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08.02.2021 By Fenlex Corporate Services
Brexit changes for businesses from a VAT perspective

Authors: Kristina Hili, Tax Supervisor and Amanda Abela, Senior Tax Accountant

Date: 8 February 2021

The United Kingdom’s (UK) exit from the European Union on 31 January 2020 followed lengthy discussions and negotiations up until December 2020. The UK finally issued a Trade and Corporation Agreement (TCA) on 24 December 2020 which details the UK relationship with the European Union (EU). This article will summarise its implications from a VAT perspective.

With effect from 1 January 2021, the UK has become a third country. Cross-border trade in goods and services is governed by rules on applying VAT upon the import and export of goods (or provision of services) from / to third countries, with an exception for supplies of goods to Northern Ireland (NI), which will continue to be regarded as intra-community supplies, discussed in further detail below. Services are not covered by this exception.

VAT changes for cross-border supplies of goods
The main change for businesses that send goods to or receive goods from Great Britain (GB), is that such transactions are now considered as exports and imports. Goods entering the EU from GB will constitute an importation in the Member State (MS) where the entry takes place. Goods leaving the EU for GB will be exports. Moreover, goods entering GB coming from an EU MS will constitute an importation in GB and goods leaving GB destined for the EU will be exports.

Thus, post-Brexit, EU established businesses that are importing goods from GB are now dealing with customs procedures, VAT payments upon importation, custom duties (if goods are not of UK origin) and most likely cash flow problems. Pre-Brexit, no VAT was paid as VAT was accounted for by reverse charge and there were no custom dues. On the contrary, when EU businesses export goods to GB are now performing an export, rather than an intra-community supply and faced with customs procedures. As of 1 January 2021, all goods imported to GB will be subject to UK VAT, which previously with the low-value consignment relief, all goods having a value less than GBP 15 were not subject to VAT.

Distance sales implications
The rules applicable to business-to-consumer (B2C) sales of goods is now impacted by Brexit. Distance sales performed by EU businesses to GB are now considered as exports and the distance sales rules no longer apply. The individual customer is now exposed to UK customs procedures, a VAT payment which is payable at importation by the customer according to the new UK VAT code and customs duties (if goods are not of EU origin).

On the other hand, if a business established in GB performs a distance sale to EU, the customer is considered as doing an import in the EU, is exposed to EU customs procedures, is obliged to pay VAT in the MS of importation and customs duties (if goods are not of UK origin). Up to 30 June 2021, an exemption from VAT payment applies up to value of EUR 22. However, with effect from 1 July 2021 the exemption will be removed, and new Special Schemes will apply in the EU.

The EU is introducing a new special scheme for imports called Import One Stop Shop (IOSS) for goods up to EUR 150 in value and Non-EU businesses will have the choice to register for this scheme. The non-EU business will charge and collect VAT at the point of sale on products below EUR 150, when selling to EU customers. The VAT rate will be that of the customer’s local rate. This scheme is beneficial as the products will be treated as exempt from VAT upon arrival, meaning they will move faster through customs and it will reach the consumer in a very short span of time. UK businesses wishing to register for the IOSS must appoint an intermediary established in the EU. The intermediary shares the responsibilities for the supplier under the IOSS regime, which includes the submission of VAT returns and VAT payments.

However, if the IOSS is not used, UK businesses may benefit from a second simplification, also for goods of an intrinsic value up to EUR 150. The import VAT will be collected from customers by the customs declarant (such as postal worker, courier etc.) who will pay it to Customs via a monthly payment.

VAT changes for services
Although the main Brexit changes relate to goods there are some changes to services as well. The UK place of supply rules are to be applied. In principle, the place of supply would still depend on the nature of the service and the VAT status of the customer. UK established businesses that supply telecommunications, broadcasting, and electronic services (TBEs) to non-taxable persons in the EU are to register for the non-Union Mini One Stop Shop (MOSS) up to 30 June 2021, in a MS of their choice. Moreover, with effect from 1 July 2021, UK established businesses that supply services to non-taxable persons in the EU (i.e. taxable in the respective MS) can register under the Non-Union One Stop Shop (OSS) in a MS of their choice.

Transacting with NI
The agreement states that NI will remain part of the UK’s VAT area, but with NI’s VAT rules fully aligned with EU VAT laws and with access to the EU system. Consequently, NI shall be treated as if it were a MS of the EU. Goods being received in NI will be subject to EU Customs duty, however if it can be demonstrated that goods entering NI are not destined to the EU’s single market, no duty will apply.

In view of the exception for supplies of goods to NI, NI has been assigned a specific ‘XI’ identifier, which can be verified on the VIES system. Both the inclusion of NI as a territory of a MS and its identifier code have been included in the Fifteenth Schedule to the Malta VAT Act dealing with territories of the Community as has been amended by Legal Notice 477 of 2020.

Intrastat codes have also changed in this respect, wherein an ‘XI’ code has been introduced for Northern Ireland, same as for VAT purposes, and an ‘XU’ code, intended solely for the purpose of filling-in the state of origin in the UK excluding Northern Ireland.

