On March 29 2018, the Budget Measures Implementation Act (Act) was passed, whereby several of the 2018 budget proposed measures were implemented. At the core of the Act are various interesting fiscal measures and incentives for both businesses and households.
One of the more pertinent measures is an amendment to the definition of 'participating holding'. One of the conditions for qualifying as a participating holding was that a company must have held directly at least 10% of the equity shares of a company, this holding having conferred an entitlement to at least 10% of two out of (i) the right to vote; (ii) profits available for distribution; and (iii) assets available for distribution on a winding up. The thresholds have now been reduced to 5%. The thresholds are relevant for the purposes of qualifying for one of the limbs of the participation exemption, which is an exemption from income tax on income derived from a participating holding or gains derived from the transfer of such a holding, provided additional conditions are met. The Act has also widened the scope of entities in which a participating holding can be held by including European economic interest groupings and partnerships which did not elect to be treated as a company under a particular provision of the law.
Another noteworthy introduction is that as from basis year 2018, individuals that are ordinarily resident but not domiciled in Malta, who derive income of not less than €35,000 ($42,000) that is received outside of Malta and who do not avail themselves of any special tax programmes such as the global residence programme or the Malta retirement programme, will be subjected to a minimum tax of €5,000 per annum before taking into account any foreign tax relief. It may, however, be possible for the tax liability to be capped at a lower amount.
Moreover, the Act now clarifies that individuals who acquire permanent residence in terms of the Free Movement of European Nationals and their Family Members Order, or become long-term residents of Malta in terms of the status of long-term residents (third-country nationals) regulations are not able to claim the remittance basis of taxation.
A new income tax deduction has also been catered for with respect to intellectual property. The deduction must not exceed a percentage amount of qualifying income derived from qualifying intellectual property. The minister responsible for finance is yet to prescribe more detailed rules. Further developments are therefore expected in this area. The Act has also clarified that the income tax deduction relating to capital expenditure on intellectual property is to apply when the intellectual property is used and employed in the production of the relevant income and the expenditure must be spread equally over at least three consecutive years.
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