Following the enactment of Act No. XXXVIII of 2024 and various legal notices, local VAT legislation has undergone several updates effective from 1 January 2025. The principal amendments result in some material updates to the Maltese VAT Act (“VATA”) to incorporate the provisions of Council Directive (EU) 2020/285, which amends Directive 2006/112/EC concerning the special scheme for small undertakings.
In summary, any small enterprise with a total annual turnover of not more than €100,000 in all EU Member States in the current calendar year and in the previous calendar year is eligible for the small undertaking VAT exemption in its Member State of establishment and/or in other Member State(s) under the cross-border Small and Medium Sized Enterprises (“SME”) scheme.
Among the various updates, the amendments to Article 10 of the VATA amend certain provisions for registration, while the amendments to Article 11 align the legislation with the EU Directive as set out above. The changes also update registration thresholds and introduce new registrations under new articles 11A and 11B of the VATA.
Another important update concerns the place of supply for certain services when provided virtually.
These amendments aim to enhance clarity, streamline processes, and ensure compliance with EU VAT related Directives and Regulations.
A registration under Article 11 will be effective on the later of the date the Commissioner receives the application from the taxable person, or the date of commencement of the economic activity of the taxable person.
A taxable person applying for registration under Article 11 qualifies as a small undertaking if the domestic annual turnover during the preceding calendar year does not exceed the €35,000 (“the domestic threshold”).
When a taxable person applies for deregistration under Article 11, the cancellation will take effect from the first day of the calendar month following the date on which the person no longer qualifies as a small undertaking or becomes registered under article 10.
A further sub-article has been introduced clarifying that a taxable person registered under Article 11 must also register under Article 12 if such taxable person:
A person registered under Article 10 cannot switch to Article 11 within the first 12 months (previously 24 months) of registration. However, the Commissioner may approve a change within this period if the person qualifies as a small undertaking and no input tax was claimed since the date of first registration.
For applications under Article 11, in order to calculate the turnover for domestic threshold purposes, taxable persons (other than individuals) must include a proportional share of the turnover of any related entity. An entity is considered related if it owns or controls, directly or indirectly more than 10% of the entity applying for the Article 11 registration.
The Sixth Schedule has also been updated with a number of new definitions:
“Domestic annual turnover” refers to total annual turnover from supplies of goods and services, exclusive of VAT, made by a taxable person taking place within Malta during a calendar year.
Finally, the Fifth Schedule to the VATA has also been updated to include supplies by persons registered under articles 11, 11A, and 11B to be treated as exempt without credit supplies.
A more detailed analysis of the changes to the SME scheme will be published in the next edition of Short Reads.
This amendment refers to services related to cultural, artistic, sporting, scientific, educational, entertainment, or similar activities (including fairs and exhibitions) provided to a non-taxable person, when streamed or made virtually available. With effect from 1 January 2025, the place of supply of such services has become the place where the customer is established, has their permanent address, or usually resides.
For admission to such events and related ancillary services supplied to a taxable person, the place of supply is where the events occur unless attended virtually – in which case the place of supply follows the general rule (i.e. place of customer).
Parts One (Cash Accounting) and Part Three (Professional Services) of this Schedule were redrafted.
Starting from January 1, 2025, cash accounting will also be applicable to services provided by companies which, if performed by an individual, would require a warrant issued under any law in force in Malta for the practice of a profession. This change removes the anomaly previously existing that companies could not qualify for cash accounting.
Additionally, cash accounting continues to be available also to civil, mechanical, and electrical engineering contractors and retailers.
When a person using cash accounting transfers any debts, the tax on that supply becomes chargeable on the transfer date. If a person registered under Article 10 has their registration cancelled, the tax on a supply made with cash accounting becomes chargeable by the last day of their final tax period at the latest.
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