Fenlex are proud to announce that Naomi Barry, Human Resources Manager, has been elected to the Executive Committee of the new Employment Agencies business section within The Malta Chamber of Commerce.
The new section aims at strengthening the voice of employment agencies by addressing regulatory matters, specifically those related to Government agencies.
Authors: Stephanie Aquilina Galea, Tax Supervisor and Sarah Schembri, Tax Accounts Assistant
Date: 26th April 2021
Introduction
Married couples have for several years submitted one income tax return covering the declarations for both individuals. Traditionally, married couples prepared an annual joint or separate income tax computation, and declared their income in one income tax return which is issued in the name of the responsible spouse.
However, the Income Tax Act was amended and introduced a new tax option to married couples with effect from 2020.
Situation before the 2020 changes
Prior to the 2020 changes, married couples, including civil partners, were able to opt for a separate computation. This was usually preferable in instances whereby both individuals were earning employment, trading, or pension income. Any income that was not employment income (excluding directors’ fees), trading income or pension income, in other words, ‘earned’ income, was automatically taxable under the higher income earning spouse. This would in practice result in this other income being potentially taxed at higher tax rates. Moreover, any tax credits were received under the responsible spouse’s name by default, even if they would have pertained to the other spouse.
What are the changes?
As from calendar year 2020, married couples, including civil partners, that live together have the option to receive a separate income tax return under their name, being referred to as ‘separate return election’, as long as the married couple are:
The separate return election means that the income of each spouse will be charged to tax under their own name separately from the income of the other spouse. This includes any other income, whereby such other income may now be brought to charge in the name of the spouse actually receiving said income as opposed to it being brought to charge in the name of the spouse with the higher income. Likewise, any tax credits or deductions shall be allocated to the spouse actually deriving or incurring such credit or deduction respectively. With respect to deductions, the law makes reference to the name included on the receipt as an indication of the recipient. If the receipt is issued in the name of both spouses, the deduction is to be split equally between the spouses. The same applies for any unabsorbed tax losses or capital allowances, and any unabsorbed tax credits.
Practical Implications
Married couples that satisfy the above-mentioned conditions may request a separate tax return from the Commissioner for Revenue. The election will come into effect on 1 January of the year immediately following that in which the election is made and shall continue to have effect until such election is revoked. Spouses who do not opt for a separate return can still apply to receive a tax refund directly in their bank account rather than receiving a cheque under the name of the responsible spouse.
As stated in the paragraph above, the married couple may revoke the separate return election by signing a notice and sending it to the Commissioner for Revenue. The election will cease to have effect as from the year of assessment starting from 1 January of the year immediately following the notice of revocation and will be available for election again after 5 years.
Under any option, the tax return together with a self-assessment must be submitted by the end of June of the year following the calendar year. Penalties will be incurred unless the tax return is submitted by the said deadline. It is up to the Commissioner for Revenue to decide whether the individuals are required to file a tax return or not. If the new election is selected, each spouse will be responsible to submit their own returns based on their Income in accordance with the Income Tax Act.
Concluding Remarks
Apart from allowing for a fairer calculation of the tax charge for married individuals, one may also conclude that this new law promotes equality between the spouses, an aspect which was the previous system did not take into consideration. As the National Commission for the Promotion of Equality argued, in order for this reform to be as effective as possible, the separate tax return should be automatic rather than an option ‘since equal treatment should be the default and applicable to all’.
For further information and assistance, please contact us:
Sarah Schembri – Tax Accounts Assistant
+356 25 990 693
Authors: Stephanie Aquilina Galea – Tax supervisor, Jade Micallef – Senior Tax Accountant, Maria Spiteri Purkiss – Tax Accountant
Date: 12th April 2021
Director Fees – Tax and VAT Implications
Have you ever considered the income tax and VAT treatment of a director and more so, whether such treatment differs between Maltese tax residents or otherwise? The objective of this article is to highlight the salient features relative to the income tax and VAT considerations in respect of directors’ fees.
Income Tax Considerations relating to Directors’ fees
By virtue of Article 4(1)(b) of the Income Tax Act (ITA) tax is chargeable on income in respect of “gains or profits from any employment or office including the value of any benefit provided by reason of any employment or office”. Gains or profits which are taxed in terms of the said article include, inter alia, director’s fees.
