Directors’ Fees – Tax and VAT Implications

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:

  • Where a corporate services provider or other service provider makes available, to its client company, an individual to sit on the board of directors of the client company; or
  • Where a director’s remuneration is paid to another company of which the director is a shareholder.

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.


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 +356 25 990 647

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

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.


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%.

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

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!

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