VAT Rules for Financial and Insurance Services

Author: Letizia Grech Seychell, Senior Tax Accountant

Date: 16 February 2021

On 8 February 2021, the European Commission (EC) has launched a public consultation on VAT rules for financial and insurance services, whose contributions will feed into the review of such VAT rules, as announced in the Tax Action Plan.

Background

Currently, under the VAT Directive, most financial and insurance services are “exempt without credit”. As such, these service providers cannot recover input VAT such as on investment goods and IT costs. This results in VAT becoming a cost for them and, eventually, for their customers.

The main reason behind such exemption was originally introduced due to the complexity of applying VAT to these supplies. While acknowledging the legal uncertainty and the high administrative and regulatory costs which have arisen due to the complexity of the VAT rules, in light of recent fintech developments, the EC is considering the modernisation and improvement of the relevant provisions of the VAT Directive.

The public consultation will run until 3 May 2021. The contributions provided by the stakeholders will contribute to a possible future legislative proposal to the VAT Directive.

Amendments in VAT Rates in response to COVID-19

Authors: Amanda Abela, Senior Tax Accountant and Letizia Seychell, Senior Tax Accountant

Date: 9th February 2021

In December 2020, Directive 2006/112/EC was amended to reflect the exceptional circumstances caused by the COVID-19 pandemic, with the aim of ensuring a more affordable supply of COVID-19 vaccines and in vitro diagnostic medical devices as well as of services closely linked to such vaccines and devices. These amendments will be in force until 31st December 2022 or until the exceptional circumstances caused by the COVID-19 pandemic cease to exist.

As a result, in January 2021, the Malta VAT Act was amended by Legal Notices 4 and 5 of 2021.

LN 4 of 2021 – VAT exemption for services closely linked to COVID-19 vaccines

The Fifth Schedule Part 1 of the VAT Act has been amended so that “services closely linked to COVID-19 vaccines falling under sub-heading 3002.20 of the Customs Tariff contained in the First Schedule to the Import Duties Act” are exempt with credit.

LN 5 of 2021 – Reduced VAT rates for COVID-19 in vitro diagnostic devices

The Eighth Schedule of the VAT Act has been amended so that:

• goods falling under sub-headings 9027.80.80 and 3821.00 where they consist of COVID-19 in vitro diagnostic medical devices; and
• services closely linked to goods under sub-headings 3822; 3002.15; 9027.80.80 and 3821.00 where the goods under these sub-headings consist of COVID-19 in vitro diagnostic devices are subject to a reduced VAT rate of 5%.