Budget Measures Implementation Act 2018

By means of ACT VII of 2018, the Government of Malta has published an Act to implement various budget measures for the year 2018.  The following is a summary of the main changes to the Income Tax Act. 

Definition of a participating holding 

The definition of a participating holding has been amended so that the minimum percentage holding of10% has been reduced to 5%.  Furthermore investments in European Economic Interest Grouping (EEIG) shall also be considered to be participating holdings. 

Remittance rules of taxation 

With effect from year of assessment 2019, the remittance rules of taxation will no longer apply to individuals who are long term residents or who hold a permanent residence certificate or a permanent residence card in terms of the Status of Long-Term Residents (Third Country Nationals) Regulations. 

Financial assistance received by the parent of a child 

Financial assistance received by the parent of a child in respect of the maintenance of that child, which is paid by the other parent in terms of a public deed regulating the obligations of the parents for the maintenance of that child will also be exempt from income tax. 

New tax deduction against income derived from intellectual property 

Rules are still to be prescribed in respect of a new deduction against qualifying income derived from qualifying intellectual property to be claimed by any person, whether or not the income arises in the course pfa trade, business, profession or vocation. 

Reduced rate on rental income 

The definition of rent which may benefit from a reduced rate of tax of 15% has been amended to include ground rents, whether from an urban or rural tenement. 

Married and parent tax rates 

Unmarried individuals,  widows or  widowers, separated or divorced persons may opt to be taxed at the married rates if they maintain a child under 16 years of age who is not in receipt of an annual income which exceeds Eur2,400. The child’s age has now been increased to 18 (or 23 years if receiving full time education) and the child’s annual income cannot exceed Eur3,400.  The same is applicable with respect to children whose parents opt to be taxed at the parents’ tax rates. 

Persons who are ordinarily resident but not domiciled in Malta 

With effect from year of assessment 2019, persons who are ordinarily resident but not domiciled in Malta, who are taxed in Malta on that part of their foreign income which is received in Malta (remittance basis) and whose annual income arising outside Malta, which is not received in Malta is at least Eur35,000 shall be subject to an annual income tax liability of Eur5,000.  This minimum annual tax liability does not apply to persons who have been granted a special tax status in terms of the Global Residence Programme (GRP), The Malta Retirement Programme (MRP), The Residence Programme (TRP) or the Residents Scheme Regulations.  

The minimum annual tax liability of Eur5,000 includes any Maltese income tax paid, whether by way of withholding or otherwise but excludes any tax paid in terms of Article 5A of the ITA (final tax paid on transfers of immovable property situated in Malta).  The minimum annual tax liability is also applicable to married couples who opt for a joint computation and whose annual income arising outside Malta which is not received in Malta, derived by both spouses is at least Eur35,000. 

No tax will be paid in Malta on capital gains arising outside Malta even if such gains are received in Malta. 

Amendments to Article 5A of the ITA 

Balancing statements 

With respect to immovable property which has been sold, transferred, destroyed or put out of use and on which the owner would have claimed capital allowances, a balancing statement is required to be prepared and tax to be paid on any balancing charge (tax profits derived on the sale of the property). 

Subsequent transfers of immovable property acquired by means of a donation 

With respect to subsequent transfers of immovable property by individuals who would have acquired the immovable property by means of a donation exempt from income tax, the date of acquisition is deemed to be the original date when the said property was acquired by the donor. 

Projects 

It has been clarified that the definition of a project does not include a land which is divided for transfer into more than one transferable portion, where the land is transferred in the same state as when acquired. 

Transfers of immovable property within a group 

Transfers of immovable property from one company to another company which do not benefit from the intra group exemption because the property is not held as a capital asset may still benefit from the exemption  if the transfer is part of a restructuring involving the transfer of the whole or part of a company’s business to another company. The requirement for the transferring company to own the property for a period exceeding twelve years has been removed. 

How can we help? 

For further information, please contact either Stephen Balzan on sbalzan@act.com.mt or Elaine Camilleri on ecamilleri@act.com.mt.  ACT can help you understand the changes to the income tax rules and how these can impact your business. 

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on info@act.com.mt. 

Disclaimer  

This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.  

9th April 2018

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