Malta Budget Highlights 2014 Cost of Living Allowance 3.49 weekly Individual Investor Programme granting Maltese Citizenship Income tax reduced Measures for target sectors Main Highlights 15 % final withholding tax on rental income from rental property Income tax incentive increased for part time work Part time footballers to pay 7.5 % income tax No duty on documents for property first time buyers in 2014
Economic Review and Outlook: Positive Figures Maltese economy recorded a real growth rate of 2.8% In the first six months of 2013 An increase in the number of employed persons growing by 3% Official harmonised unemployment rate in August of this year stood at 6.4%: lower than that prevailing in 2012 The year-on-year inflation rate in September stood at 0.6%: one of the lowest in the Euro zone as well as lower than the 2.9 % rate recorded in September 2012 In 2013, the Maltese economy is expected to keep its growth momentum, rising by 1.2% in real terms Private consumption is expected to increase by 1.2% In 2013, exports are expected to increase by 1.9% while imports are expected to grow by 1.5% in real terms In 2014, growth is expected to increase to 1.7% For 2015, the economy is expected to grow by 1.7% whilst in 2016 the economy is expected to increase by 1.8 %in real terms, respectively Private consumption is expected to increase by 1.4% while public consumption is expected to grow by 1.4 % and by 0.6% in 2015 and in 2016, respectively Economic growth expected to generate increases in employment such that the annual growth rate in 2013 and 2014 would stand at 1.8% Inflation is expected to average 1.7% in 2013 During 2014 the general Government deficit is projected to decline by a further 0.6 percentage points of GDP from 2.7% to 2.1% 2
Tax Related Measures Tax Deduction for Entrepreneurs who Offer Apprenticeship Placements Entrepreneurs who are willing to be part of the system will be given a tax deduction of 600 for every apprenticeship placement (capped at 800 placements). Tax deduction for Entrepreneurs who offer Work Placements Government is offering an incentive to entrepreneurs in the form of a tax deduction of 600 for every work placement they accept (capped at 400 placements). Providing Training and/or Employment to Employees who are between 45 and 65 Years of Age Government will offer a tax deduction of 5,800 as an incentive to employers to hire persons within this age group who have been unemployed for the previous three years, translating into a saving of 2,030 for each hired individual in this category. The deduction applies for the first two years of employment. On the other hand, companies will benefit from a tax deduction on their income or corporate tax of 50% of the training (up to a maximum of 400) for training undertaken by a training provider officially accredited by the Malta Qualifications Council upon the provision of a VAT receipt. Reduction in Income Tax The Government will be reducing the income tax rate for those income earners who earn between 19,501 and 60,000 from the current 32% to 29%. Tax rate Separate computation ( ) Joint computation ( ) Parent rates ( ) 0% 0-8,500 0-11,900 0-9,800 15% 8,501 14,500 11,901-21,200 9,801-15,800 25% 14,501-19,500 21,201-28,700 15,801-21,200 29% 19,501-60,000 28,701-60,000 21,201-60,000 35% Over 60,000 Over 60,000 Over 60,000 Tax Refund on Vehicle Registration The Government has allocated the sum of 2.5 million so that, as from next year, all persons who paid this tax will receive a refund. The process will be carried out over a period of seven years, and the ex gratia payment will be provided to those persons who registered a vehicle for personal use between 1st May 2004, and 1st May 2008. Abolishing the Tax on Auctions The tax on auctions is going to be abolished. Broadening of Tax Band for Parent Computation So as to ensure that households have access to more disposable income, the Government will broaden the tax band for Parent Computation from 9,300 to 9,800. In this way, households will benefit from an increase of income of 75 per week. 3
Extension of 15% self-employed contribution to Pensioners Pensioners who are also self-employed on a part-time basis may benefit from the 15% tax rate on a higher part-time income subject to certain conditions. Credit for Intensive Training or Full Time Education Single parents on social assistance who choose to enhance their employability prospects by undergoing intensive training or full-time education will be given credit, ranging from 200 per annum for vocational basic training to 1,000 per annum for full-time education. Parents may also benefit from free childcare if needed. Tax on Part Time Income The preferential rate of 15% will increase from a present threshold of 7,000 to 10,000 for those working part-time, and from 7,000 to 12,000 for those who work part-time as self-employed. For those businesses that employ two part-time workers, the 15% will still be applicable. Reduction in Income Tax for Unemployed Women who are over 40 years of age From 2014, principal breadwinners whose wives are over forty years of age and have been inactive for more than 5 years but are going to start employment, earning a tax-exempt wage, will benefit from reductions in income tax. The income attributable to the wives will not be considered when using the joint tax computation. Therefore A married couple may apply for the married tax rates without taxing the wife s income, if: the wife has not worked for 5 years: and the wife is over 40 years of age; and the wife s income does not exceed the minimum wage. This benefit is applicable for a maximum period of 5 years. Tax-exempt Cost of Living Allowance (COLA) on Minimum Wage and Pensions which are currently not Taxed Persons on the minimum wage who receive the COLA will be exempt from paying tax on the increase. This will apply equally to pensioners who at present are not paying tax. Extension in Tax credit for Parents sending their Children to Private Childcare Centres The limit is being extended from 1,300 to 2,000 in tax credit for parents sending their children to private childcare centres. 4
