Budget Alert, Page

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1 Budget Alert, 2016 For further information kindly contact: This summary highlights the salient tax features of the new budget for 2016 presented to Parliament by the Minister of Finance on 12 October Dr. Robert Attard, Partner Saviour Bezzina, Manager Bernard Bonnici, Manager Amanda Scicluna, Manager Budget Highlights 1. Cost of Living Increase 2. Income Tax 3. Value Added Tax and other Indirect Taxes 4. Duty on Documents and Transfers 5. Incentives to Industry 6. Pensions and other Allowances Ernst & Young Limited Regional Business Centre Achille Ferris Street Msida MSD Others Tel: Fax: Page

2 1. Cost of Living Increase The cost of living adjustment, calculated on inflation showing in the Retail Price Index and according to the methodology agreed upon by the social partners, will be 1.75c a week. 2. Income Tax 2.1 Revision of Personal Tax Rate The tax-free brackets for individuals have been revised. The tax free bracket for individuals opting for a separate computation shall be revised from 8,500 to 9,100. The tax free bracket for married couples opting for a joint computation shall be revised from 11,900 to 12,700 and for persons eligible to the parental computation the tax free bracket shall be revised from 9,800 to 10,500. The new rates will be as follows: Rate Single Rates ( ) Joint Rates ( ) Parent Rates ( ) 0% 0 9, , ,500 15% 9,101 14,500 12,701 21,200 10,501 15,800 25% 14,501 19,500 21,201 28,700 15,801 21,200 25% 19,501 60,000 28,701 60,000 21,201 60,000 35% 60, , , Reduced Rates of Tax for Income from Sports Activities The existing beneficial rate of 7.5% previously available to football and waterpolo players will be extended to athletes and players of all sports including coaches too. 2.3 Reduced Rate of Tax for Extra Duty Police Work With effect from January 2016, policemen who will be called for extra duty will be entitled to be taxed on income from extra duty rendered to companies, organisations and individuals at the beneficial 15% tax rate. 2.4 Deduction of Donations to the Malta Community Chest Fund In year of assessment 2015, donations to the Community Chest Fund became tax deductible. Previously, the deduction was restricted to 50% of such a donation, which should not be less than 2,000. The Minister announced that in future the deduction will be equivalent to 100% of the amount donated. 2 Page

3 2.5 Deductibility of Wear and Tear Allowance on Offices Under the current system, wear and tear allowance on buildings is restricted to industrial buildings (including hotels and car parks). From 2016, persons investing in new buildings to be used as offices will be able to claim capital allowances on offices too. 2.6 Tax Consolidation In 2013, an enabling law allowing the Minister to make rules providing for bodies of common ownership to be entitled to elect to compute and bring to charge their chargeable income or losses on a collective basis, as if they are a single body of persons, was passed. The Minister said that he will be implementing this measure. 2.7 Beneficial Rate of Rental Income to be extended to the Rental of Commercial Property The 15% flat rate on rental income which under the current system is applicable in respect of residential properties will be extended to persons in receipt of rental income from commercial property. 2.8 Reduced Rate of Property Transfers Tax Property Transfers Tax on transfers of restored heritage properties situated in Urban Conservation Areas will be reduced from 8% to 5%. This measure will apply only in Reduction in tax for Companies purchasing electric vehicles Under the current system, a company investing in an electric vehicle could benefit from a tax deduction equivalent to 125% of the vehicle s cost. From January 2016, the tax deduction will be increased to 150% for certain vehicles Tax Credit for Companies offering free transport to employees The Minister announced that Transport Malta will initiate discussions relating to the introduction of incentives to employers offering free and public transportation to employees Encouraging Investment in Research and Innovation The Malta Enterprise will be assisting enterprises employing individuals who have a Degree in Science, Information Technology and Engineering through the grant of a tax credit of up to 10, Value Added Tax and other Indirect Taxes 3.1 Reduced Rate of VAT on Sports Facilities Services relating to sports facilities including gyms, fitness centres, football nurseries and other sports memberships will qualify for the reduced rate of VAT of 7%. 3.2 VAT Refund on Car Registration Tax VAT paid on vehicle registration for personal use between 1 May 2004 and 31 December 2008 will continue to be refunded. During 2016 VAT will be refunded to those who registered their vehicle in Environmental Contribution With effect from 1 April 2016 an environmental contribution of 0.50 per night will be charged to every tourist over 18 years of age (capped at a maximum of 5 per tourist per trip). 3 Page