For Maltese income tax purposes, director’s fees are arise in the country where the services rendered to the company in question is managed and controlled. This means that directors’ fees derived by a person for services provided to a company which is managed and controlled in Malta are said to be arising in Malta. Therefore, such fees are taxable in Malta regardless of where such director is resident for tax purposes.
The approach of the Maltese Tax Authorities is the same position adopted by the Organisation for Economic Cooperation and Development Model Tax Convention (‘OECD MTC’) whereby Article 16 thereof prescribes that “Directors’ fees and other similar payments derived by a resident of a Contracting State (say State A) in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State (say State B) may be taxed in that other State (State B).” However, one should note that Contracting States might decide to take a different position adopted by the OECD MTC. Therefore, the binding document between Contracting States is not the OECD MTC but the double taxation agreement in force between the two Contracting States. For example, the Malta-Poland DTA amended recently by virtue of L.N. 64 of 2021 denotes that where Polish tax resident directors sit on the board of a Maltese tax resident company, exclusive taxation is granted to Poland as the resident State of the directors and thus, Malta, does not have the right to tax the director’s fees.
Further, the Commentary to Article 16 of the OECD MTC also clarifies that directors’ fees refer to fees and similar payments received in the capacity of the person acting as a member of the board of directors and does not include emoluments relative to other services provided to the company such as advisory services, employment amongst others.
Director’s fees – practical implications
Director fees payable to an individual director, whether said director is tax resident in Malta or not, for directorship services rendered to a company which is managed and controlled in Malta, will be included as part of that individual’s total emoluments and taxed in accordance with the Final Settlement System (FSS) Rules at the applicable progressive rates of tax.
On the other hand, when a director is a corporate director rather than an individual, director fees will be part of the corporate director’s revenue and will be subject to tax at the Maltese corporate tax rate of 35%.
Nonetheless, a Maltese tax resident individual or corporate director rendering services to a company which is effectively managed and controlled outside Malta should consider their tax implications, if any, in the jurisdiction where the company in question is effectively managed and controlled. In such circumstances, Malta, as the resident state of the director, may still have the right to tax, however, this very much depends on the applicable tax treaty if any, between Malta and the country where the company is managed and controlled.
Non-Maltese tax residents on the other hand are subject to tax in Malta on Malta-sourced income, that is, income arising in Malta subject to the applicable double tax treaty in force.
VAT Considerations relating to Directors’ fees
In terms of article 5 of the VAT Act, the activities of an ’employee’ which, by definition includes the ‘holder of an office’, are not regarded as an economic activity for VAT purposes. In this respect, where an individual is appointed to the post of director of a company, the fees paid by the company to the director by way of remuneration for his/her activities or ‘services’ would typically fall outside the scope of Maltese VAT.
The main principle of VAT is to charge VAT on supplies of goods or services when the supply is made by a taxable person acting as such. All activities carried out by a non-taxable person falls outside scope for VAT purposes. The activities of a holder of an office are not considered as an economic activity for VAT purposes and therefore any remuneration received by the latter in consideration of his/her functions fall outside the scope of VAT.
The VAT treatment of supply Directors
There are scenarios whereby the individual holding an office (i.e. the director) is not remunerated directly, and in his/her own name, for the said activities. These would include:
Up until very recently, it was generally considered that fees paid in both of the above mentioned circumstances fall outside scope of Malta VAT. This, on the basis that the said fees constitute remuneration for an activity which is not to be considered as an economic activity for VAT purposes, that is, ‘holder of an office’.
Further to the CJEU judgement C-94/19 (San Domenico Vetraria SpA vs Agenzia delle Entrate), the above mentioned interpretation has been challenged since the judgement has reaffirmed that the lending or secondment of staff by one company to another (including the services of a director) with fall within the scope of VAT and would thus be taxable.
As a result of the judgement, in practice, when a company charges another company for the provision of an individual to sit on the board of the latter company, the transaction should be treated as an economic activity and therefore falling within scope of VAT and subject to the normal VAT rules.
Corporate Directors
In instances whereby a director of a company is a corporate director (and thus not an individual), one may conclude that the activities carried out by the said corporate director are activities falling within the scope of VAT. The exclusion relating to the activities of the holder of an office in terms of Article 5 of the VAT Act specifically refers to an ‘individual’, and therefore a corporate director cannot be regarded as an ‘employee’ for the purposes of the said Article 5.
Conclusion
Pursuant to the above insight, we hope that the main aim of this article is now more fulfilled and therefore, all readers particularly directors, have now a better understanding on the income tax and VAT considerations relative to directors’ fees.
