Author: Rosanne Bonnici, Tax Partner
Date: 12 October 2021
The Minister of Finance delivered the 2022 Budget Speech on 12 October 2021, announcing therein several fiscal measures aimed at incentivizing investment whilst also pushing forward with other items on the Government’s agenda, including social solidarity, the environment, amongst others.
These measures are being introduced against the backdrop of the COVID-19 pandemic and Government figures spoke to this fact. The deficit for 2021 is expected to be around 11.1% of GDP (originally estimated at 5.9% of GDP); for 2022, this is currently estimated to go down to 5.6% of GDP. The various COVID-19 measures put in place by Government to support the economy over the past one and a half years have understandably also impacted local debt levels, with Government debt estimated to reach 61.3% of GDP by the end of 2021 (compared to the original estimate of 58.6%).
This brief update looks at some of the more salient fiscal measures announced in the 2022 Budget Speech as these will primarily affect the business community and workers.
Incentives for Business
A significant number of fiscal incentives shall be introduced with the aim (a) of supporting the recovery of businesses locally due to the impact of the COVID-19 pandemic, and (b) of further encouraging investment in Malta. These incentives include:
- The COVID-19 rent subsidy incentive is to be extended to a larger number of eligible businesses.
- In providing further support for recovery, qualifying companies that incurred losses during financial years 2020 and 2021 shall be permitted to surrender any unabsorbed capital allowances to qualifying profitable group companies during the financial year 2021.
- Malta Enterprise is to launch a scheme granting companies tax benefits calculated by reference to any profits re-invested in their businesses.
- The reduction of transfer duty on the transfer of family businesses to 1.5% is to be extended further.
- On the investment front, proposals include that of the SME Tailored Facility issued by the Malta Development Bank now to cover loans for sustainable and environmental projects within the private sector; a new startup hub, set up to attract local and foreign entrepreneurs – the ‘Blue Med Hub’ – is to be launched.
Benefits for Workers
Several such benefits were announcement in the 2022 Budget Speech, including:
- Tax levied on income derived from part-time work to be reduced from 15% to 10%. In addition, the first €10,000 in overtime income earned by employees whose basic annual salary does not exceed €20,000 and who do not occupy a managerial position is to be taxed at 15%.
- Increase in tax refunds payable to individual taxpayers in the coming year.
- In the case of pensioners who work, the income from their pensions shall no longer be computed as income for income tax purposes.
Crack down on tax evasion
There has been much talk in the press recently about the Government’s plans to take significant steps on the enforcement front in terms of collecting outstanding tax dues and combatting tax evasion. The Budget Speech included references to this, such as the announcement that, with effect from 1 June 2022, the rate of interest charged on outstanding income tax and VAT dues is to increase to 7.2% per annum (0.6% per month).
On much the same lines, going forward requests for a remission of interest charged on overdue tax will only be considered if the Revenue is satisfied that the tax due was not paid within the prescribed period due to a reasonable cause.
Immovable Property sector
Several incentives were announced with respect to the residential property sector, some with an environmental tint in terms of preserving our heritage, others seeking to provide more support to young couples, low-income earners etc. to set up a home.
A key element of this batch of incentives refers to the exemption, from income tax and stamp duty, applying with respect to the first €750,000 of the value of the property transferred, when such property (a) has been constructed more than 20 years ago and has been vacant for more than 7 years, or (b) is in an Urban Conservation Area, or (c) is built in typical Maltese architectural style and possesses traditional Maltese features. This incentive also applies to buyers who, having entered into a promise of sale agreement, have yet to execute the deed of purchase. In addition, cash grants are to be given to first time buyers; VAT refunds will also be granted on the first €300,000 (capped at €54,000) worth of expenses incurred on the restoration/improvement of the said property. This scheme will apply with immediate effect for a period of 3 years.
A new residence permit (‘startup visa’) for non-EU individuals is being introduced to attract local start ups and entrepreneurs.
Amongst the several other measures announced in the Budget Speech, some stood out more than others. One such measure concerns the announcement that public transport shall be free of charge for all Maltese citizens and residents alike effective October 2022.
For further information on Malta’s fiscal regime and doing business in Malta, please contact Dr. Rosanne Bonnici, Head of the Tax & Immigration Law Department, at Fenech & Fenech Advocates, by telephone (+356 2124 1232) or email (firstname.lastname@example.org).
©Fenech & Fenech Advocates 2021
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