Malta Budget 2021: the most salient features that will affect your business

Monday 19th October, 2020, saw the announcement of the Budget for the year 2021. The package does not aim to bring about major changes to the Maltese Tax System, leaving the system mostly unchanged.

However, the Budget will be extending most of the incentives already in place. Some of the changes announced will be coming into effect immediately, while others shall be introduced from the beginning of January 2021 or later through the year.

Nevertheless, many of the proposals have yet to be finalised before they’re ready to be initiated and come into effect.

How will the Budget affect you?

Below is a breakdown of some of the proposed fiscal incentives announced.

The COVID-19 pandemic has left an indelible mark on all aspects of our lives, with the economy sector being no different. Measures such as the COVID wage supplement, tax deferrals, moratoria, Government-guaranteed bank loans, interest subsidy schemes and many more incentives of this sort, have all helped reduce the heavy burden that employers were expected to carry.

The Government has announced that due to their beneficial contribution, the following schemes are to be extended again till the end of March 2021:

1. COVID Wage Supplement
2. Tax deferrals, moratoria, Government-guaranteed bank loans and interest subsidy will remain in place and will be evaluated again at the end of March 2021.

From an income tax perspective:

1. To benefit from the income tax exemption relating to the Third Pillar Pension Scheme and Voluntary Occupational Pension Scheme, the investment increased to €3,000 per annum (An increase of €1,000 per annum). The maximum tax saving varies from €1,500 (single individuals) to €2,250 (married individuals where only one of the spouses is in employment);

2. With effect from 2021, any royalty income derived by authors and co-authors from the sale of their books shall be subject to tax at a final reduced tax rate of 15 per cent;

3. Registered voluntary organisations with the Malta Council for Voluntary Services (MCVS) will not be required to pay any taxes on their profits if their annual turnover does not exceed €50,000; and

4. One of the Budget measures for 2020 referred to the taxation of income derived from assignments of rights acquired under a promise of sale agreement (cessjoni ta’ konvenju). This applied as from 1st January 2020 and the tax withheld amounted to 15 per cent on the first €100,000 and the rest at 7 per cent provisional tax.

As from 1st January 2021 up to 31st December 2021, any profits or gains arising on the assignment or cessation of any rights acquired under a promise of transfer of immovable property or any rights thereon will be subject to a tax at the rate of 15 per cent;

5. An extension of the reduction of property transfer tax on the sale of property from 8 per cent to 5 per cent.

This is applicable to promises of sale being signed until March 2021 with the final deed of transfer being signed until 31st December 2021.

From a stamp duty perspective:

1. The reduced rate, down to 1.5 per cent from 5 per cent, on the transfer of family business from parent to child, which was introduced 3 years ago, will be extended again once again;
2. The stamp duty exemption for first-time buyers on the acquisition of their residential property has also been extended. There shall be an increase in exemption from the previous rate of €175,000 to €200,000;
3. Acquisition of properties in Gozo or in Urban Conservation Areas (UCAs) shall continue to enjoy a reduced rate of stamp duty from the standard 5 per cent to 2 per cent in case of Gozo and 2.5 per cent in case of UCAs (the acquisition of property in UCAs);
4. A reduced stamp duty rate of 3.5 per cent will be applicable for non-first time buyers on the first €200,000 relative to the purchase of a residence. This rate will also be applicable on the first €200,000 of the value of the immovable property (previously €175,000) on inherited immovable property being the residential property of the heirs;
5. No stamp duty shall be charged on the first €250,000 (previously €200,000) on donations of immovable property from parents to their children where the immovable property being donated is used for the children’s residential purposes. The additional value of the immovable property is to continue being charged at 3.5 per cent;
6. Extension of the reduction of stamp duty on the acquisition of property to 1.5 per cent on the first €400,000. This is applicable to promises of sale being signed until March 2021 with the final deed of transfer being signed until 31st December 2021.

From a VAT perspective:

1. The VAT exemption threshold is increasing from €20,000 to €30,000, thus reducing the administrative burden for small businesses and the self-employed. Small businesses falling under this system would not need to charge VAT, but would still need to submit an annual VAT declaration. This shall apply as from 1st January 2021.

Subsequently, schemes such as the Micro Invest, the Business Development and Continuity Scheme, the Research & Development 2020 Scheme, the R&D Feasibility Study Scheme as well as the Business Start scheme, are to be improved and extended further.

In conclusion, Malta’s Budget for 2021 will most definitely contribute to ensure a certain degree of stability and attractiveness to the business sector. In addition, investors will be rid of any concern about an increase in taxes for the upcoming year.

For more information and advice kindly contact Ms Attard by email on kattard@ksimalta.com