Value added tax (VAT) is an indirect and a consumption based tax across Europe. The tax is generally neutral on the trader as long as the business is able to deduct the input VAT, and tax neutral for international trade. VAT is also a tax that is immediately aware to the consumer on each purchase made as it is included in the same price on purchase. The VAT is charged on each stage of the supply chain until the tax reaches the end customer.
For the supply of services in Europe, if your customer is a non-business Customer, you should generally charge Maltese VAT at 18%, unless your supplies are deemed VAT exempt, in which case no VAT is chargeable. If your customer is a business Customer, and therefore has a valid VAT number in Europe, one can apply the reverse charge mechanism and avoid charging Maltese VAT on the supply of service.
In Determining the Place of Supply for VAT purposes one needs to consider whether the supply is one of goods, or of services.
For goods one then considers whether the supply is one with or without transport, and whether the transport would being within or outside of the Community. Other considerations are whether the goods require installation or assembly and where this is carried out. There are special rules for goods supplied on board ships, trains and planes.
For services one needs to consider factors such as the type of service supplied, the type of customer (business or non-business), the contractual relation, the place of consumption or use of the service (the factual and commercial reality of the transaction), and other factors such as whether that service is tied to an immovable property (such as estate agents, architects) and where the customer (or their fixed establishment) is located.
For admission to Events, fairs and exhibitions, and related services whether cultural, sporting, entertainment, the place of supply is the place where the event actually takes place.
The activities of restaurants and catering activities, with the exception of those carried out on board a ship, train or plane, shall be carried out for VAT purposes where the services are physically carried out.
The hiring on a short-term basis (not more than 30 days) to a non-business customer of a car for instance, for VAT purposes is provided in the place where the car is left for collection by the customer. For vessels short term is defined as not more than 90 days. If the hiring of the car to a non-business customer is on a long term basis the place of supply is where the Customer is located.
The place of supply for long term hiring on a business to business transaction is the place where the customer is established.
Distance sales involve a supply of goods to a non-business Customer, transported from one member state to another.
This Scheme does not apply to business to business transactions or to Excisable goods. The Distance Sales Scheme also does not apply to goods which consist of either a new means of transport, goods that are installed by or for the supplier in the member state where the transport finishes, or goods traded under a margin scheme in the member state where the transport starts.
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Value added tax (VAT)
Taxable persons should keep proper accounts and records for their business, including a register for the goods transported within Europe, copies of all invoices, customs documentation, fiscal receipts, any partial attribution calculation, all VAT related workings and a register of capital goods falling under the VAT Capital Goods Scheme.
For supplies made by a taxable person, to another business, a tax invoice should be issued, including all the requirements and information as required. For supplies made by a taxable person to a non-business customer, a Fiscal Receipt instead should be generally issued at the point of payment, and to the extent of the payment being made. For supplies which are Exempt without credit, no formal VAT document is required to be issued to the customer.
Retailers and suppliers of food I the course of catering, should use a fiscal cash register to issue fiscal receipts.A tax invoice should include the date of issue and date the supply or payment was made, a sequential unique number, the Name, Address and VAT no. of the Supplier and of the Customer, the type of Supply, a description of the Supply including quantities when applicable, the taxable value in Euro currency and rate, unit price, amount of Tax/VAT charged at each applicable rate, total Tax/VAT charged. If no VAT is chargeable, the invoice should include a reference to the relevant VAT treatment and provision being applied.
The VAT treatment on the transfer of and letting of immovable property shall be generally Exempt without credit, with the following main exceptions:
i.letting of immovable property licensable under the Malta Travel and Tourism Services Act (these are treated as 7% VAT supplies)
ii.letting of property in Malta by a limited liability company to a person who is VAT registered under Art. 10 and which such letting is for the furtherance of the persons business activity
iii.the letting of property for a business activity for not more than 30 days (with some exceptions)
iv.letting of sites for the parking of vehicles as designated by the Commissioner
v.letting of permanently installed equipment, machinery and safes
VAT treatment for Digital Products
All taxable persons are subject to VAT registration. A taxable person is any person or economic entity, excluding employees and public authorities, carrying out an economic activity. An economic activity is one carried out with a business intention and not necessarily requires to have a profit intention or an actual profit resulting from the activity, and this includes trades, businesses, professions, personal services, trading income from tangible or intangible property, admission and membership fees.
There are 3 VAT registration types in Malta, these are:
Article 10, which is the standard registration, obtaining a VAT number with a “MT” prefix and the option to obtain an EORI number
Article 11, which is for Small Undertakings not exceeding the applicable thresholds, obtaining a VAT number without the “MT” prefix
and Article 12, which is for intra-community acquisitions of goods or services which taken place in Malta in terms of the EU VAT reverse charge mechanism, or by other persons when the threshold of Eur10,000 per year is exceeded.
