Value Added Tax (VAT)

Since being reintroduced into the Maltese legal system in 1999, VAT has undergone several amendments to fall in line with European Union legislation in view of Malta becoming a Member State in 2004. It has since been subsequently amended, and is continually amended to keep up to date with the EU Directives, to incorporate various amendments and form the current VAT legislation, the main features of which are described below.

Under Maltese law, liability to pay VAT is incurred on any supply of goods or services made in Malta, where it is a taxable supply made by a taxable person for consideration in the course or furtherance of a business carried on by the taxable person.

Subject to exceptions, the standard rate of VAT in Malta is that of 18%. In most cases, VAT is neutral to businesses. In fact most businesses can recover the VAT they incur on their business expenditure.

The standard rate of VAT in Malta is that of 18%. Nevertheless, certain items such as confectionary items, electricity, medical accessories and admission to cultural events incur a reduced rate of 5% while several other supplies or services such as exports, food, the supply of aircraft and vessels, pharmaceutical goods and the supply of goods between Member States are exempt from VAT.

In addition to the above rates, provisions were introduced on the 1st January 2011 bringing about a reduced rate of 7% applicable to the letting of accommodation in any hotel, guest house, holiday camp or holiday flats required to be licensed in accordance with the Malta Travel and Tourism Activities Act.

Under Maltese VAT law, liability to pay VAT is incurred on the supply of goods or services made in Malta where it is a taxable supply made by a taxable person for consideration in the course or furtherance of a business.

Taxable persons have the obligation to register with the VAT department and charge, collect and pay VAT to the authorities, where applicable. It is noteworthy that non-residents are equally subject to VAT as residents if they choose to carry out any chargeable economic activity in Malta.

Determining the place of supply of a transaction is crucial whenever a transaction involves more than one jurisdiction. By means of the place of supply rules, one will be able to determine in which EU Member State the supply of the good or service in question is considered to take place and, as a result, we are able to determine:

• whether the taxable person is required to charge VAT on the supply, and if so, at which rate or whether the reverse charge mechanism shall come into play whereby the responsibility to account for an pay the VAT is passed onto the customer; and
• in which EU Member State, the VAT is due to be paid and thus, whether a taxable person established in one EU Member State has an obligation to register for VAT purposes in another EU Member State.

For supplies to be chargeable to Maltese VAT, they have to be deemed to have taken place in Malta.

The place of supply of goods normally follows the place of the physical location of the goods in question. The general rule for the purposes of determining the place of supply of goods is split into 3 branches:

• Goods that are not transported – a supply of goods that are not transported is considered to take place where the goods are at the time when they are placed at the disposal of the person acquiring those goods;
• Goods that are transported – a supply of goods that are transported is considered to take place where the goods are at the time when the transport of those goods begins;
• Imported goods – when the transport of goods begins outside the EU and ends in an EU Member State, the supply of those goods by the importer and any subsequent supply up to the acquisition of those goods is considered to take place in the EU Member State where they are imported.

There are however exceptions to the general rule of the place of supply of goods which apply in different circumstances such as for instance, in the scenario where the goods are installed or assembled, when the goods are supplied on board ships or aircrafts and in the case of supplies of gas, electricity and heating/cooling, amongst other kinds of supplies, a different place of supply rule applies.

When it comes to determining the place of supply of services, there are two distinctions that one needs to make: a distinction between business-to-business services (B2B) and business-to-consumer services (B2C).

The place of supply of B2B services is considered to be the place where the taxable person has established his business (i.e. where the customer is established for VAT purposes).

On the other hand, the place of supply of B2C services is considered to be the place where the supplier of the services has established his business (i.e. where the supplier is established for VAT purposes).

As with the general rule applicable to the place of supply of goods, there also exist a number of exceptions to the general rule applicable to the place of supply of services such as in relation to e-services, where the services are supplied by an intermediary or where the supply is connected with immovable property, amongst other exceptions.