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Taxation

Indirect Taxes

Value Added Tax

In common with other states of the EU Malta imposes value added tax (VAT) on the consumption of goods and services.

In general terms taxable persons do not themselves suffer VAT, as it is a tax payable by the ultimate consumer, the man in the street, but businesses are responsible for the administration and collection of tax.

With some exceptions all taxable persons must register with the Commissioner of VAT. However, taxable persons whose annual turnover is below Lm 15,000 and whose economic activity consists principally in the supply of goods may opt to stay outside the Refund Scheme. Service providers whose annual turnover is below Lm 10,000 or Lm 6,000 as the case may be, may also opt out to stay out of the Refund Scheme.

For most categories of goods and services VAT must be added at the standard rate, currently 18%.

A special rate of 5% applies to tourist accommodation, confectionery and similar items, the supply of electricity in accordance with Articles 12 of Directive 77/38/EEC, medical accessories, printed matter, works of art, collector's items and antiques. Some categories are zero rated. This means that a nil rate of tax is to be charged but suppliers of the goods or services, are nevertheless entitled to a refund of the VAT they incurred on its purchases. Businesses making only zero-rated supplies will therefore be in a position to obtain periodic refunds from the VAT Department.

Some services are exempt. Again there is no VAT to be charged, but in contrast to the position on zero-rated supplies the supplier is not entitled to a refund of the VAT paid on purchases. Businesses that make exempt supplies in addition to either standard-rated or zero rated supplies may be able to recover part of the VAT they incur on their purchases, by applying the partial attribution rules of the VAT legislation.

Intra-community acquisitions of goods other than exise goods and new means of transport are accounted for under the reverse charge rules of the VAT legislation. Intra-community supplies of goods are deemed to be supplied where the transport ends provided that the customer communicates to the seller a valid VAT identification number. The seller reports intra-community supplies periodically on a recapitulative statement of intra community supplies.

Exports are generally zero-rated. With some exceptions VAT must be paid on the import of goods from third countries and on intra community acquisition of excise goods and new means of transport.

The VAT compliance regulations are strict and penalties are imposed for the late submission of periodic returns and for errors in returns. Businesses need to avoid potential problems by implementing an efficient accounting system at an early stage.

Customs Duty

Goods imported from the European Union are generally exempt from Duty, whereas imported goods from countries outside the EU suffer a Duty charge of 8.1%.

Duty is a one-off absolute cost. There are many reliefs that can reduce the burden of customs duties. These can significantly reduce the duty cost. These reliefs are not available retrospectively and authorisation must be obtained in advance from Customs & Excise.

Other Indirect Taxes

These include:

Excise Duty - High levels of duty are applied to motor vehicles, fuels, alcohol and tobacco products. Excise Duty also applies to lotteries and gaming activities.

Eco-Contribution Tax - An eco tax at different rates is levied on a number of items including bottles and jars containing beverages, toiletries and washing preparations, tableware and kitchenware of plastics, packaging of plastics, gum, ammunition, mattresses, articles of bedding and similar furnishing, plastic bags, tyres for motor and commercial vehicles, batteries and accumulators, petroleum oil, oil filters, white goods and electronic equipment.

Registration Taxes - These are taxes imposed on the importation of motor vehicles. This tax varies according to the engine capacity of the car imported.

Air Passenger Duty - This is a levy on air passengers emanating from Malta.