Recent changes to the Income Tax Act, Income Tax Management Act and other fiscal measures

Income Tax Act

a) The participation exemption applicable to income and gains derived from qualifying participating holdings has been slightly altered through the Budget Implementations Act published on the 16^th April 2021  Through this amendment the participation exemption will be barred to income derived from a participating holding which has been resident in a jurisdiction that is included in the EU list of non-cooperative jurisdictions for a minimum period of three months during the year the income is received.  This limitation would not apply if it is proved to the Commissioner for Revenue that the said body of persons maintains sufficient significant people functions in that jurisdiction as is commensurate with the type and extent of the activity carried on in that jurisdiction and the income earned therefrom.

b) Negative test - The Income Tax Act now includes an additional item of expense that cannot be taken as a deduction when computing the business profits which are chargeable to tax.  This includes any payment the making of which constitutes a criminal offence, irrespective if this payment is made in Malta or outside of Malta.

c) Reduced tax rate on royalty income - A reduced tax rate can, at the option of the taxpayer apply on royalties derived as from the 1^st January 2021 by an individual in his capacity as author of a qualifying literary work by virtue of his title to the copyright on that work conferred by the Copyright Act.  Such tax shall be final and no set-off or refund shall be granted to any person in respect of the tax so charged. The option is not automatic and will be granted on the submission of a specific form to the Inland Revenue Department by not later than the 30th of April of the relative year of assessment.

The term qualifying literary work is defined as a publication that bears an ISBN and which is a novel, story, poetical work, textbook, treatise, history, biography, encyclopedia, or dictionary that is eligible for copyright in terms of the Copyright Act.

d) Transfer Pricing Rules - The Income Tax Act now includes an enabling proviso that allows the Minister responsible for Finance to make rules in relation to transfer pricing.  Such rules are expected to include the determination of the arm’s length pricing of a transaction or a series of transactions, any adjustments in relation thereto, and advance pricing agreements.   This enabling proviso gives us an indication that it is highly probable that Maltese transfer pricing rules will be shortly issued.

Duty on Documents and Transfers Act

a) Civil Unions - In the interest to safeguard relationships governed by the Civil Unions Act, benefits granted by the act to surviving spouses shall be extended to cohabitants.

b) Donation of immovables - The exemption from stamp duty on the donation of immovable property by a person to his/her descendants who acquires immovable property for the purposes of establishing therein his/her sole ordinary residence will apply on the 1^st €250,000 instead of on the 1^st €200,000.

c) Causa mortis transfers of property

•  The reduced stamp duty rate of 3.5% which applies on the acquisition of property causa mortis by a person who occupied that property at the time of such transfer causa mortis will apply on a maximum of €200,000 (instead of €175,000)

• The exemption from the payment of stamp duty on the acquisition causa mortis of a property which was the dwelling house of the deceased has been widened by excluding the requirement that the dwelling house was at the time of the transfer and during the whole period of 3 years preceding the transfer the ordinary residence of the transferor.

d) Group of Companies- The exemption from stamp duty on the transfer of marketable securities between a group of companies can now be availed of on transfer of a partnership interest for consideration from a  company or partnership to another company or partnership,  where the transferor and the transferee form part of the same group of companies, or where any or both of them are partnerships, would have been considered to form part of the same group if they had been a company or companies.

Income Tax Management Act

• Time period to provide the requested information to the CfR - The time period by which a taxpayer ought to provide the information requested by the Commissioner for Revenue necessary to provide information to a foreign tax authority has been reduced from 30 days to 20 days

Fiscal Measures to aid businesses in the COVID 19 pandemic

• Micro Invest Tax Credit - an extension will be granted in the use of approved tax credits under the Micro-Invest Scheme.  Tax certificates due for expiry in 2021, 2022, and 2023 will be extended by three years respectively, i.e. 2024, 2025, and 2026.

Should you need further information or clarifications, please do not hesitate to contact our tax team by sending them a message below.