Budget ImplementatIon act, 2015

Budget Implementation Act, 2015
Main Features
On 30th April 2015, Act XIII of 2015 ‘Budget Measures Implementation Act, 2015’, (‘the Act’) has been
enacted by the Maltese Parliament which transposes into legislation the budget measures for 2015. The
below are the salient fiscal measures included in the Act.
1.Amendments to the definition of a ‘Company’ and the definition
of a ‘Dividend’
Article 2 of the Income Tax Act (‘ITA’) defines the term ‘Company’ and also determines what constitutes
a ‘Dividend’. The Act has widened further the definition of company which now reads as follows:
(a)
(i) a Limited Liability Company constituted under the Companies Act or under the Commercial
Partnerships Ordinance; or
(ii) any other company constituted as such under any other law in force in Malta; or
(iii) (1) any partnership En Nom Collectif and any partnership En Commandite constituted under
the Companies Act or under the Commercial Partnerships Ordinance;
(2) any partnership regulated by the applicable provisions of the Civil Code and registered in
such manner as may from time to time be provided in terms of the Second Schedule to the Civil Code;
(3) any European Economic Interest Grouping (‘EEIG’) formed pursuant to the provisions of
the Companies Act (European Economic Interest Grouping) Regulations; and which partnership or EEIG
as the case may be, has elected to be treated as a company in terms of sub-article (6) of Article 27 of the
Income Tax Management Act and for as long as such election remains in force:
Provided that in the case of a cell company as defined in the Companies Act (Cell Companies Carrying on
Business of Insurance) Regulations, (in this proviso referred to as ‘the Regulations’) as may be amended
from time to time, or in any other law or regulations replacing the Regulations, for all intents and purposes
of the Income Tax Act, every cell of a cell company and that part of a cell company in which non-cellular
assets are held, shall each be deemed to be a separate company and any words and expressions in the
Income Tax Act which are relevant to a company shall be construed accordingly. The interpretation of
such words and expressions insofar as applicable to a cell company shall be made on the basis of the
relevant provisions of the Regulations:
Provided further that a partnership En Commandite with its capital divided into shares constituted prior to
the 1st of January, 2015 shall be deemed to have elected to be treated as a company in terms of sub-article
(6) of Article 27 of the Income Tax Management Act and for as long as such election remains in force;
(b)
(i) any body of persons constituted, incorporated or registered outside Malta, and of a nature
similar to a company referred to in sub-paragraphs (i) or (ii) of paragraph (a) above;
(ii) any body of persons constituted, incorporated or registered outside Malta and of a nature
similar to any partnership referred to in sub-paragraph (iii) of paragraph (a) above, where such body of
persons has elected to be treated as a company in terms of sub-article (6) of Article 27 of the Income Tax
Management Act and for as long as such election remains in force.
In line with the amendment to the definition of a company, the Act also amended the definition of the
term ‘Dividend’ in Article 2 of the ITA so that distributions made by a partnership to its partners will also
be treated as dividends.
The amendments in the definitions of ‘company’ and ‘dividend’ apply with effect from the year of
assessment 2016.
2.Amendments to the definition of ‘foreign income account’
A minor amendment has also been made to the definition in the ITA of ‘foreign income account’
which now provides that with effect from the year of assessment 2016, a company must be specifically
empowered to receive such profits or gains which stand to be allocated to the foreign income account.
such empowerment is usually provided in the company’s Memorandum & Articles of Association.
3.Clarification in relation to the Remittance Basis of Taxation
The remittance basis of taxation applies to persons who are either not ordinarily resident in Malta or who
are not domiciled in Malta. In such cases, the person would be subject to tax in Malta only on foreign
source income remitted to Malta and on Malta source income.
By virtue of Act XIII, it has been clarified that the remittance basis of taxation shall not be available to
individuals who are married to an individual resident and domiciled in Malta.
4.Changes to the Participation Exemption
Recent amendments to the Parent Subsidiary Directive have resulted in a minor restriction over the
Participation Exemption application in Malta. With effect from 1st January 2016, the Participation Exemption
shall only apply to Malta holding companies where the Parent Subsidiary Directive has been applied when
such profits are not deductible by the relevant subsidiary in that other EU Member State.
For further details on the recent changes to the Parent Subsidiary Directive please refer to our factsheet
European Council adopts a general antiabuse rule in the Parent Subsidiary Directive
5.Changes relating to tax accounting dividend distribution
ranking
It is no longer mandatory to distribute profits allocated to the Final Tax Account which include, amongst
others, profits which benefitted from the participation exemption in Malta, before any profits which have
been allocated the Maltese Taxed Account.
6.Changes to the definition of ‘Advance Company Income Tax’
With effect from year of assessment 2015, the Advance Company Income Tax shall be determined
before deducting tax credits which such company may deduct from its tax otherwise payable other than
the FRFTC.
7.Refunds on profits distributed by former International Trading
Companies
The deadline for shareholders of former International Trading Companies to avail themselves from the
refundable tax credit system on profits earned by the company prior to 31st December 2010 has been
removed. Such shareholders may now claim 6/7th refund in terms of Article 48(4A) of the Income Tax
Management Act notwithstanding the 31st December 2014 deadline.
8.
Flat-rate-foreign-tax-credit to apply to companies that opted to
allocate profits to the Immovable Property Account
With effect from basis year 2014, companies which have elected to allocate all their profits to the
Immoveable Property Account as per Rule 9 of the Tax Accounts (Income Tax) Rules may now still claim
the flat-rate-foreign-tax-credit (FRFTC) on the profits which would have otherwise been allocated to the
Foreign Income Account provided that all the relevant criteria are met.
