Fiscal Measures Announced in the 2015 Malta Budget

Introduction

Professor Edward Scicluna, the Minister responsible for Finance, delivered the 2015 Budget Speech on the 17th November 2014 against a backdrop, once again, of positive economic growth.

The Maltese economy achieved a 3.2% growth in GDP in real terms in 2014, in line with Malta’s ongoing positive performance in past years notwithstanding the global financial crisis.  Inflation is down to 0.6% and unemployment is currently in the region of 5.8%.  The Government announced that it is closed 2013 with a deficit, as projected, of 2.7% GDP and that it is on track to close 2014 with a 2.1% deficit, also as projected.

This brief update looks at some of the more salient fiscal measures announced in the 2015 Budget Speech, particularly as these will provide incentives for economic growth whilst alleviating the tax burden on individuals generally.

Overhaul of system of taxation of property transfers

The Government has announced an effective overhaul of the system of taxation of property transfers, possibly the most significant change in the Budget as far as amendments to fiscal laws are concerned.

A taxpayer may no longer to opt to be taxed at personal tax rates going up to 35% (at a flat 35% rate in the case of corporate entities) on profits/gains realised upon a transfer of property.  The final withholding tax system shall now apply across the board.

Effective 1 January 2015, a final withholding tax of 8% (currently 12%) shall be levied on the property’s value subject to the following:

  • A higher final withholding tax rate of 10% of the property’s value will apply to transfers of property acquired prior to 1st January 2004;
  • A lower final withholding tax rate of 5% of the property’s value will apply to transfers of property by individuals who do not habitually deal in property, provided the property in question shall be transferred by not later than 5 years from date of acquisition.

The current rules shall continue to apply to property transfers relative to which the Commissioner for Revenue was notified by registration of the relative promise of sale agreement or notification of transfer by 17th November 2014.

Taxation of Individuals

The 2015 Budget Speech included several personal tax incentives and deductions as well as other changes to the tax system impacting on individuals in a number of areas. Some of the highlights are:

  • A key announcement related to a further revision downwards of personal income tax rates – the 29% tax rate (reduced last year from 32%), applicable to individuals earning less than €60,000 annually, is being reduced further to 25%.  In line with last year’s amendments to the tax bands, dividend income shall remain taxable at 35%.
  • The one-time exemption from the payment of transfer duty upon the first €150,000 of the property’s value granted last year to first-time buyers of immovable property that is to serve as the purchaser’s sole ordinary residence has been extended to property deeds published by no later than 30th June 2015.
  • An exemption from transfer duty shall apply to all contracts of division of immovable property, where the co-owner acquires property that is equivalent in value to his share of the co-owned property prior to the division.

Measures impacting on Employers and Businesses

The 2015 Budget Speech included a number of measures that are expected to have a direct impact on employers and businesses.  These include:

  • A much welcomed 25% reduction in utility rates for commercial premises.
  • The eco-contribution tax system is to be reviewed over the coming years.  Effective 1st September 2015, the eco-contribution currently levied on tyres, ammunition and petroleum will be removed, whilst that levied on electrical and electronic equipment will be removed subject to compliance with relative waste collection obligations.  A further review of the tax is to be carried out in 2016.
  • Tax credits equivalent to investment made in start-ups, up to €250,000 per year.

Combatting tax evasion and non-compliance

Government clearly intends to soldier on with its ongoing commitment to combat benefit abuse and tax evasion. Minister Scicluna announced a considerable number of welcome measures on these two fronts, including:

  • The threshold for VAT registration will be removed and an obligation to issue fiscal receipts across the board will be introduced.
  • Clamping down on benefit abuse and tax evasion, through measures such as:
    - the beefing up of the Revenue Security Corps;
    - the launch of a pilot project relative to the granting of access to data available across the public sector for the purposes of tax investigations;
    - abuse of the capital gains tax exemption available on the disposal of one’s ordinary residence, owned and occupied as such for a minimum period of 3 years, will be fought through a system enabling each individual’s ordinary residence to be ascertained with reference to objective criteria.