For further information and assistance, please contact us:
Maria Spiteri Purkiss – Tax Accountant maria.spiteripurkiss@fenlex.com +356 25 990 647
Author: Jade Micallef, Senior Tax Accountant
Date: 8th April 2021
The Maltese Tax Authorities notified the extension of the tax deferral scheme, the objective of which is to improve the business liquidity emanating from the economic impact of the Covid-19 pandemic.
The updated notification provides that settlement of eligible taxes (provisional tax, social security contributions of self-employed persons and VAT) will start to apply from May 2022.
The Tax Deferral Scheme applies to companies and self-employed businesses which suffered a significant downturn in turnover as defined in the Revenue notification.
The deadline for the submission of the application is 15th May 2021. Companies and self- employed persons that had already applied for deferment of eligible taxes for March 2020 to August 2020 do not need to re-apply as they will automatically be considered for the extended period till December 2021.
Should you have any questions or require our assistance with the application, do not hesitate to get in touch with us on taxenquiries@fenlex.com
Author: Adrian Mercieca, Manager, Corporate Administration Department
Date: 29th March 2021
On the 15th March 2021, the MFSA published the new Company Service Providers (‘CSP’) Rulebook which shall apply to all Company Service Providers that are currently authorised under the Company Service Providers Act, 2013 (the ‘Act’) together with many other operators such as accountants and law firms who previously has an exemption and did not require authorisation from the MFSA and where therefore ‘unregulated’. .
The amendments, also introduce categorisation of CSPs into three licensing classes as follows:
Application under one of these CSP licence classes is obligatory subject to two exceptions:
Depending on the Class of CSP licence that an applicant submits different capital and insurance requirements apply as indicated in the table below (fig.1).
| CSP Class | Initial Capital Requirement |
| Class A CSPs | € 10,000 |
| Under threshold Class A CSPs – € 2,500 | |
| Class B CSPs | € 15,000 + Mandatory Pll |
| Under threshold Class B CSPs – € 5,000 | |
| Class C CSPs | € 25,000 + Mandatory Pll |
Figure 1
Whilst risk has always been an important matter on the agenda of CSPs, the Rulebook introduces a requirement on the Class C CSPs to establish and maintain a risk management function which shall independently, implement policies and procedures referred to in the Rulebook and provide reports and advice to the CSPs senior management. The MFSA may allow the CSP to establish and maintain an in house risk management function, provided that the said CSP provides evidence to the Authority that the establishment and maintenance of a dedicated independent risk management function ,with the sole responsibility for risk management is not appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of the CSP services. This notwithstanding, where a Risk Officer is not specifically employed by the CSP, the role should be performed by a senior official of the CSP or a non-executive director.
The MFSA will also be assessing the fitness and properness of any applicants. In this regard the following aspects will be assessed (i) Competence (ii) Reputation (iii) Conflicts of Interest and Independence of Mind and (iv) Time Commitment. The fitness and properness assessment shall be applicable to: (i) the Applicant, where the CSP is a natural person; (ii) Qualifying Shareholders; and (iii) any individual that intends to hold an approved position within the CSP.
On the 16th March 2021, the MFSA opened applications for authorisations under the Act. CSPs have to submit applications via the online portal between the 16th March and the 16th May of 2021. It is interesting to note though, that existing CSPs who were in possession of a CSP Licence prior to the date of coming into force of the amendments introduced by Act L of 2020 are obliged to take all necessary steps in order to adhere with the obligations within six (6) months from the date of the publication of the Rulebook. Provided of course that during such interim period, said CSPs shall remain compliant with the previous version of the Rules and do their utmost to comply with the new Rulebook to the best of their abilities.
Fenlex has over 30 years of experience in the sector and through its Compliance team is in a position to provide support and assist individuals and or organisations now required to apply for a license and who are now deemed to be subject persons and required to fully comply with the Prevention of Money Laundering and Funding of Terrorism Regulations as well as the implementing procedures as published by the FIAU. Contact us at compliance@fenlex.com for more info.
Learn from leaders in the corporate field, up your skills and enhance your profile. Applications to join The Fenlex Summer 2021 Corporate Internship Programme are now open.
For more information contact us on: internship@fenlex.com
A meet-and-greet information session will be held online on Tuesday 13 April 2021 @ 16:00. To receive an invitation to participate in this event, please send us an email on the above address.