4 3.4 Eco-Contribution As part of the reform in Eco-Contribution started last year, Eco-Contribution will no longer be charged on beer cans/bottles, wine bottles, alcoholic spirit based flavoured beverage bottles, chewing gum, water bottles, plastic sacks/bags and will be replaced by Excise duty. 3.5 Excise Duty The Minister of Finance announced the introduction of excise tax on chewing gum, waters/non-alcoholic beverages and plastic sacks/bags and the increase in the excise tax rates of beer, wine, cigarettes, fuel and cement as follows: Effective 13 October 2015: Beer - 20c per hectolitre per degree Plato Wine 0.5c per litre Fermented Beverages 2c per litre Intermediate products - 2 per hectolitre Alcoholic Spirit based flavoured beverages 1c per % vol per litre Cigarettes - 10 per 1000 cigarettes Chewing Gum - 9 per Kg Waters and Non-alcoholic beverages (CN Heading 2201) range from 0.5c to 2c per litre Plastic sacks and bags range from 0.1 cents to 20c per piece/bag Effective 1 January 2016: 4. Duty on Documents and Transfers 4.1 Reduced Rate of Duty for Urban Conservation Areas In 2016, Duty on Documents and Transfers on transfers of property situated in an Urban Conservation Areas will be reduced from 5% to 2.5%. 4.2 Exemption for First-Time Buyers The tax exemption for First-Time Buyers announced last year will be extended; It shall apply to promise of sale agreements entered into from 1 July, First-Time Buyers, who entered into a promise of sale and purchase contract after 1 July, 2015 shall be entitled to receive a refund of duty. 5. Incentives to Industry 5.1 Investment Bank The creation of a Maltese Investment Bank is in the final stages of completion and the relevant legislative instrument is expected to be presented to the Parliament next year. 5.2 Introduction of Further Business- Oriented Schemes The Malta Enterprise is expected to introduce a number of schemes to complement other schemes currently in place, such as the B-Start, Microinvest and Investment Aid, amongst other. Leaded Petrol 3c per litre Unleaded Petrol 3c per litre Diesel, gasoil, biodiesel, kerosene 3c per litre Heavy Fuel Oil - 3 per tonne Petroleum Oils 2c per litre Cement - 5 per tonne 5.3 Encouraging Women Participation in Entrepreneurship The Microinvest scheme will be enhanced so that self-employed women and companies principally owned by women may benefit from a tax credit of 50,000 instead of 30, Page

5 5.4 Incentivising Knowledge Transfer The Malta Enterprise shall be introducing a scheme in the form of an income tax credit or a grant, where applicable, so as to encourage the transfer of knowledge by experienced employees to new joiners. 5.5 Assistance for Small Manufacturing Firms Small manufacturing firms requiring additional rental space for the purpose of their manufacturing activities will be entitled to a financial compensation not exceeding 10,000 a year. The grant shall be allowed for a maximum period of 2 years. 5.6 Encouraging Traditional Crafts The Malta Crafts Council and the Malta Enterprise will support crafts persons who will be assisting in the development of courses in this sector. Alumni may benefit from further incentives if they pursue a business in the same sector. 5.7 Family Business Act White Paper Legal proposals (including fiscal incentives) associated with the introduction of a Family Business Act have just been approved by the Cabinet and a white paper will be published soon. 5.8 Social Enterprises Act The Social Enterprises Act is expected to be presented to the Parliament in the coming months. 5.9 Assisting Start-ups and companies in the Crowdfunding Sector A new scheme will entitle Start-ups to benefit from financial assistance of 200,000 for ordinary companies and 500,000 for companies in the innovation sector repayable to the Malta Enterprise over a period of ten years. Funds may also be allocated for companies which generate financing from crowdfunding Establishment of the Export Credit Guarantee Scheme An Export Credit Guarantee Scheme will be established. 6. Pensions and Other Allowances 6.1 Extension of In-Work Benefit In- Work benefits will be extended to families with one bread winner, having an income between 6,600 and 12,700 with dependent child younger than 23 years of age. Maximum benefit per child will be Guaranteed Minimum Pension There will be an increase in pensions of between 4.15 and 8.92 per week for people on the minimum pension. Moreover pensions for disabled individuals will be increased by 5.16 per week. The additional 200 forwarded yearly to forces pensioners and the 300 granted to persons over 75 years of age will be retained. 6.3 Third Pillar Pensions Individuals subscribing to private pension schemes may contribute 1,000 on behalf of their partner and/or children (under 16 years of age) and claim 150 in income tax incentive. Employers making voluntary contributions on behalf of their employees may also benefit from a deduction. 6.4 Carers Pensions and similar incentives The current Carers Pension and Social Assistance for Carers will be amalgamated into one initiative with a widened eligibility criteria enabling more family members to care for their elderly directly in their own homes. Moreover a pilot fund for Live in 5 Page

6 Carers will enable the forwarding of subsides to families employing a full time or part time carer so as to tend to an elderly dependent family member. 6.5 Social Security Contribution credits Parents putting their careers on hold in order to raise their children will be allowed credits in terms of their social security contributions. Students foregoing employment so as to further their studies will also be assigned credits in terms of social security contributions for each year out of the labour force depending on the specific MQF levels being achieved. 6.6 Other Measures Relating to Pensions Widows and widowers who at present are receiving 5/6ths of their spouse s pension and foregoing their own pensions will now receive the full pension of their spouse. Moreover pension rates will be revised so as to provide a fairer pension to individuals who started off their employment years with high contributions but which in time fluctuated to lower rates. Individuals of pensionable age can decide in agreement with their employers to continue working and not apply for pensions. Upon retirement they will be given a higher pension as their rate will be increased by 2%-4% per additional year worked. 7. Others 7.1 Insolvency Laws Reform Government established a working group which will reform existing legal provisions regulating insolvency. 7.2 Reduced Registration Fees for Companies registered on-line As from next year, companies with a share capital of less than 1,500 which will be registered on-line will be entitled to pay a reduced registration fee ( 100 instead of 250). EY About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EY Tel: ey.malta@mt.ey.com 2015 EYGM Limited. All Rights Reserved. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com 6 Page