News

International Women’s Day

On the occasion of International Women’s Day, this is a message from Nicolai Vella Falzon:

I am hugely proud to have recently been elected to manage an organisation which does not think in terms of gender but only in terms of competence.  While the subject of gender equality is still a hotly debated subject, and while many countries (not least our own) still strive to achieve proper gender equality across all strata of society,  I am proud to lead  an organization that is not only inclusive of women at all levels, but actually has a workforce in which women outnumber men by quite a stretch. In fact, no less than 66% of the members of our organization are women and approximately half of our management complement, including my able predecessor, is also composed of women.

My message this morning to our teams at Fenech & Fenech and Fenlex was to take the occasion to celebrate the achievements of women generally and, more-so, of all the women within the organisation with special mention of those super-mums who balance their careers with the incredible responsibility of motherhood with so much sacrifice and hard work.  Happy Women’s Day!

The 2021 VAT changes for cross border e-commerce

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

Date: 5th March 2021

The main aim for the 2021 VAT changes, which come into force as of 1 July 2021, is to simplify the VAT compliance obligations for taxable persons operating cross-border transactions of either goods or services to final customers and to ensure that the VAT due on such supplies is duly paid to the Member State (MS) of where the customer is established. The changes were originally set to be applicable with effect from 1 January 2021, however the European Commission proposed to postpone the introduction of the new e-commerce VAT rules by six months, which in fact such proposal was adopted by the European Council.

Transactions covered by the 2021 changes

The following transactions are covered by the new provisions of the law:

  • Distance sales of goods imported from third territories or third countries carried out by suppliers, except for goods subject to excise duties;
  • Intra-community distance sales of goods carried out by suppliers or deemed suppliers[1];
  • Domestic sales of goods by deemed suppliers; and
  • Suppliers of services by taxable persons not established within the EU or by taxable persons established within the EU but not in the Member State of consumption to non-taxable persons.

Extension of the current MOSS to OSS

The Mini-One-Stop-Shop (MOSS) scheme, currently applicable to business-to-consumer (B2C) supplies of telecommunications, broadcasting and electronic (TBE) services, will be extended with effect from 1 July 2021 to the One-Stop-Shop (OSS) scheme, covering all types of B2C services as well as intra-community distance sales of goods.

Under the current VAT rules, supplies of goods to end consumers by Maltese businesses (‘MS 1’) to another MS (‘MS 2’), whereby the customer is not registered for VAT in that other state (‘MS 2’), is treated as supplied in the country of dispatch (‘MS 1’), unless the distance sales threshold is breached. Once the distance sales threshold is exceeded, the supply is subject to VAT in line with the VAT rules where the end consumer is established (‘MS 2’). Thresholds vary from one country to another; currently in Malta the distance sales threshold is EUR 35,000.

The new rules require EU based suppliers to report these transactions, which will now be referred to as ‘intra-community distance sales of goods’ under the OSS.  B2C operators established in the EU providing intra-community distance sales of goods, will be subject to the VAT rules of the MS where the transport ends. However, if the EUR 10,000 threshold is not exceeded, the intra-community distance sales will be deemed to be taking place in the country of dispatch. The application of the OSS will eliminate the need for multiple VAT registrations in different EU jurisdictions and will ease the compliance burden as EU businesses may opt for the OSS system and will be able to remit the VAT due in other Member States through one return, known as the OSS return.

The following businesses would be eligible to apply for an OSS regime in Malta:

  1. Taxable persons established in Malta engaged in intra-community distance sales; or
  2. Taxable persons established outside the EU having a fixed establishment in Malta, engaged in intra-community distance sales; or
  3. Taxable persons established outside the EU and have no fixed establishment in Malta but is dispatching intra-community distance sales from Malta.

The OSS will also be applicable, with effect from 1 July 2021, to B2C services taking place in a MS other than the MS where the supplier is established. This mainly applies to businesses providing hiring of means of transport (such as the pleasure yacht chartering industry), supply of transport services, and supply of services connected with immovable property. Under the current VAT rules, such suppliers must register in the different Member States where the services are taking place. Through the application of the OSS system, such businesses will no longer be required to retain multiple VAT registration but may opt to declare such services through the OSS regime.

The practicalities of the OSS scheme

A taxable person should notify the Commissioner for Revenue when intra-community distance sales and/or supplies of services falling within the scope of the OSS regime commence or cease through an application filed electronically. The OSS registration would subsequently be cancelled if the taxable person no longer performs such supplies.  The OSS return is a calendar quarter return (i.e. January to March, April to June, July to September, October to December) and would be due within 30 days of the end of the calendar quarter.