VAT refunds post-Brexit
UK businesses incurring EU VAT on travel, hotel or other expenses are no longer able to use the 8th Directive online VAT reclaim system – Council Directive 2008/9/EC. This is because the 8th Directive is open to taxable persons not established in the MS of refund but are established in another MS. Instead, UK businesses may now use the 13th Directive VAT reclaim system – Council Directive 85/560/EEC, since this system caters for taxable persons not established in Community territory.

However, EU businesses can claim a refund of the VAT paid in the UK before 31 December 2020, under the 8th Directive through the online VAT reclaim system, by not later than 31 March 2021.

For any queries or assistance on any of the above, please feel free to contact taxenquiries@fenlex.com

05.02.2021 By Fenlex Corporate Services
Termination of OTC Facilities to VAT Registered Persons

The Maltese Tax Authorities have announced that the service currently being provided by commercial banks relative to the submission and payment of VAT returns will be terminated with effect from 28th February 2021.

The Commissioner for Revenue strongly encourages VAT Registered persons to submit and process their VAT returns and payments through the e-VAT portal. Nevertheless manual VAT returns can still be filed either by visiting any Maltapost branch or by sending the return by mail to PO Box 2296.

Should you have any queries or require assistance with your VAT return submission or payment, please do not hesitate to get in touch with us!

05.02.2021 By Fenlex Corporate Services
Salient Changes to the Company Incorporation Process

Authors: Christian Farrugia, Senior Corporate Administrator and Clarissa Musu, Corporate Administrator

5th February, 2021

In an ever-developing industry with the continuous introductions of new and the updating of current regulations and procedures, recent months have brought about numerous changes to the process of setting up a new company with the Malta Business Registry (the “MBR”). While some of these changes may be more significant than others for the overall process, it is important that no step is overlooked to ensure a smooth incorporation.

  1. The Setting up of an FDI Screening Office

The National Foreign Direct Investment (FDI) Screening Office was set up in 2020 to review direct investments originating from countries outside the EU on grounds of security and public order. The screening process was therefore implemented into (but is not limited to) the incorporation procedure when formation documents are to be filed with the MBR.

Not all industries are subject to screening and therefore every incorporation must be looked at on a case-by-case basis to determine whether the proposed activities of the company fall into one of the applicable sectors. These include:

  1. critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
  2. critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
  3. supply of critical inputs, including energy or raw materials, as well as food security;
  4. access to sensitive information, including personal data, or the ability to control such information; and
  5. the freedom and pluralism of the media.

Applicable companies, through the ultimate beneficial owner/s or with the assistance of their corporate services provider such as Fenlex, would need to complete an online notification form in line with the guidelines provided. Applicants would then be notified on the outcome of the application by email.

  1. Due Diligence Requirements for the MBR

The MBR recently updated its ‘Know Your Client’ requirements in line with anti-money laundering obligations as implemented by the Financial Intelligence Analysis Unit (FIAU), with particular emphasis on the certification of identification documents.  Certifications are to follow specific guidelines, which if not followed correctly, may delay the incorporation process.

Certification must be carried out by a legal professional, a notary, an accountant or any person undertaking relevant financial business or a person undertaking an activity equivalent to relevant financial business carried out in another jurisdiction.

The certification must be evidenced by a written confirmation stating that:

  1. The document is a true copy of the original;
  2. The document has been seen and verified by the certifier; and
  3. The photo is a true likeness of the client or the beneficial owner/s

Moreover, it is of utmost importance that the certifier signs and dates the certification clearly, whilst also indicating his/her name, profession or office, warrant number (if applicable) and includes their contact details. The certifier is to ensure the certification is completed in the English language, and where this is not possible, a translation would need to be provided.

Where the certification of a document is done by a certifier outside the EU, said document must be further endorsed by an apostille. If this is not possible, the signatory should be authenticated by a local (EU or Maltese) services provider like Fenlex or a warranted professional.

Non-EU nationals are required to provide a bank reference to the registry prior to incorporation.  This regulation is exempt to EEA countries and any shareholder who holds less than 5% of shares in the Company to be incorporated.

  1. Deposit of Initial Share Capital

The maximum threshold allowed by the MBR for the deposit of the initial share capital into a formation account, i.e. a client’s account belonging to a service provider such as Fenlex, is fifty thousand Euro (€ 50,000). Once the company is incorporated and an account is opened in its own name, the initial funds may be transferred there and there are no limits from an MBR perspective on subsequent share capital allotments.

Should you wish to incorporate a company which would require an issued share capital of € 50,000 or more in the short term, please get in touch with a member of the Fenlex team for assistance.

  1. Other Considerations
  • The email address of at least one of the directors must be provided to the MBR when submitting incorporation documents.
  • Any proposed officers of the new company who already hold office in existing companies must ensure that said existing companies are in good standing with the MBR. This includes (but is not limited to) having audited financial statements, annual returns and annual beneficial ownership declarations filed, and having no outstanding dues with the MBR.

Should you require any further information or assistance on the matter, please do not hesitate to reach out to us personally on info@fenlex.com.

©Fenlex Corporate Services Ltd.

