Following the introduction of the new 12% VAT rate applicable to certain supplies as from 1 January 2024, the Commissioner for Tax and Customs (CfTC) has issued guidelines to better explain the circumstances in which such a reduced rate is applicable.
The guidelines issued by the CfTC apply specifically to assessing the VAT treatment of the respective supplies when these are subject to Maltese VAT.
Custody of securities
The Maltese VAT Act provides that the supply of certain financial services is VAT-exempt without credit. However, such exemption does not apply to all financial services and therefore certain financial services, including the safekeeping of securities, should "prima facie" be considered as taxable supplies.
By way of Legal Notice 231 of 2023, with effect from 1 January 2024, the VAT rate applicable to the custody of securities has been reduced to 12%. The Commissioner for Tax and Customs (CfTC) has published guidelines that provide definitions for certain key terms and generally provide clarifications on the applicability of the 12% VAT rate. In this respect:
Securities are defined as “any tradable financial instrument included in the Second Schedule to the Investment Services Act (Chapter 370, Laws of Malta)” and categorised into:
equity securities which confer a property right over legal persons;
securities representing debt; and
other securities such as tradable securities conferring an intangible right to carry out a further transaction.
but exclude documents which establish title to goods.
Custody is defined by reference to three separate categories:
Control of Assets which refers to services concerning the holding, safekeeping or control of securities referred to in the Investment Services Act (Control of Assets) Regulations (Subsidiary Legislation 370.05) or the Central Securities Depository (Control of Assets) Regulations (Subsidiary Legislation 345.13);
Depositary Services, in respect of Collective Investment Schemes which consist of the safekeeping, cash flow monitoring and oversight of securities in respect of a collective investments scheme as indicated in the Investment Services Act (Custodians of Collective Investment Schemes) Regulations (Subsidiary Legislation 370.32);
Any other services which are similar to Control of Assets and Depositary Services.
Global custody services
Global custody services typically incorporate a package of services concerning securities held by a person, which normally consist of:
Safekeeping;
Security Settlement;
Collection of dividends or interest on securities held;
Corporate action processing;
Cash management;
Securities lending; and
The supply of supervision (monitoring and oversight) services as described in Subsidiary Legislation 370.32.
In accordance with the Abbey National judgement by the Court of Justice of the European Union (CJEU), it is essential to recognise that the safekeeping and supervisory functions of a Depositary may not fall within the scope of the exemption applicable to the management of collective investment schemes, as set out in item 3(6) of Part Two of the Fifth Schedule to the VAT Act. In such cases, these functions should be considered as taxable supplies. This is particularly relevant when determining the VAT treatment of such taxable services when provided as part of a global custody services package.
In this context, the CfTC’s interpretation is that the provision of taxable supervision services by a Depositary, as part of a global custody services package, does not constitute a single supply from an economic perspective. This is due to the distinct and independent nature of these supervision services, provided that splitting them would not be artificial.
However, a package of global custody services, excluding any supervisory services forming part of that package would qualify as exempt in so far as such services (excluding supervisory services) constitute a single composite supply comprised principally of services which are exempt in terms of the VAT Act, as well as other ancillary services.
Nominee services
The guidance issued by the CfTC also includes reference to the provision of Nominee Services. In the case that a person holds some securities in his own name but on behalf of third parties, for the main purpose of providing to the beneficial owners services which are exempt in terms of the VAT Act, such services shall also be deemed to be exempt as long as such services together with the principal services form part of a single composite supply.
The official guidelines published by the MTCA can be found here.
How we can help
At PwC Malta, our VAT team has the expertise to help you identify the VAT treatment of your supplies and provide assistance with the newly published guidelines. For more information, please reach out to our sector leaders below
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