Tax Allowance for Parents with Children in Tertiary Education At present, parents are allowed a tax deduction if their children who do not exceed 21 years of age carry out their tertiary education studies at a recognized tertiary institution. The age limit will now increase from 21 years old to 23 years old. Rental Income from Residential Property to be taxed at of 15% Government will also be incentivising landlords to put their vacant property on the market by taxing rental income from residential property at a flat rate of 15% Reduction in Duty for First Time Buyers First-time buyers that have never owned an immovable property before 1st of January 2014 and that are going to finalise their contract in 2014, will be exempt from paying the 3.5% duty on the first 150,000 of the property bought. First time buyers will save up to 5,250 on their first residence. Exemption from Social Security Contributions paid by the Elderly/Disabled employing a live-in Carer This measure is intended to exempt elderly people and disabled people from paying their share of the social security contribution as employers and hence this would help them to mitigate the expenses they incur to employ live-in carers. Exemption from Tax on Transfers Causa Mortis for Disabled Persons The Government will be abolishing completely the tax on transfers causa mortis for every property inherited by disabled persons. Reduction in Registration tax on motor cycles and non-eu imported cars The registration tax on motors having an engine equal to or greater than 250cc will be reduced. The registration tax on non-eu imported cars is going to be reduced. The vehicles eligible must not exceed the 150g/km CO 2 emission level and must not be older than eight years. Special Rate of Tax for Part time Footballers Part time Footballers to pay 7.5% Income tax Excise duty Excise duty has increased on a number of goods and commodities including they duty on bunkering fuel (will increase by 0.35 per metric tonne), excise duty on cigarettes and tobacco products (being increased by 6% and 9.3% respectively) and excise duty on alcoholic beverages (being increased at rates of between 2.5% and 15%, depending on the type of product). Excise duty on cement is also being increased by 10 to 27 per 1000kg. Excise duty on heavy fuel oil, LPG and methane is being increased by 2 per 1000 kg whereas that on leaded and unleaded petrol, biodiesel, gasoil and kerosene is being increased by 20 per 1000 litres. 5
Value Added Tax The budget announces a reform in the administration of VAT penalties and interest as well as administrative proceedings with respect to tax in dispute both for VAT and Income Tax, giving the necessary discretion to our Courts of Law when applying imprisonment conditions to faulty taxpayers. Changes are expected where individuals fail to pay VAT or Income Tax balances on time. Family and Housing Friendly Measures COLA for 2014 For the year 2014, the COLA payment will be 3.49 per week. Extension of Widows Pension Entitlement Under the current legal provisions of the Social Security Act, a widow who is in employment or selfemployment earning more than the national minimum wage and whose children attain their 21st birthday will lose out on the widow s pension entitlement. This measure is intended to remove the children s age capping as well as the wage/salary capping and as a result thereof, widows falling in this category will continue to receive a full widows pension irrespective of their earnings from employment or self-employment and also of their children s age. Service Pension To date, the amount of service pension not taken into consideration for Social Security pension assessment purposes is 1,266. As from 2014, this amount will be increased by 200 to 1,466. Revision in the Way Claims for Non-Contributory Medical Assistance are Calculated At present, the assessment for a claim for a non-contributory medical assistance from a separated person who is maintaining his spouse takes into consideration his total income including the share of maintenance. With the implementation of this measure, Government will be ensuring that in such cases the income taken is net of any maintenance given to the spouse. Grant to Elderly over 75 Years of Age The 300 grant to the elderly will be extended to also cover senior citizens over 75 years of age Increase in Disabled Child Allowance The current weekly rate for a Disabled Child Allowance is 16.31 per eligible child. The measure is intended to increase the weekly rate entitlement to 20 per eligible child. 6
