In one of our recent short reads, we highlighted some amendments to the Value Added Tax Act, effective from 1 January 2025. These changes primarily impacted small undertakings and the new criteria to be eligible as a small undertaking. This short read highlights some broader implications of these changes and how these may impact even large enterprises.
A taxable person qualifies as a small undertaking (and would consequently be eligible to register under article 10 of the Value Added Tax Act as an exempt small undertaking) if the domestic annual turnover does not exceed €35,000.
In computing the level of domestic annual turnover, the rules applicable up to December 2024, excluded all exempt without credit supplies.
Starting January 2025, the turnover calculation also includes certain exempt supplies related to immovable property, financial transactions, and insurance transactions.
Below are examples of how this change can have an impact on the eligibility of taxable persons for the small undertakings exemption.
|
Exempt annual rent of Property 1 (A) |
Exempt annual rent of Property 2 (B) |
Taxable annual rent of Property 3 (C) |
Total turnover to be considered |
Eligible for Article 11 registration |
Before 1 January 2025 |
€20,000 |
€18,000 |
€5,000 |
€5,000 (C) |
Yes |
From 1 January 2025 |
€20,000 |
€18,000 |
€5,000 |
€43,000 (A) +(B) +(C) |
No |
|
Exempt insurance (A) |
Recharge of expenses to Maltese company (B) |
Total turnover to be considered |
Eligible for Article 11 registration |
Before 1 January 2025 |
€200,000 |
€18,000 |
€18,000 (B) |
Yes |
After 1 January 2025 |
€200,000 |
€18,000 |
€218,000 (A) +(B) |
No |
Taxable persons registered under Article 11 of the VAT Act need to assess whether their registration remains valid in light of the new provisions of how to calculate the annual domestic turnover. In both the examples above, the taxable person is no longer eligible for exemption and would need to register under article 10 of the VAT Act - and charge VAT on the supplies that are not intrinsically exempt.
The above change may however trigger additional VAT considerations. Taking the second example above, what would happen if the insurance company undertakes its core operations from a rented property? As long as it remains registered in terms of article 11 of the VAT Act (possible in terms of the rules applicable to 31 December 2024) then rent charged to it by the landlord was VAT exempt. Once the insurance company switches its registration to article 10 of the VAT Act (as outlined in the previous paragraph), then the office rent charged to it by the landlord may no longer be exempt - i.e. the landlord may need to add VAT on the rent due by the insurance company.
Therefore the changes to the small undertakings exemption not only impacts who is eligible for such exemption but may also impact third parties undertaking transactions with entities who no longer qualify for the small undertakings exemption – since these may now need to add VAT to supplies that they were previously exempting. In turn, such change may also increase the cost base of recipient entities (e.g. the insurance company in the above example) since it may not be eligible to deduct the new VAT charged to it by its landlord.
The purpose of this short read is therefore to highlight that although the legal amendments are focused on the eligibility of the small undertakings exemption, the impact may be wider and may include new responsibilities for large enterprises too.
If you and your business require further information, our team can assist you in this regard. At PwC, we are a team of professionals ready to provide the support you need.
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