With effect from 1 January 2023, the new accounting standard IFRS17 ‘Insurance Contracts’ came into force, leading to a change in the recognition, measurement, presentation and disclosure of insurance contracts within the financial statements of those entities to which IFRS17 applies. Due to the principles arising from this standard, certain insurance entities had to re-calculate the value of their insurance contracts in line with new principles, which could have led to the recognition of an accounting gain or loss upon the transition to this standard (“transition gain or loss”).
The recognition of a transition gain or loss by an entity upon adoption of the standard should have in many cases resulted in an increase or decrease in the entity’s distributable reserves, possibly resulting in an increase or decrease in the entity’s income chargeable to tax.
In view of the significant transitional gains that an insurance company may record, the Malta Tax & Customs Administration (MTCA) have considered supporting the industry through a deferral of the tax payable on the transition gains. In fact, the MTCA issued a Guidance Note setting out that the tax payable on the transition gains may be deferred over a maximum period of 5 years. This deferral is not applied automatically – an insurance entity would have to elect with the Commissioner for Tax and Customs to have the tax payment on the transition gains deferred over a period of years, which in any case cannot exceed 5 years. Such an election should be made on a prescribed form issued by the MTCA by 22 November 2024.
This Guidance Note also sets out the dates by when insurance companies, which have elected to defer the tax payment arising on transition gains, must settle the respective tax instalments. The first instalment is to be settled by 21 December 2024 or, in the case of companies benefitting from an extension to the tax payment deadline date, by 30 June 2025 for the year of assessment 2024. The next instalment should be settled by 21 December 2025 and the following instalments should be settled by 21 December of the following years, depending on the maximum deferral period applied for.
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