Malta: Major Recent Tax Updates in Malta

Individuals must also comply with the DAC8 Reporting Requirements on crypto-assets and cross-border tax rulings by May 2023. Overall, these measures are designed to promote transparency and fairness in the business world, benefiting individuals and companies alike while ensuring that they contribute to the Maltese economy's growth and prosperity.

The following are key developments for recent tax updates in Malta.

Transfer Pricing

Effective January 2024, strict regulations will govern transfer pricing for transactions between related parties[1]. Compliance with formal documentation and reporting is mandatory, with no exceptions. The rules also provide for the determination of the arm’s length amount of such transactions, based on the OECD Transfer Pricing Guidelines. The rules allow for the possibility of obtaining unilateral transfer pricing rulings or advance pricing agreements from the Commissioner for Revenue, subject to certain conditions and fees.  These regulations are in place to prevent tax fraud and evasion and are a crucial component of Malta's Recovery and Resilience Plan.

Consolidated Group Income-Tax Rules

The Consolidated Group Income Tax Rules require a parent company and its 95% subsidiary in Malta to fulfil specific requirements to consolidate income tax[2]. These regulations came into effect as of May 31, 2019, and applied from the year of assessment 2020. These rules aim to simplify income tax calculations and reporting for groups of companies by treating them as single taxpayers[3].

Businesses operating in Malta must know the critical features of Malta's group income tax rules. The primary taxpayer is selected to form a fiscal unit, including subsidiary companies viewed as single entities. This implies that the profits and expenses of the subsidiary companies are associated with the primary taxpayer.

Furthermore, the fiscal unit must only file one tax return and make a single payment or claim for a refund, streamlining the tax process and allowing various tax incentives, such as the full imputation system, participation exemption, flat-rate foreign tax credit, and notional interest deductions. It's important to mention that anti-avoidance measures are in place to prevent misuse or manipulation of these rules. Therefore, businesses must comply with Malta's tax laws by understanding these essential features.

The Patent Box Regime's Deduction Rules

Malta's patent box regime allows for deductions on qualifying IP assets, including patents and softwarewith copyright protection[4]. Malta introduced these rules on August 13, 2019, and they apply to qualifying income derived from qualifying IP on or after January 1, 2019[5].

Marketing-related IP assets arenot eligible. The beneficiary must conduct R&D activities and maintain asubstance and presence in the jurisdiction of the IP. The deduction calculation involves using a formula that considers the qualifying expenditure on intellectual property and its income or gains.

DAC8 Reporting

On May 16, 2023, the EU Councilagreed on DAC8, which imposednew reporting requirements for individuals regarding crypto-assets and cross-border tax rulings[6].DAC8 aims to increase tax transparency, combat tax evasion, and ensure the fairtaxation of e-money and crypto-assets.

The Maltese government hasapproved the DAC8 agreement and voiced its support for it. This will enhance the EU's standing as a global leader in regulating the crypto-asset market and provide equal opportunities for all taxpayers.

The tax authorities of Malta demanded that all stakeholders submit their opinions and suggestions by June 30, 2023, regarding the implementation of DAC8 in the country[7].The proposed changes to the Income Tax Management Act and the Income Tax Act to incorporate DAC8 into this document explains Maltese laws and procedures for reporting crypto-service providers.

The tax authorities in Malta have revealed their plans to arrange a sequence of webinars and workshops forthose interested in getting more information and clarification regarding DAC8 andhow it will affect Malta[7].

For more information on Malta’s recent tax developments, you can reach Mr. Robert Borg on robert.borg@reandamalta.com.

Reference/ citation

[1] https://www.ccmalta.com/publications/transfer-pricing-in-malta

[2] https://cfr.gov.mt/en/inlandrevenue/legal-technical/Documents/Guidelines%20in%20relation%20to%20the%20Consolidated%20Group%20%28Income%20Tax%29%20Rules.pdf

[3] https://www.cclex.com/publications/malta-income-tax-new-consolidation-rules-2019

[4] https://www.pricebailey.co.uk/blog/patent-box/

[5] https://maltaenterprise.com/support/patent-box-deduction

[6] https://cfr.gov.mt/en/inlandrevenue/itu/Pages/Reportable-Cross-Border-Arrangements.aspx

[7] https://cfr.gov.mt/en/inlandrevenue/itu/Documents/DAC%206%20GL%20v%201.1.pdf