Reducing Tax Evasion and Avoidance Investment Registration Scheme Government will be launching an Investment Registration Scheme, whereby individuals residing in Malta who hold eligible assets without the necessary exchange control permits and/or, without declaring the relevant income (including capital gains) for the purposes of the Income Tax Act, will be given the opportunity to regularise their position. Auditing of Construction Values The scope of this measure is to reduce VAT evasion in the construction sector. If the developer does not have available the VAT receipts to substantiate the estimated valuation of works he will be liable to pay the VAT due. This measure has been implemented by the majority of EU Member States. This measure will create a level playing field and promote transparency in the construction industry. Tax Evasion Awareness Campaign This initiative aims to improve taxpayers compliance by increasing their awareness of how the money collected from taxes is being used by the Government and what each citizen receives in return from the state in terms of infrastructure, services, health, education, and social security. The public campaign would also highlight the initiatives which Government plans to take to address tax evasion and tax avoidance. The campaign will be launched in the first quarter, 2014. Tax Avoidance Currently, interest paid on duties due by the transferee causa mortis is not capped and hence can exceed the amount of duty due to be paid. The Government will put a ceiling on such interest rates whereby they cannot exceed the amount of duty which is due. Energy Policy Reduction on energy bills As from March 2014, household energy bills will decline by 25% while water bills will decline by 5%. Solar Water Heaters, Double Glazing and Roof Insulation Schemes An incentive scheme will be adopted to help people upgrade their residence to one which is more energy efficient. This measure emanates from the National Energy Efficiency Action Plan and is in line with Directive 2012/27/EU. This measure will lead to a reduction in the domestic energy use which subsequently reduces the amount of CO 2 emissions. 7
Malta Oil and Gas Corporation The Government will be establishing a Malta Oil and Gas Corporation. This will be done so as to provide an infrastructural framework for the development of an Oil and Gas industrial services industry in Malta. This corporation will be the Government s leading agency in this regard, and will be responsible for the implementation of the Government s needs and plans for the purposes of oil and gas exploration. Output Potential Free Childcare Centres Free childcare centres will be set up in order to encourage Maltese women to enter the labour market or continue working while their children are being taken care of free of charge Encouraging the Unemployed to Follow Full-Time Courses Persons in receipt of social or unemployment assistance for more than five years who start a fulltime course will not lose the said assistance. This measure is intended so that those persons in receipt of social or unemployment assistance for more than five years and who embark upon a fulltime course would no longer lose their right to such benefits while undergoing their studies. Employment Aid Programme This tranche of Employment Aid Programme (EAP) will provide employment aid that covers up to half of the wage s to Gozitan employers. The scope of the initiative is to promote the recruitment of disadvantaged and/or disabled persons. Youth Entrepreneurship Scheme In line with the Youth Employment policy, ETC will be launching a Youth Entrepreneurship Scheme with the aim of promoting entrepreneurship amongst youth. This initiative will provide training and support in preparation for entrepreneurship and setting up of cooperatives. This will be achieved through the provision of specialised training aimed at passing on the relevant skills and information required for them to be fully prepared to embark on setting up their enterprise or cooperative. In addition, the participants will benefit from mentoring services and monetary grants. Target Sectors Aviation Courses Malta Enterprise is co-operating with MCAST to provide new courses on the repair and maintenance of airplanes and also to be involved in joint research with German institutions. This will enable students to acquire the necessary skills and training to work in the aviation industry. Setting-up Aviation Malta Aviation Malta within the Ministry for Tourism will serve as the catalyst for Government in serving the industry holistically, economically and efficiently while engaging in a National Aviation Plan. 8
Aviation Malta s main role will be to liaise with all aviation entities. It will be responsible to ensure that all companies are transparent and economically efficient within a secure and safe environment as recommended in Aviation practices. Life Sciences Park Malta Enterprise is collaborating with the Ministry for Health to continue works on the Life Sciences Park. The Life Sciences Park is an innovative project which will enable scientists to conduct their research whilst also providing a place where companies specialising in biotechnology and medical science can operate. The Park is expected to start operating from October 2014. Film Co-production Fund The Film Co-production Fund is a first for Malta. The main purpose of the fund is to encourage collaboration between Maltese and foreign companies to produce films and TV series for international distribution. The fund aims to grow and further develop the Maltese film Industry. It will also be a boost for the country s economy, since qualifying projects have to be filmed primarily in Malta and make use of Maltese talent. Gaming It is Government s intention to endeavour to enhance Malta s role as a hub for digital