New guideline on beneficial loan arrangements:

Impact on Maltese licensed banks and authorised financial institutions

February 25, 2025

On 14 February 2025, the Malta Tax and Customs Administration (the "MTCA") published the "Beneficial Loan Arrangements - Guideline for the purposes of rules 26 and 27 of the Fringe Benefits Rules" (Subsidiary Legislation 123.55 of the Laws of Malta - the "FBR")

Who will be affected by the Guideline?

The changes introduced by the Guideline are expected to impact qualifying employers, predominantly Maltese licensed banks or authorised financial institutions.

What is the scope of the Guideline?

The Guideline seeks to provide the benchmark rate of interest on a beneficial loan falling within the scope of the FBR provided by a qualifying Maltese licensed bank or authorised financial institution to its employees. By way of background, the relevant provisions pertaining to beneficial loan arrangements within the FBR had last been amended by virtue of Legal Notice 298 of 2023.

In terms of the Guideline, the MTCA has established benchmark rates of interest on beneficial loan arrangements falling within the scope of regulations 26 and 27 of the FBR, typically in the form of reduced or interest-free loans. In this respect, the Guideline has introduced a distinction between loans provided for different purposes and has established the interest benchmark rate that is applicable in each instance, as follows:

loans for the purchase of a primary residence, reference should be made to the average interest rate on Overnight Deposits as published by the Central Bank of Malta (the ‘CBM’);

other home loans, reference should be made to the average interest rate on Lending for House Purchases as published by the CBM; and
other loans, reference should be made to the average interest rate on Consumer Credit and other Lending as published by the CBM.

The Guideline stipulates that the average interest rates applicable to the above loans is to be calculated by reference to the specific interest rates prevailing at the end of each month during the twelve (12) month period ending on 30 September of the year immediately preceding the year during which the benefit is deemed to arise, as published by the CBM in the Statistics database entitled Interest Rates and Other Key Financial Market Rates.

The annual value of the beneficial loan arrangements will continue to be subject to the in-house benefit reduction in terms of article 27 of the FBR.

When is the Guideline effective?

The Guideline applies as from the year of assessment 2025.

Why is it important to take action?

Such changes to the benchmark interest rates should have an impact on the value of the benefit provided to qualifying employees, and as a result, on the amount of income tax that the employer is obliged to withhold through payroll. By taking the necessary action in a timely manner, you will ensure that your organisation remains compliant.