Malta Budget Highlights - 2017 On 17 October 2016, the Minister of Finance, Prof Edward Scicluna, presented the Budget for 2017. Highlighting the fact that Government is projecting that the deficit for 2016 would stand at 0.7% of GDP and that the economy should grow by 4.1% over 2015, the Minister announced various measures to further strengthen the Maltese economy. We are therefore pleased to provide you with a summary of the main budgetary measures announced. Should you wish any further information about these measures, or any other aspects of the Budget, and how these may affect you, please do not hesitate to contact your contact partner in the firm or, alternatively, send an e-mail to info@emd.com.mt The Partners and Staff
STATE OF THE ECONOMY During 2016 the Maltese economy continued to grow, with economic growth projected to grow by 4.1% by the end of this year. Gross Domestic Product (GDP) During the first half of 2016, nominal GDP grew by 7.3%, while real GDP grew by 4.1%. Inflation The rate of inflation has remained at a relatively low rate of 1%. This is expected to increase to 1.5% in 2017. Deficit and public debt In 2016, the Government s deficit is expected to drop to 0.7%, whereas public debt is expected to drop to 63.3% of GDP. For 2017 the deficit is forecast at 0.5%, and public debt is expected to drop to 61.9% of GDP. Malta s credit rating Standard and Poor s has raised Malta s rating from BBB+ to A-. The Labour Market The Labour Force Survey recorded an employment rate of 69.1% in the second quarter of 2016, this being 1.5% higher when compared to the corresponding quarter in 2015. Growth in employment is expected to remain strong. The unemployment rate dropped from 5.4% in 2015 to 4.9% in July 2016. FISCAL MEASURES Reform of the eco-contribution tax The Government announced various fiscal measures as part of the reform of the ecocontribution tax. These include the removal of this tax from various products, the introduction of levies on other products (in particular on construction materials) and an increase in the levies on tobacco and nonalcoholic beverages. Refund of tax on listed shares dividends With effect from 1 January 2017, persons who hold up to 0.5% of the issued shares in companies listed on the Malta Stock Exchange can apply for a refund of tax on dividends declared in their income tax returns, according to their personal income tax rates. Transfer of business to one s children Through 2017, should any parents decide to transfer their business to their children, duty on such transfers shall be charged at 1.5% instead of the current 5%. The Property Sector First-time property buyers shall once again be exempt from the payment of duty on documents on the first EUR 150,000 of the value of the property. Should such first time buyers purchase property in Urban Conservation Areas or Grade 1 or Grade 2 scheduled properties, they will be entitled to a refund of up to EUR 100,000 on refurbishment expenses carried out on such properties. Persons who enter into preliminary agreements in 2017 for the purchase of property in Gozo shall be entitled to pay a reduced rate of duty on documents of 2%, provided that the preliminary agreement
would have been registered and the final deed of sale would have been signed by the end of 2018. In the case of inherited property which is sold through a judicial sale by auction, this will be taxed at a final rate of 7%, irrespective of the date on which it was inherited. Following the introduction of a 15% withholding tax on rental income in the last budget, as from 2017 all new or extended rental agreements for a duration of 3 months or more must be registered with the Department of Inland Revenue. MINIMUM PENSIONS FOR MARRIED COUPLES AND PENSION TAXATION Minimum pensions for married couples will increase, whereas pensioners whose pension exceeds the minimum pension slightly will have a pro-rata increase. Pensioners over 61 years of age will not pay income tax on the first 13,000 of pension income. The benefit is spread over two years. Furthermore, the grant of 300 per year to pensioners who are 75 years of age and still living in their home will be extended. PREFERENTIAL RATES ON RENTS Landlords who rent property to low income earning families will pay tax on rental income of 5% instead of 15%, if they enter into a 7 year lease agreement. This does not apply for properties situated in Special Designated Areas. EMPLOYMENT OF CARE WORKERS BY ELDERLY PERSONS Elderly people who are on the waiting list for a place in a Home for the Elderly have the possibility to engage a care worker (full-time or part-time) and avail themselves of financial aid up to a maximum of 5,200 per year. THE ENERGY SECTOR Studies shall be carried to identify a path in the seabed between Malta and Sicily for the future laying of a gas pipeline between the two islands. Persons who do not have access to roof space may soon be able to invest in renewable energy sources through a community solar farm. Furthermore, the public may start investing in Solar Bonds. These bonds will be used to finance solar panels that will be used by commercial establishments and in public places. TRAFFIC MANAGEMENT Companies providing free transport to employees will benefit from a tax credit of 150% of the transport expense capped at Eur35000 per annum if provided alone and at Eur50000 per annum if provided together with other companies. OIL EXPLORATION A national company will be formed to oversee works in this sector.