gaming activities. Managed Seed Capital Fund An application for the European Social Funds (ESF) programming period 2014-2020 will be prepared to set up and co-manage a Managed Seed Capital Fund to finance Knowledge-Intensive start-ups. The ESF funds requested will amount to 11 million over a five year period. It is expected that 10 million will be directly available as start-up grants and will help finance between fifty and one hundred Knowledge-Intensive start-ups. The rest of the funds will be used to finance the setting up of the Fund itself. This measure is expected to encourage the creation of more Knowledge-Intensive start-ups in Malta. MicroInvest and Jeremie Scheme Micro enterprises and self-employed will be supported through a 45% tax credit on eligible expenditure and 65% tax credit if based in Gozo. In addition, the Jeremie scheme is going to be continued. These measures will encourage micro enterprises and the self-employed to invest in their business, increase their workforce, innovate, expand and implement compliance directives and aiding in its continued growth by reducing their tax amount payable to the Government. In turn, this would help increase economic activity. International Individual Investor Programme The Government is committed to attract foreign direct investment for Malta to remain competitive in a global economy. The Citizenship programme will put us on the same level with Canada, Portugal, Belgium and Singapore in attracting high-quality investors. 9
New ID and eid cards The Government will be issuing new ID and eid cards. Family Business Act Family Businesses are the backbone of the Maltese economy. Around 70% of local businesses are family businesses. Furthermore, in total, there are around 31,000 small family businesses that employ more than 38,400 people. However, only 30% of businesses which complete the successful transition from the first to the second generation survive for the long-term. Less than 10% of such family-run businesses make it through to the third generation. To address this challenge, the Government will enact the Family Business Act which aims to ensure the continued existence of family businesses by facilitating the transition from one generation to another. Healthcare Amongst other initiatives, the Government is introducing a series of health reforms that ensure better use of community care facilities to release pressure on the national public hospital including the continuation of the health reform of moving patients from social beds to residential homes utilising capacities in both the private and public sectors, reforming the medicine procurement process and centralising the storage of medicines. The Government s main aim is that all healthcare centres offering primary care are all equipped with the necessary resources including modern sophisticated equipment to give the best quality primary care possible. Government will be extending bilateral arrangements with various countries including Italy and Israel with a view to extend the range of treatments available abroad. Pensions Reform There has been no change to the retirement age. Moreover, widows in employment, will still receive their full widow pension irrespective of their earnings and the age of their children. Third Pillar Pension This will create an additional voluntary pension, thus increasing the quality of life for senior citizens. Fiscal incentives will be introduced to facilitate and promote third pillar (private) pensions. Scrappage Scheme and Autogas Vehicle Conversion A new scheme will come into effect whereby a one-time grant will be given to every person who scraps an M1 vehicle with an age of 10 years or older and registers a New M1 passenger vehicle with a CO 2 of not more than 150g/ km and having a length of not more than 4460mm. The grant will be on a first come first served basis and will be higher for those vehicles which pollute the least. A grant of 900 will be given for cars that emit up to 100g/km of CO 2, 700 for cars that emit between 101 10
and 130g/km of CO 2 and 500 for cars that emit between 131g/km and 150g/km of CO 2. Vehicles registered must be for private use only and the scheme will be applicable as from the 1 st January 2014. This measure will incentivise the purchase of vehicles with lower CO 2 output thus having a positive impact on the environment. The vehicle conversion scheme, initially introduced in January 2013, is being extended with slight technical modifications. The first 500 vehicle owners who apply for the scheme will still be given a 200 grant to convert their vehicles to LPG. This grant is subject to a number of conditions and standards which the conversion process must adhere to and is limited to two cars per household. 11
Contact Persons: Mr. Dunstan Magro Managing Partner dmagro@wdm.com.mt Dr. Jonathan De Giovanni Head, Legal and International Tax jdegiovanni@wdm.com.mt Ms. Claudia Muscat Senior Associate cmuscat@wdm.com.mt This memorandum has been prepared for general guidance only and does not constitute professional advice. You should not act upon the information contained in this memorandum without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy and completeness of the information contained in this memorandum, and the firm does not accept any liability and disclaims all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it. Please note that the pertinent legislation ought to be enacted in order to enforce the budget provisions. 2013 WDM International 12