Professor Edward Scicluna, the Minister responsible for Finance, delivered the 2020 Budget Speech yesterday, the 14th October 2019, against a backdrop of positive economic growth.

Whilst the surplus for 2019 is expected to amount to around €48.5m (1.4% of GDP), for 2020, this is expected to grow to around €114m. GDP for 2019 is expected to be €14bn representing an increase of 4.3% in real terms and Government debt as at the end of 2019 is expected to amount to around 46.8% of GDP (i.e. €5.6bn) with the expectation for it to reduce to 43.1% of GDP by 2020. Meanwhile, the unemployment rate for 2020 is expected to be 3.5%, remaining below the EU average rate.

This brief update looks at some of the more salient fiscal measures announced in the 2020 Budget Speech.

Direct Tax

  • Reduced rate of tax on overtime: Starting from 2020, the first 100 hours of overtime in relation to employees with a basic salary of not more than €20,000 (and not in a managerial post) will be taxed at 15%.
  • Tax refund to employees: The tax refund paid in the previous two years will be granted again to employees earning less than €60,000. The refund will vary between €40 and €68 depending on the level of income and tax status of the employee.
  • Exemption on pension income: The maximum amount of exempt pension income will be increased to €13,798 with persons claiming married rates being entitled to a further €2,000 tax free in respect of income from other sources.

Other

  • Pensioners may opt not to pay provisional tax but to have an amount deducted from their pension.
  • Married couples may opt to file separate income tax returns.
  • Taxpayers to receive tax statements (on a provisional basis) in an effort to reduce the filing of tax returns.
  • Tax refunds to be paid within six months.

Immovable Property

  • As from 1 January 2020, the first €100,000 of any profits or gains arising on the assignment or cessation of any rights acquired under a promise of transfer of immovable property or any rights thereon will be subject to a tax at the rate of 15%. Any profits or gains exceeding €100,000 will continue to be subject to tax at 35%.
  • Extensions to existent schemes: – An extension of the reduced duty rate on certain intra-family transfers of business property and securities; – First-time buyers of immovable property will now be exempt from stamp duty on the first €175,000 of the value of the property (previously €150,000); – Continued reduction or refund of stamp duty on the purchase of a new residential home for “Second-Time Buyers”, in Gozo (reduction from 5% to 2%) and in Urban Conservation Areas (reduction from 5% to 2.5%); – The reduced rate of 3.5% on inherited immovable property being the residential property of the heirs shall now be applicable on the first €175,000 of the value of the immovable property.

VAT

  • The VAT exemption on the provision of education and educational research will be extended to approved vocational training and retraining.
  • The grant equivalent to the VAT amount on the acquisition of bicycles and pedelec bicycles is being extended for another year.
  • The VAT exemption on special apparatus bought for people with disabilities will increase by €400 up to a maximum of €1,000.

Gozo

  • Improvement to the iStartup tax credit to further incentivise new businesses setting up in Gozo.
  • Fiscal incentives to be granted in respect of relocation expenses incurred by those companies relocating their operations to Gozo and also to those companies creating new employment opportunities in teleworking and back office sectors.

Anti-Money Laundering Measures

  • Cash payments for the purchase of property, cars, yachts, and diamonds cannot, as from next year, exceed €10,000. This measure seeks to combat tax evasion and stimulate fair trade.

Social, Pension and Employment Measures

  • The cost of living increase for 2020 amounts to €3.49 per week. Such increase will be granted to all employees, to pensioners and to those receiving social benefits. Students will also be granted such cost of living increase on a pro-rata basis.
  • All social security pensions to be increased by €3.51 per week. Thus, together with the cost of living adjustment of €3.49, the weekly increase for pensioners should be of €7 (€364 per year). Similarly to previous years, the portion of any service pension which is not to be reduced from the retirement pension is being increased by a further €200.
  • An additional day of leave to all employees’ annual leave balance.

For further information contact our Tax Team and we would be happy to assist.

Author: Dr. Sarah Rausi, Senior Associate, Tax Department