Indirect taxation in Malta plays a crucial role in island’s tax system, with Value Added Tax (VAT) being the most significant form. Businesses operating in Malta need to understand VAT rules to remain compliant and avoid unnecessary penalties. Whether you are a local business, a non-established entity making taxable supplies, or an importer, understanding VAT registration, reporting obligations, and available refund schemes is essential for managing tax liabilities effectively. This guide covers the core VAT principles applicable in Malta and ensures you stay on top of your compliance requirements.
Understanding Indirect Taxation in Malta: VAT Essentials
Value Added Tax (VAT) is the primary form of indirect taxation in Malta, governed by the VAT Act (Chapter 406) and its subsidiary legislation. It is a consumption tax applied at various stages of production and distribution, including imports. Although the consumer ultimately bears the cost, businesses are responsible for charging, collecting, and remitting VAT. A transaction falls within Maltese VAT if it involves a taxable supply of goods or services, is made for consideration, takes place in Malta, is carried out by a taxable person, and is linked to an economic activity.
Malta applies four VAT rates:
- Standard rate: 18%
- Special rate: 7%
- Reduced rate: 5%
- Zero rate: 0%
Businesses making taxable, zero-rated, or exempt without credit supplies must use the partial attribution method to determine recoverable input VAT. Fully exempt businesses cannot reclaim VAT, making it a real cost.
Imported goods from outside the EU are generally subject to VAT, payable upon importation unless the business qualifies for deferral or recovery under specific conditions. Additionally, Customs duty, imposed across the EU, is non-recoverable and affects the final cost of imported goods. VAT is charged on the total. Ensuring the correct VAT and duty rates are applied is crucial for compliance and cost management.
VAT Registration in Malta
Any individual or legal entity making or intending to make taxable supplies of goods or services in the course of business must register for VAT under Article 10 if their taxable supplies exceed, or are expected to exceed, the annual registration threshold. Voluntary registration is also an option for businesses below this threshold. Once registered, all business activities fall under the VAT registration, regardless of their nature. Small businesses below the threshold must still register under Article 11, unless they opt for Article 10 registration.
Businesses making only exempt supplies and non-taxable entities must register under Article 12 if they exceed the intra-community acquisitions threshold or receive services subject to the reverse charge mechanism. Voluntary registration is also possible in these cases.
VAT Registration for Non-Established Businesses in Malta
Businesses not established in Malta but making taxable supplies there must register for VAT immediately upon commencing trade, regardless of turnover.
Non-established EU businesses may also need to register if they engage in distance selling or have a permanent setup in Malta with sufficient human and technical resources to facilitate local supplies. Distance selling occurs when a supplier in one EU country sells and delivers goods to non-taxable persons in another EU country, such as private individuals or businesses not registered for VAT. Common examples include online and mail-order sales. Initially, VAT on distance sales is charged at the supplier’s country rate. However, once total EU-wide distance sales exceed €10,000, the supplier must:
- Register for VAT in Malta
- Treat Malta as the place of supply
- Charge Maltese VAT on further sales to Maltese customers
Suppliers can opt for early VAT registration in Malta before reaching the threshold. Alternatively, non-established businesses may use the One-Stop-Shop (OSS) scheme to handle VAT compliance across multiple EU states.
One Stop Shop (OSS) & Import One Stop Shop (IOSS)
Since 1 July 2021, the Mini One Stop Shop (MOSS) scheme has been expanded into the One Stop Shop (OSS), covering all B2C services supplied in EU Member States where the supplier is not established. It also applies to distance sales of goods within the EU and certain domestic supplies facilitated by electronic platforms.
Additionally, the Import One Stop Shop (IOSS) was introduced to simplify VAT reporting on distance sales of low-value goods imported from outside the EU.
Businesses using the OSS must submit a quarterly electronic VAT return to their Member State of identification, even if no taxable supplies were made. The return and payment are due by the end of the following month. Those using the IOSS (or their intermediaries) must file a monthly VAT return for imported distance sales, with the same submission deadline.
These schemes streamline VAT compliance across the EU, reducing the need for multiple registrations.
VAT Return Submission in Malta
VAT returns under Article 10 typically cover a three-month period, ending on the last day of a calendar month. However, businesses in a net repayment position or those with high initial expenses (e.g., due to setup or capital projects) can apply for monthly VAT returns to improve cash flow.
Deadlines for Submission & Payment
- Electronic submission: Taxpayers get an additional seven days to file and pay.
- Standard deadline: Returns must be submitted by the 15th day of the second month following the end of the reporting period, along with any tax due.
Penalties for Late VAT Returns in Malta
The tax authority may impose a default administrative penalty if VAT returns are not submitted on time. Additionally, interest will be charged on any late VAT payments.
VAT Invoice Requirements in Malta
A VAT invoice (also called a tax invoice) must include specific details such as invoice number, seller’s and buyer’s details, VAT number, description of goods/services, VAT rate, and total VAT charged.
Tips and Considerations
- Keep accurate records: Ensure all invoices and VAT-related documents are stored properly for compliance and audit purposes.
- Monitor VAT thresholds: Businesses must track turnover to determine if they need to register for VAT or switch to a different VAT scheme.
- Review VAT treatment of transactions: Certain supplies may qualify for exemptions or reduced rates; consulting with a tax professional can help identify potential savings.
- Use available VAT schemes: The OSS and IOSS schemes can simplify compliance for businesses trading across EU borders.
- File returns on time: Avoid penalties by meeting submission deadlines and ensuring correct payments.
Compliance Recap
Understanding indirect taxation in Malta, including VAT rules, is essential for businesses to remain compliant and manage their tax obligations effectively. Registration requirements, reporting obligations, and VAT refund schemes must be carefully considered to avoid unnecessary costs. Businesses must also ensure timely VAT return submissions and correct invoice formatting to prevent penalties.
Need help navigating VAT requirements? Our Expatax team is here to assist you – get in touch today.
Sources
VAT Act (Chapter 406) – Government of Malta
Malta VAT Department – Commissioner for Revenue
European Commission – VAT Information Portal
Malta Customs Department – Ministry for Finance and Employment
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