Disclaimer │ The information provided on this Update does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only.  This Update may not constitute the most up-to-date legal or other information and you are advised to seek updated advice.

21.12.2020 By Fenlex Corporate Services
Delivery of Judgement by the Court of Justice of the European Union in case C-94/19

As you may be aware, it is a principle of Value Added Tax that VAT is chargeable on the supply of a service when certain conditions are met, one of which is when the supply is made by a “Taxable Person” acting as such. In terms of Article 5 of the Malta VAT Act, a Taxable Person is any person carrying on an economic activity, which by definition excludes the activities of holders of an office. As a result, the activities of the holder of an office, which includes an individual appointed to the post of, for example, Director or Company Secretary of a limited liability company, in principle fall outside the scope of VAT.

However, pursuant to the judgement of the CJEU in the case C-94/19 – San Domenico Vetraria SpA v Agenzia delle Entrate – the afore-mentioned interpretation shall no longer apply. Thus, where a Company is being remunerated for making available to another Company the services of a holder of an office (e.g. an Individual Director or Company Secretary), would in fact constitute an economic activity, which falls within the scope of VAT.

In view of these recent developments, the way your Company is invoiced for any of the above services going forward will change and VAT will be charged at the applicable rate on such services. If you wish to discuss any potential consequences of the CJEU’s judgement for your business, please do not hesitate to contact us on officeholders@fenlex.com.

03.11.2020 By Fenlex Corporate Services
Foreign Direct Investment – Brief overview of the regulation and the process in Malta

Author: Josianne Cilia, Senior Corporate Administrator

3rd November 2020

On the 19th of March 2019, the European Parliament and Council introduced Regulation (EU) 2019/452 (the “Regulation”) for the screening of foreign direct investments into the Union. As from the 11th October 2020, this Regulation became also applicable to Malta.

Foreign Direct Investment (“FDIs”) screening differs between one country and another worldwide, and prior such introduction of this Regulation, the European Union (“EU”) did not have any regulations in place to monitor FDIs. The EU recognizes FDIs as an integral part of the economic growth and is in no way moving towards reducing FDIs. The scope of such Regulation is mainly to control such investments, and investigate where necessary, to ensure the EU’s security and public order.

The Regulation defines FDIs “as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which, the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity” and it defines a foreign investor a “natural person of a third country or an undertaking of a third country intending to make or having made a foreign direct investment”.

Every EU Member State is allowed to implement its own tailor-made screening mechanisms while also taking consideration that such mechanisms are to be transparent and not discriminate in any way an investment coming from different third countries. The introduction of such screening mechanisms would allow each EU Member State to collaborate between them and with the European Commission.

In Malta, the local legislation has not yet been finalized, however the National Foreign Direct Investment Screening Office (the “Office”) has been set up and is fully operational from June 2020. The Office has worked together with the Institute of Financial Services Practitioners and the Malta Institute of Accountants, to draft a notification form which is to be completed in respect of FDI’s. Such application is to be filed with the Office prior submission of the Memorandum and Articles of Association and any other related documents to the Malta Business Registry.[1] The Office would be monitoring transactions including, but not limited to, transfer of shares and assets where the current or the new ultimate beneficial owner (“UBO”) is a third country national OR mergers and acquisitions of companies involving third countries or a UBO who is a third country national OR the incorporation of new entities by a UBO who is a third country national. The Office advises that the notification form is to be filled only:

  • where the Ultimate Beneficial Owner, whether existing or new, is a ‘foreign investor’ (as defined in Article 2 of the EC Regulation 2019/452);
  • the activity is one as described in Article 4 of the regulation cited below; and
  • where the investment within the territory of Malta, is of a direct, tangible and long-lasting nature.[2]

Article 4 of the Regulation lists the factors that may be taken into consideration by Member States or the Commission. While determining whether a foreign direct investment is likely to affect security or public order, Member States and the Commission may consider its potential effects on, inter alia:

  • critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
  • critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
  • supply of critical inputs, including energy or raw materials, as well as food security;
  • access to sensitive information, including personal data, or the ability to control such information; or
  • the freedom and pluralism of the media.[3]

In addition to the above, the Member States and the Commission may also consider, in particular: –

  • whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through ownership structure or significant funding;
  • whether the foreign investor has already been involved in activities affecting security or public order in a Member State; or
  • whether there is a serious risk that the foreign investor engages in illegal or criminal activities.[4]

Every Member States must submit an annual report to the commission by the 31st March of each year, which report would include the FDIs recorded in the reporting Member State and requests received from other Member States pursuant to Articles 6(6) and 7(5). The Member State must also report the screening mechanism they have implemented. On the other hand, the Commission shall provide an annual report on the implementation of this Regulation to the European Parliament and to the Council[5] which report shall be made public.

[1] https://ifsp.org.mt/news/government-sets-up-national-office-for-fdi-screening/

[2] http://applicationform.nfdismalta.com/

[3] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0452&from=EN

[4] Ibid.

[5] Ibid.

©Fenlex Corporate Services Ltd.

Disclaimer │ The information provided on this Update does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only.  This Update may not constitute the most up-to-date legal or other information and you are advised to seek updated advice.

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