#YourNextMove
Author: Karl Diacono, CEO
With the new COMPANY SERVICE PROVIDERS RULEBOOK published by the MFSA, as of today 16th March 2021 many service providers who previously did not require authorisation from the MFSA to provide corporate services now do. This includes accountants, lawyers and any other person offering corporate services including acting as director or company secretary if a threshold of 10 posts, as defined in the Rule Book, is surpassed. This places new compliance obligations on the service provider that may include, for some, Anti Money Laundering obligations.
Fenlex has been in the Corporate Services industry since the late 1980’s and has gained years of experience to allow it to provide assistance to professionals in the market to either review and improve their compliance function or build it from the bottom up. We provide assistance in building the documentation library required as well as training programmes and compliance audits. We also provide a technology solution.
Back in 2016, a discussion with Aqubix was what sparked the development of KYCP Portal, a tool that would help in the process of collecting, risk scoring, storing, updating and monitoring client data in relation to one’s AML obligations. Fenlex assisted Aqubix in the design stage of the tool. We helped build it and have been using it for the last three years, refining the application over time. Together with well-built policies and procedures KYCP Portal makes compliance that much easier.
We have a team of dedicated professionals with various compliance backgrounds who are ready to assist you. Feel free to contact us at compliance@fenlex.com
#wearefenlex
Authors: Stephanie Aquilina Galea, Tax Supervisor and Letizia Grech Seychell, Senior Tax Accountant
Date: 16th March 2021
The Malta Enterprise Corporation has published a new set of Guidelines in relation to the Investment Aid Scheme, which guidelines are applicable as from 1st January 2021 and shall remain in force until 31st December 2021 (unless reviewed or updated in line with any revisions made to the relevant State Aid regulations or with any changes to the national policy requirements).
Scope
The Investment Aid Scheme aims to sustain the regional, industrial and economic development of Malta. The aim is to facilitate initial investments by encouraging the setting up of new establishments as well as the expansion and development of existing businesses.
The applicable aid will be a percentage of qualifying expenditure incurred and may take the form of tax credit and / or cash grant.
Eligible undertakings and projects
The Investment Aid Scheme is available for both small and medium-sized enterprises (SMEs)[1] and large enterprises.
Undertakings shall be eligible if they operate from Malta and are incorporated in the European Union as a partnership or a limited liability company, cooperative or similar set-up.
The Aid will be awarded to eligible investment projects commencing after 31 December 2021, but no later than 31 December 2023, with some specific exceptions.
The conditions for the eligibility of Initial Investment Projects are:
The Guidelines include specific rules for eligibility for both SMEs and large enterprises.
The list of qualifying economic activities is:
Eligible project expenditure
This shall be:
The Guidelines include details of how each item indicated above is to be calculated. Any taxes or Government induced charges are excluded.
Aid awarded: Form and Intensity
The aid shall amount to a percentage of qualifying expenditure incurred and may take the form of tax credits (which may be claimed against future tax bills) and/or cash grants.
The aid itself is then awarded as a percentage of the qualifying expenditure as follows:
| Size of Undertaking | Aid Intensity |
| Small | 30% |
| Medium | 20% |
| Hotels, guest houses and their amenities as licensed by the MTA – SMEs | 15% |
| Large | 10% |
Benefitting from Investment Aid
An application must be submitted to the Malta Enterprise Corporation for each initial investment project in order to benefit from this aid. This application will serve as a determination of the project’s eligibility within the parameters established in the Guidelines. The application must be submitted on the appropriate application form and will be reviewed by the Corporation, whereby specific procedures may be followed. Once reviewed, the applicable feedback will be communicated to the beneficiary.
For further information and assistance, please contact us:
Letizia Grech Seychell – Senior Tax Accountant
letizia.grechseychell@fenlex.com
+356 25 990 430
[1] In terms of the Annex I of the Commission Regulation (EU) No 651/2014)
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#Wearefenlex.
Date: 9th March 2021
Corporate Administrator Faith Spearing writes in The Malta Business Weekly edition of the 4th March 2021.
“As the officers in charge of running the company, directors are obliged to ensure that the best interests of the company are always safeguarded, especially in times of uncertainty.”
“When holding meetings remotely, directors must also consider tax implications such as change in tax residency or dual tax residency as the place of effective management of a company, which includes the place where board meetings are usually held, may change.”
Read the full article here: https://bit.ly/3rtYCan
