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Despite being in force since 2002, Fringe Benefit rules in Malta are often taken lightly. Very few would consider that the provision of cars, iPads, vouchers and other consumables requires, in actual fact, tax declaration and payment.
Company owners who are actively involved in the running of their company often make use of the same car for both the business’s affairs and their personal affairs. When needing to buy a car for such dual purposes, many think that this should be made through the company, however this may not be the case as a number of issues must be considered.
If the company buys the car and this is made available for private purposes as well, the person involved would need to declare an annual taxable fringe benefit based on a specialised formula computed by the Tax Department. For example, assuming the car price quoted is €50,000 and all fuel and maintenance costs (including licensing, VRT Testing etc) are to be incurred by the company, the value of the benefit would be €8,100.
For a 35% tax payer, this would mean an additional personal income tax of €2,835 each year. From the company’s point of view, it will be entitled for a capital allowance deduction of €2,800 per annum over a 5 year period, proportionate to the business-use element against its taxable profits and other deductions in respect of maintenance and fuel costs.
The possibility of buying a car through the company in order to claim input VAT is superfluous given that this represents blocked VAT, hence no VAT reclaim can be made. Generally, a cash allowance received by an employed shareholder in return for making use of his own personal car (not acquired through the company) for business purposes will be taxable in full as if it is part of the normal salary. On the other hand, a non-shareholder employee who is paid a car cash allowance in return for him using his personal car, also for working purposes, will be eligible for a 50% exemption (capped at €1,170 per annum) in respect of this cash allowance.
Hence, acquiring your car through the company may end up being a more costly alternative although admittedly persons owning companies view it to be only natural to transfer such burden on their company. Notwithstanding this, due consideration must still be given to situations whereby it is decided not to acquire a car through the company but still withdraw the required funds therefrom. In such instance, if no credit balances exist between the company and the beneficiary, against which such funds withdrawn can be offset, it could be interpreted as the receipt of a loan at beneficial terms. The Fringe Benefit Rules view loans taken out of a company at no interest rates or at rates which are lower than the benchmark rate, which is generally accepted to be at 8.5%, to represent a taxable benefit as well.
Depending on your circumstances, you might need to take cash out of the company to cover the purchase and running costs, but this can be done through a dividend payment which, given the existence of a full implementation system, could be quite beneficial at personal levels.
This article was published in the Sunday Times of Malta on 16th March 2014.
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