The Import One Stop Shop (I-OSS)

To complement the OSS system, with effect from 1 July 2021 the Import-One-Stop-Shop (I-OSS) scheme will be introduced. The I-OSS regime applies to distance sales of goods imported from countries outside the EU with value not exceeding EUR 150.  Operators have the option to register under the I-OSS scheme and VAT will be charged by the supplier at the point of sale to the EU customer. Therefore, if I-OSS is applied, no VAT would be charged by Customs on importation as is currently being done. This will likely speed up the process as the goods will not be delayed at Customs due to processing and collection of VAT payment. Operators have the option to appoint an intermediary to register under the I-OSS on their behalf. The operator or intermediary will submit a monthly I-OSS return reporting the VAT collected and remit the VAT due to each MS of importation.

The low value consignment relief which exempts from VAT on importation of low-value goods not exceeding EUR 22 will be abolished as of 1 July 2021. To support this measure, suppliers may opt for the I-OSS regime.

The practicalities of the I-OSS scheme

Similar to the OSS, a taxable person or its appointed intermediary should notify the Commission for Revenue when activities falling under this scheme commence or cease through an application filed electronically. The I-OSS return is a monthly declaration and would be due by the end of the following month.

Conclusion

The reason behind these changes is to overcome the barriers to cross-border online sales, in particular challenges arising from the VAT regimes for distance sales of goods and from the importation of low value consignments. The new rules will place EU businesses on equal footing with non-EU businesses, wherein according to the current rules non-EU businesses are not required to charge VAT.

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

 

[1] Deemed supplier is defined as a taxable person who is deemed to receive the goods from the underlying supplier and to supply the goods to the final customer. The deemed supplier is the taxable person facilitating supplies through an electronic interface.

Tax Treaties and COVID-19

Author: Letizia Grech Seychell, Senior Tax Accountant

Date: 1st March 2021

Head of Tax Compliance Department William Cassar and Senior Tax Accountant Letizia Grech Seychell write in yesterday’s edition of the Times of Malta:

“COVID-19-related measures such as travel restrictions and curtailment of business operations are still very much in place and they seem to be here to stay for at least the medium- term. To this end, the OECD felt that it should provide additional insight on three main concerns…”

“What clearly stems from the OECD guidance is that, in the OECD’s opinion, temporary changes in circumstances during these extraordinary times should not give rise to tax treaty implications. However, this guidance only represents the views of the OECD secretariat and therefore taxpayers should closely monitor any guidance issued from relevant tax authorities to be able to correctly assess their particular situations.”

Read the full article here: https://bit.ly/3surXlg 

Article 10 to Article 11 VAT Registration – Guidelines

Author: Jade Micallef, Senior Tax Accountant

Date: 25th February 2021

The Commissioner for Revenue announces the publication of new Guidelines relative to the rectification of VAT Registration from Article 10 to Article 11.

The Guidelines prescribe the conditions applicable to the conversion from Article 10 to Article 11 VAT Registrations prior to lapse of 6 months, as permitted by virtue of LN 463 of 2020.

Should you require any assistance on VAT Registrations, do reach out to us on taxenquiries@fenlex.com.

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.

Tax rebate on private residential leases

Author: Jade Micallef, Senior Tax Accountant

Date: 11th February, 2021

The Commissioner for Revenue notifies that persons who derive rental income from a private residential long lease registered with the Housing Authority can now benefit from a tax rebate which can be deducted from their tax levied on such rental income.

Such tax rebate is applicable:
1. For leases registered as from basis year 2020;
2. Where the applicable tax rate is 15%;
3. Where the lease duration is of at least 2 years; and
4. Subject to a capping depending on the lease duration and the number of bedrooms.

Where the lease falls short of a full year, the tax rebate is proportionate to the number of days for which the lease is executed.

Such rebate can be claimed online through the submission of Form TA24 whose deadline for filing and payment of rental income derived during basis year 2020 cannot be made later than 30th April 2021. Late submissions and payments are subject to interest as stipulated by Law.

Should you require further information or assistance on the completion and online filing of Form TA24, please do not hesitate to reach out to us personally on taxenquiries@fenlex.com.

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%.

Tax Update: Highly Qualified Persons Rules (HQPR)

Author: Jade Micallef, Senior Tax Accountant

Date: 9th February 2021

By virtue of Legal Notice 29 of 2021, the Highly Qualified Persons (Amendment) Rules, various amendments were introduced relative to the benefits granted in the Highly Qualified Persons Rules, Subsidiary Legislation 123.126. These amendments are applicable retrospectively as from 31 December 2020.

Such amendments can be summarised as follows:

  • EEA and Swiss nationals who apply to benefit under the HQPR are now eligible for two further extensions of five years (instead of one, as previously applied) or four years with respect to third-country nationals, subject to prescribed limitations.
  • Rules were extended for another five years and no determinations by the respective competent authorities shall be issued after 31 December 2025. Any such determination issued must make reference to any employment where the benefit provided in terms of the Rules commences by 31st December 2026 and ceases to apply by 31st December 2030.
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