VAT legislation in Malta
Value Added Tax in Malta is regulated by the Value Added Tax Act Chapter 406. Part 2 of the Fifth Schedule to the Value Added Tax Act provides for exemption without credit supplies.
Most of the financial services offered are considered to be exempt without credit supplies. This schedule also extends the exempt without credit status two taxable persons providing management services to:
i. Collective Investment Schemes as defined in the Investment Services Act; and
ii. Retirement Schemes as defined under the Retirement Pensions Act.
Recently the Value Added Tax Act has been amended to extend the scope of exemption without credit available on management services. Formerly this exemption included only collective investment schemes and retirement pension schemes. Now the exemption applies also to management services provided to securitisation vehicles as defined under the Securitisation Act, and also to authorised reinsurance special purposes vehicles as defined in the Re-Insurance Special Purposes Vehicles Regulations.
This amendment will continue to promote Malta’s financial services sector which is an important pillar of the Maltese economy. This amendment means that securitisation vehicles and authorised reinsurance vehicles will benefit from a reduction in their management cost, as such services would be VAT exempt. The current VAT rate in Malta is 18%. However, management companies would have input VAT blocked with respect to such services as the exemption is without credit. The main costs of such management companies would be payroll which does not have any attaching input VAT.
Another initiative is that the Revenue Authorities - the Inland Revenue Department, VAT Department and Customs Department - have set up a Joint Taskforce to combat tax evasion. One of the initiatives of this task force would be to audit VAT point of sales system operated by retailers to ensure that such systems cannot be tampered with. This task force is being equipped with IT specialists and specialised auditors of IT systems.