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Value Added Tax (VAT) in Malta
Following EU accession, Value Added Tax (VAT) legislation has been revamped so as to be in line with EU legislation, namely the Sixth Directive.
Value Added Tax is a consumption tax that is assessed on the value added of the production and distribution of goods as well as on the provision of services. As a result, this tax is finally borne by the ultimate consumer.
Taxable persons and their registration
Persons who carry on an economic activity, whatever the purpose or the result of that activity, are considered to be taxable persons in line with the VAT Act. As a result, they ought to be registered as such under the relevant provisions of the Act. The VAT Act provides for three categories of registration: registration under Article 10, registration under Article 11 and registration under Article 12.
Registration under Article 10 is the widest provision under which most taxable persons are registered since it applies to persons who take part in an economic activity which exceeds the small undertakings threshold. Registration under Article 11 is applicable to persons who carry on an economic activity but who qualify as a small undertaking, that is, do not exceed the acquisition threshold of Euro 10,000. Registration under Article 12, in principle, is applicable to non-taxable legal persons that make intra-acquisitions in Malta that exceed the acquisitions threshold. Taxable persons who do not fall to be registered Article 10 or Article 11 may fall to be registered under Article 12.
The VAT Department is responsible for the registration of the taxable persons. Once registered in Malta, the taxable person is given a VAT number with eight digits. In the case of persons registered under Article 10 or 12 the prefix "MT" supercedes the eight digits. Registered taxable persons are obliged to fill in quarterly tax returns as well as other forms, such as the recapitulative statement and periodical statements, where applicable. They are also obliged to issue VAT invoices or fiscal receipts as well as maintain proper accounting records.
Supply of goods
Exporters / Importers and Persons making Intra-Community Supplies / Intra-Community Acquisitions
For the purposes of VAT, export refers to a supply of goods from Malta to a third country, that is to a country that is outside the European Union, whilst import refers to an importation in Malta of goods transported from a person outside the European Union.
On the other hand, taxable persons who supply goods to another Member State are considered to be making intra-Community supplies. In these transactions the supplier is to ensure that the client's VAT number is quoted on the tax invoice so as no VAT is charged to client. Should the VAT number not be available then VAT is charged by the supplier.
With respect to intra-Community Acquisitions, this refers to a situation where a taxable person purchases goods from another Member State. Intra-Community Acquisitions are taxable in Malta, however tax is paid when the goods are sold rather than at the point of entry. If the purchaser does not supply his VAT number to the supplier in another Member State then the supplier would be bound to charge the purchaser with foreign VAT.
Provision of services
As a general rule the supply of services takes place where the supplier is established. This therefore means that the supplier is to charge VAT. The VAT Act, however, provides for three exceptions to the general rule:
- services where the place of supply depends upon the location of the property or activity;
- services where the place of supply takes place where the customer is established. This subsists in the cases where the supplier provides services to any person outside the EU or to a taxable person in a Member State other than the Member State of the supplier;
- services relating to Intra-Community Transport of Goods and Ancillary Services thereto.
Tax rates - exemptions
As a general rule the standard VAT rate in Malta is 18%, however the VAT Act provides for circumstances where the VAT rate is reduced at 5%, for the supply of electricity in accordance with Article 12 of Directive 77/388/EEC, confectionery (as defined by reference to HS Codes), medical equipment (as defined by reference to HS Codes) and printed matter (as defined by reference to HS Codes), as examples.
The following are examples of supplies of goods or services that are exempt from VAT (zero rated): food (as defined by reference to HS Codes), pharmaceuticals (as defined by reference to HS Codes), the supply of vessels and aircrafts and related ancillary services and the international transport of passengers and ancillary services.
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