submitted to the Maltese tax authority by not later than the 30th of June from the end of the calendar year in which the tax becomes chargeable.
A VAT invoice referred to as a tax invoice must show:
For each different type of item listed on the invoice, the following must be shown:
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
Where the customer is responsible for the payment of VAT, the tax invoice should include the wording ‘Reverse Charge’. Where VAT is chargeable on a cash basis, ‘cash accounting’ must be mentioned on the invoice.
Where any special arrangement applies such as the second-hand scheme or travel agents margin scheme, the tax invoice must refer to the applicable scheme.
A simplified invoice may be issued if the value of the sale inclusive of VAT is equal to or less than €100.
In the case of sales made to persons not registered for VAT, suppliers are obliged to issue a fiscal receipt. Fiscal receipt booklets are issued by the Commissioner upon application.
Non-established businesses are not required to issue fiscal receipts to Maltese customers for supplies of goods or services on which VAT is being reported and paid through the OSS or the IOSS.
Retailers do not issue tax invoices but must issue fiscal receipts for each and every sale from fiscal receipt booklets or approved fiscal cash registers unless the Commissioner authorises them to avail of other systems such as custom-built point of sale software.
VAT invoices can be issued, received and stored in electronic format and there is no need to tell the tax authority.
Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services. The use of an electronic invoice is subject to acceptance by the recipient.
Two or more companies and other legal persons can, with effect from 1 June 2018, be registered together as a VAT group if:
A member of one VAT group may not be a member of another group.
The main advantage of VAT grouping is that any supply of goods or services by one member entity to another is disregarded for VAT purposes which will in certain circumstances reduce the incidence of embedded VAT and improve the cash flow position of the group.
There are, however, certain disadvantages and any decision whether to establish a VAT group should be taken with care.
As of 1 January 2015, the place of supply for VAT of electronically supplied/digital services to private customers established or resident in Malta are considered to take place in Malta and a supplier that is not established in this country is obliged to account for and pay VAT in Malta.
Suppliers providing such services may opt to register for VAT in terms of article 10 and account for VAT in the standard manner.
Alternatively, they may register in terms of the One-Stop-Shop (OSS).
Suppliers established in an EU Member State, register in terms of this special scheme in their State of establishment and account for VAT due in Malta by using the said scheme.
Suppliers established outside the Community register in terms of the special scheme applicable to them in a Member State of their choice and account for VAT due in Malta in terms of this scheme.
For further information on indirect tax in Malta please contact:
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Russell Camilleri |