9.New Rules regulating the tax treatment of Civil Unions
An amendment has also been made to the definition of a married couple to include also two partners
who have registered their partnership as a civil union, in accordance with the legal provisions of the
country where the civil union was executed. Following this amendment, the provisions of the ITA which
apply exclusively to a married couple shall apply also to partners under the civil union.
10.Changes to the Property Transfers Tax System
One of the main changes announced during the budget speech and which is being enacted through this
Act was the change in the property transfers tax system where transfers of immovable property situated
in Malta will be subject to tax under a Final Withholding Tax system at the following new rates:
• 5% of the transfer value in cases where the property being transferred does not form part of a
project and the property is transferred within five years from the date of acquisition;
• 5% of the transfer value for transfers of property situated in Valletta, which were acquired before the
31st December 2018 and where such property has been restored and / or rehabilitated and works
are certified by the Malta Environment and Planning authority before the 31st December 2018. Such
transfer must not be made more than five years from the 31st December 2018;
• 10% of the transfer value in the case of properties acquired prior to 1st January 2004 and for which
transfer a promise of sale has not been presented to the Commissioner before 17th November 2014;
• 2% of the transfer value in the case of property transferred, which, immediately before the transfer
was owned by an individual or two co-owners who had declared in the deed of acquisition that such
property had been acquired for the purpose of establishing therein or constructing thereon his or
their sole ordinary residence and the transfer is not made within three years of the date of acquisition;
• 7% in the case of restored property where a notice of promise of sale has not been given prior to
the 17th November 2014; and
• 8% in all other cases.
Transfers of inherited immoveable property will remain subject to 12% final tax on the difference between
the transfer value and the cost of acquisition, or 7% final tax on the consideration if inherited before 25th
November 1992.
Other clarifications and changes in relation to property were enacted through the Act, mainly:
1. Clarifications to the ‘Own Residence’ Exemption
Provided that all conditions are satisfied, any gain realized from the sale of one’s own residence should
be exempt from tax. The Act introduced rules that provide that gardens and grounds incorporated in the
residence shall be deemed to be part of own residence and hence exempt from tax if sold in the same
deed as for the sale of the property. A garages is already exempt provided that it is situated not more than
70 square metres from the residence.
An ‘own residence’ must be registered as such with the Commissioner through Rules that are yet to be
prescribed.
2. A special rule for Disability Trust and Disability Foundations
Transfers of property by the trustee of a disability trust or a disability foundation to any one or more
remaining beneficiaries of such trusts or to the heirs of the disabled beneficiary upon his death shall be
exempt from tax where the heirs are close relatives of the disabled beneficiary.
3. Restrictions to the opt-out clauses from the property final tax system
The opt-out clauses contemplated in the ITA for persons to opt out of the final tax system and be subject
to tax on the gain realized from transfers of property have been limited as follows:
With respect to the opt-out clause relating to transfers of immovable property made not later than 12
years from date of acquisition the right to opt-out is limited if the following conditions are satisfied:
(ii)
a notice of a promise of sale or transfer relating to that property has been given to the
Commissioner before the 17th November, 2014;
(iii)
the said property is transferred to the same person or persons appearing on the said
promise of sale agreement; and
(iv)
the said property is transferred before the 1st January, 2016:
With respect to the opt-out clause relating to transfers of property situated within a Special Designated
Area the transfer must be made before 1st January 2015.
Persons not resident in Malta and resident for tax purposes in another country who opt out of the property
transfers tax system and who pay provisional tax on sale of property do not have the right to apply for a
refund of the provisional tax paid. This applies to transfers made on or after the 1st January 2015.
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1. Special Rules for Certain Listed Companies
The Act introduced Article 5A(4)(j) which provides for a new opt-out possibility for transfers of property
forming part of a project made by a company which has issued debt securities to the public and such debt
securities are listed on a stock exchange recognised under the Financial Markets Act. Certain conditions
are to be made for this opt-out clause to be available.
Complementing this opt-out clause, a new Article, Article 27G of the ITA was introduced which will
regulate the transfer of properties by listed companies when opting out of the final tax system in terms of
Article A(4)(j).
Transfers of property by listed companies which opt-out of the final tax system will be subject to tax at
35% on the gain realized from such transfers. Provisional tax of 8% will be due upon the publication of
the deed of transfer, and, in cases where the property being sold has been acquired before 1st January
2004, the provisional tax due would be increased to 10%. Special regulations apply for the refund of any
excess provisional tax paid.
11.New Tax Exemptions for Disability Trusts and Disability
Foundations
Income derived either by the trustee of a disability trust or disability foundation upon the disposal of
immoveable property are exempt from tax if the proceeds are used in favour of the disabled beneficiary.
Contacts
For further information please contact:
Karl Cini
Partner
[email protected]
Antoinette Scerri
Manager, Tax Advisory Services
[email protected]
The material has been prepared by professionals in the firm of Nexia BT. It is intended as a general guide only, and its application to specific situations will
depend on the particular circumstances involved. Accordingly, we recommend the readers seek appropriate professional advice regarding any particular problems
that they encounter. The information should not be relied upon as a substitute for such advice. While all reasonable attempts have been made to ensure that
the information contained herein is accurate, Nexia BT accepts no responsibility for any errors or omissions it may contain, whether caused by negligence or
otherwise, or for any losses, however caused, sustained by any person that relies upon it.