Much as expected, the Government is projecting a deficit for the first time in five years amounting to 9.4% of the GDP for 2020 as a result of the impact of the Covid-19 pandemic on Government revenue and increased expenditure to fund the various support measures. The pandemic has caused real economic activity in Q2 to contract by more than 16%, with tourism related activities, retail and transport logistics being the hardest hit.

Hereunder are selected highlights from yesterday’s Budget Speech delivered by the Minister of Finance in Parliament, which Budget includes a range of schemes and incentives clearly prioritising the country’s economic recovery:

Income Tax

  • With effect from 2021, any royalty income derived by authors and co-authors from the sale of their books shall be subject to tax at a final reduced tax rate of 15%.
  • The tax refund paid in the previous 3 years will be renewed for individuals earning less than €60,000. The refund will vary between €45 and €95, depending on the level of income and tax status of the individual.
  • The maximum amount of exempt pension income will be increased to €14,058. Furthermore, persons applying married tax rates will be entitled to a further €3,600 tax free amount in respect of income from other sources.
  • The maximum amount of tax credits applicable to private pension plans and voluntary occupational pension schemes are being increased. Fiscal measures will be introduced providing for a further maximum tax saving of €1,500 for single individuals and €2,250 for married couples (where only one of the spouses is in employment) in the case of individuals who contribute towards voluntary occupational pension schemes and personal retirement schemes respectively.

Transfer Duty

  • The duty exemption, currently available to first-time home buyers, applicable to the first €175,000 of the value of the property shall be increased to €200,000 and extended for another year.
  • Individuals who inherit property in which they reside currently pay duty at the rate of 3.5% on the value of the property inherited, up to a maximum of €175,000. Such maximum value shall now be increased to €200,000. This duty reduction shall also be applicable to individuals buying a property to be used as their residence, even if such individuals are not first time buyers.
  • Individuals who sell their first residence to acquire another residential property are currently eligible to a refund of duty of up to €3,000 (or €5,000 in the case of persons with special needs) provided that they do now own any other property at the time. This measure is being extended to qualifying acquisitions made during 2021.
  • Acquisitions of property located in a Urban Conservation Area are subject to a reduced 2.5% rate of transfer duty. This reduced rate shall continue to apply during 2021.
  • Individuals purchasing a property for use as their residence in Gozo may currently benefit from a reduced duty rate of 2% instead of 5%. This reduced rate shall continue to apply during 2021.
  • The reduced capital gains tax rate of 5% on the first €400,000 of the transfer value of the property and the reduced transfer duty rate of 1.5% on the first €400,000 of the transfer value of the property, both introduced as part of the COVID-19 Economic Regeneration Plan, shall continue to apply in respect of promise of sale agreements (konvenju) registered byl 31 March 2021 and in respect of which the deed of purchase shall be published by 31 December 2021.
  • The duty exemption currently applicable to the first €200,000 of the value of immovable property donated by parents to their children for the purpose of establishing therein or constructing thereon their sole, ordinary residence shall be increased to €250,000, with duty at the rate of 3.5% applying to the remaining value.
  • Currently, the first €100,000 of gains or profits derived upon the transfer of any right acquired through a promise of sale agreement is subject to a final tax at a reduced rate of 15%. This reduced rate of tax shall now apply to the full amount of gains or profits derived with respect assignments of rights affected during 2021.
  • The reduced transfer duty rate of 1.5% currently in place with respect to a transfer of a qualifying business by parents to their children shall be extended to qualifying donations affected in 2021.

Social Security

  • For the purposes of calculating eligibility for a national minimum pension, persons born before 1962 and who do not qualify for a contributory pension will be entitled to add to their total number of contributions any contributions paid prior to the attainment of 19 years of age.
  • Amendments shall be made to the definition of a ‘widow/er’ within the Social Security Act to cater for individuals who, not being married, are in a civil union or cohabitating.

VAT

  • Exemption from VAT on the provision of education or educational research, vocational training or re-training, including distance learning provided by schools and institutions recognised for this purpose.
  • Full VAT refund relative to purchases of bicycles and electrical bicycles will be extended for another year.
  • With effect from 2021, the annual turnover threshold below which small businesses or self-employed persons engaged in the provision of certain categories of services may opt to register as a VAT exempt person (typically referred to as an article 11 type of VAT registration) shall increase from €20,000 to €30,000.

COVID-19 incentives

  • Additional vouchers worth €100 (€60 redeemable against hospitality services and €40 against retail and other services) to be distributed to each person who is at least 16 years of age.
  • Wage Supplement to be extended to March 2021. This scheme and other measures announced as part of the Economic Regeneration Plan shall be re-evaluated during the first quarter of 2021 following consultation with social partners and adjusted as required at the time.
  • European Union funds: €120 million of the €2.25 billion worth of European Union funds secured in July 2020 shall be deployed to support employees in businesses impacted by COVID-19, whereas an additional €220 million shall be invested in supporting digital transformation, as well as environmental and climate change initiatives.
  • The Government announced that it shall be submitting a further EU State Aid application with respect to the national carrier, Air Malta.

Society and the Environment

  • The cost of living adjustment for 2021 shall be €1.75 per week.
  • Pensioners shall benefit from a weekly increase of €3.25 with effect from 2021. This increase is in addition to the COLA, resulting in a total weekly increase of €5 for pensioners.
  • An additional day of vacation leave shall be added to the current leave entitlement of employees effective 2021.
  • An additional supplement to be given for every child. The supplement shall consist of €70 per year per child for families with income not exceeding €25,318 and €50 per year per child for families with income exceeding the foregoing threshold.
  • The threshold for eligibility to the in-work benefit shall increase to €35,000 for working couples, €23,000 for single working parents and €26,000 for couples with a single working parent.
  • The grant for couples adopting children locally shall to up to a maximum of €1,000.
  • The annual subsidy for expenses incurred by the elderly who employ a full-time or part-time carer shall increase from €5,291 to €6,000.
  • Measures shall be introduced to diminish reliance on single-use plastics: the importation of single-use plastics shall be prohibited as from 1 January 2021, whereas the sale of single-use plastics shall be prohibited as from 2022.
  • Vehicle scrappage schemes shall be extended, with the maximum available grant going up to €7,000.
  • Exemptions from vehicle registration tax, as well as annual circulation licence fees, for a period of 5 years, both of which are applicable to electric/hybrid vehicles, shall be extended for another year. The special night-time tariff for charging such vehicles at one’s residential home shall also be retained. The grant available to persons who convert their vehicles to gas engines shall be increased to €400, so long as the vehicle’s CO2 emissions decrease by 25%. The grant shall be increased to a maximum of €800 where the vehicles in question are used for the transport of passengers and/ or goods.

How can we help?

Should you require any assistance relative to how your business and / or you personally may benefit from the Budget 2021 measures as well as any of the COVID-19 and Economic Regeneration Plan incentives, please do not hesitate to reach out to us personally.

For more information, please contact Dr. Rosanne Bonnici, Tax Partner, on rosanne.bonnici@fenlex.com.