CONNECTION BETWEEN GOZO AND MALTA With the objective of enhancing the maritime connection between Malta and Gozo, a Request for Proposals has been issued to establish a fast ferry between Valletta and Mgarr, Gozo. Furthermore, during 2017 a public call for the design, development and operation of a sub seabed tunnel between Malta and Gozo will be issued as part of the project s preliminary phase. FINANCIAL SERVICES Malta s right to offer a competitive tax system whilst respecting the principles of tax transparency and exchange of information was reiterated and Malta will continue defending and at the same time updating its tax system. The Government also committed itself to introduce new measures to attract foreign investment and update the local regulatory regime, in particular with regards to insurance, collective investment schemes and securitisation. MALTA DEVELOPMENT BANK Strengthening of the financial infrastructure through the operation of the Malta Development Bank, specialising in investment in Malta. This bank will have an authorised capital of EUR 200M and an issued capital of EUR 30M. Following the establishment of the Malta Development Bank, plans are underway for Malta to be in a position to benefit from the European Fund For Strategic Investment through this bank. The National Fund for Economic and Social Development which will manage a large percentage of funds received through the IIP Citizenship Programme will commence to operate and projects of national interest will benefit from these funds. ENCOURAGING INVESTMENT ON THE MALTA STOCK EXCHANGE Fiscal incentives in the form of Risk Investment Schemes for persons wishing to invest in SMEs or in funds comprised of various SMEs registered on an Alternative Trading Platform on the Malta Stock Exchange, shall be introduced. Investors will be granted tax credits amounting to a maximum of 250,000. Furthermore, other fiscal incentives will be granted to entrepreneurs who offer their shares to the public by floating their company on the Malta Stock Exchange. Capital gains made on the sale of shares held before listing of the company will now be exempt from tax. This benefit will also be available for those persons listing their company on alternative trading platforms. INTERNATIONAL BUSINESS ACCELERATOR An International Business Accelerator shall provide professional assistance to local startups. They will be tasked with seeking economic niche markets, especially in the technological fields and with attracting entrepreneurial networks to assist in the growth of local start-ups. INCENTIVES TO EMPLOYERS INVESTING IN PRIVATE PENSIONS Fiscal incentives in the form of tax credits are to be granted to companies that invest in private pension schemes on behalf of their employees.
GAMING Regulatory changes in respect of gaming will be introduced during the coming year to ensure the industry s requirement for innovation is not hindered while ensuring social responsibility. REDUCING BUREAUCRACY TO START A BUSINESS From 1 January 2017, shops and other commercial businesses will no longer need a Trading Licence to carry out their commercial activity. This will decrease the time to set up a business from 30 days to 3 days. DIGITAL ECONOMY It is the Government s intention to better the digital infrastructure as well as networking to ensure better business continuity. A Cybersecurity strategy will also be implemented. The aim is for Malta to be the first WIFI state in the world, with the introduction of new hotspots. Furthermore, an underwater cable between Malta and Marseille is being evaluated to ensure better connectivity with Europe. MALTA ENTERPRISE PROGRAMMES FOR BUSINESSES Malta Enterprise will be offering a number of programmes to businesses. One such programme will offer financial assistance of an amount of up to EUR 25,000 per business to disadvantaged individuals who set up a sustainable business. By means of a tax credit scheme in respect of research, the incentive covers from 25% to 45% of the expenses incurred in this regard. Under a programme for THE development of digital games with a cultural theme, assistance will be provided in the form of tax credits which cover up to 30% of the costs linked to the development of the digital game. PRIVATE PUBLIC PARTNERSHIPS In 2017, a private public partnership between the governments and Royal Malta Yacht Club will implement measures benefitting the yachting sector. Furthermore the government is considering setting up another yacht marina in Marsascala. TradeMalta will continue assisting Maltese companies when exporting products and services by means of organising visits in foreign markets such as the Middle East, Gulf States and Russia and by facilitating their attendance to business fora and seminars focused on specific markets amongst them the United States. TOURISM Malta Enterprise will be offering financial assistance to hotels and restaurants carrying out renovation works by means of a tax credit of a maximum of EUR 50,000 for restaurants and EUR 200,000 for hotels. Under another Programme a fiscal incentive of up to EUR 10,000 will be provided to local restaurants which for a temporary period of time engage chefs with international experience.
INCENTIVES FOR THE FILM INDUSTRY The Minister for Tourism and the Malta Film Commissioner will be working on improving the incentives offered for the production of films, thus attracting more international film production companies to shoot films in Malta. EMPLOYMENT RELATIONS In terms of equal payment for the same work carried out, a process of consultation with stakeholders will be carried out in 2017 in order to ensure that the pay and conditions of work of contract workers (sub-contracted work) will be the same as those of employees employed at the same work place. SMALL START UPS Youth post-secondary school institution graduates starting a company with a turnover of not more than EUR80,000 per year may opt to either be exempt from auditing the company s financial statements for the first 2 years or else benefit from a tax deduction equivalent to 120% of the audit expense, up to a maximum of EUR 700 per year. OTHER MEASURES The Minister of Finances announced various other measures in the health, sports and culture sectors. The above is a brief synopsis of the budget speech as delivered today 17 October 2016. Should you require any further information do not hesitate to contact us. EMD is a multi-disciplinary organisation specialised in local and international tax consultancy, accounting, company formation and administration, recruitment and corporate services and includes the law firm EMD Advocates. All efforts have been made to provide current, correct and clearly expressed information in the preparation of this newsletter. Nevertheless, the information contained in this newsletter is intended to provide general information in relation to the subject matter thereof and not to address the circumstances of any individual or entity. This newsletter is being distributed with the understanding that EMD, its partners, officers and related and associated firms and companies shall not be responsible for any actions taken on the basis of the information herein provided nor shall they be responsible for any errors or omissions which may be contained herein. Through this newsletter EMD, its partners, officers and related and associated firms and companies are not attempting to give any advice, whether legal, tax or otherwise, and consequently readers should consult professional advisors before acting on any of the information contained in this newsletter.