Overview
This is any product in an intangible form, based and existing due to technology, and is delivered electronically through a network or the internet, through for instance email, downloading or through accessing the product from a website, with minimal human intervention and through a highly automated process.
Examples of digital products include:
i.Audio visual related products (Music, e-books, videos, movies, live-streaming or on-demand and downloadable content)
ii.Software which is either downloadable or offered as a service (software as a service (SAAS))
iii.Hosting services for websites and digital advertising
iv.Affiliate marketing related services, a system or network whereby the business through its services, websites and activities, generates sales for the products of other Companies, and in turn earns a commission for each sale or new client.
Record Keeping for VAT purposes
VAT Capital Goods Scheme
Mixed Supplies
Capital goods for VAT Capital Goods Scheme purposes are tangible goods with a cost of Eur1,165 or more, which are to be used for 1 year or more in the business as business tools or other items such as furniture or equipment used in the business activity in the production of the income. Input VAT incurred by a taxable person for a business capital item, can be deducted in full and immediately. This scheme does not apply for repair costs or maintenance of capital goods, or for the renting of capital goods.
If there is a subsequent change in the use of the asset, an adjustment may be required to return back a part of the input VAT initially deducted, to reflect this change in the use of the asset. The adjustment depends on the time when this change in the use of the asset occurred, therefore we look at the depreciable period of the asset, over which the asset is consumed and therefore the input VAT is attributable to. This period is 5 years for all capital goods, and 20 years in the case of immovable property.
Changes in the use of the capital good could include a disposal of the capital good, or a change in overall business activity during the depreciable lifetime of the capital item, which changes the basis on which input VAT can or can not be claimed back (such as the taxable person becoming a non taxable person).
Digital Products
This is a VAT simplification system available for Businesses trading in (electronically supplied) Services (not goods, however as from 01/07/2021 this will be changed to include goods), whereby you group up your EU sales to non-business clients in one system, thereby charging and reporting the VAT at the different member state VAT rates in one system.
If your business is based outside of the EU, selling Services to non-business customers who are based in Europe, MOSS registration is an option in order to trade in the Europe and report online your EU VAT sales and pay the VAT collected accordingly.
Electronically supplied services include website supply, web-hosting, supply of software, images, text and information, music, films, games, broadcasting of events and distance learning.
Determining the Time of Supply
In determining the Time of Supply, which determines when the taxable supply needs to be reported (and VAT paid) for VAT purposes, we look at the earlier of the date of the chargeable event and the date of payment, and from there we determine when the invoice should have been created, and consequently the VAT would then be due from the date of this same invoice.
The date of the chargeable event generally depends on the delivery date were applicable, or the date when the services were performed. There are special rules for Intra Community supplies of goods, importation of goods and also for supplies which are recurring or successive such as hire purchase related supplies.
Reverse Charge Mechanism
A simplification mechanism whereby the responsibility to account for VAT is moved to the recipient of the goods or services. This occurs when the supplier and the business customer are VAT registered in two different member states. If the supply consists of a supply of Goods, such goods are required to be transported from the member state of the supplier, to another member state for this mechanism to be applicable. For business to business supplies of Services, as long as the recipient has a valid EU VAT number, the responsibility to account for VAT can be moved to the recipient of the services and the VAT is then reported accordingly in both member states.
The recipient then accounts for the intra community purchase and if applicable, can claim back the input VAT on the business purchase, as long as the recipient has full right of deduction for this input VAT. The Supplier also accounts for these intra community in his VAT recapitulative statement, which is submitted electronically.
VAT Rates
VAT Distance Sales Scheme
Supply of services in Europe
VAT treatment on transfer of and letting of immovable property
Registration for VAT
There are 3 tax rates in Malta, 18%, 7%, 5% and 0%.
The standard rate of VAT in Malta is 18%. VAT incurred on purchases can be referred to as input VAT, whilst VAT charged on sales can be referred to as Output VAT.
The activities that fall under the reduced 7% rate of VAT include only the letting or accommodation of property licensable under the Malta Travel and Tourism Services Act
The activities that fall under the reduced 5% rate of VAT include:
i.the supply of electricity
ii.confectionary items
iii.medical
iv.printed supplies
v.items for the exclusive use of the disabled
vi.supply of antiques, works of art and collector’s items
vii.minor repair of items such as bicycles, shoes, leather goods, clothing and linen
viii.Domestic care services
ix.Certain eligible admission fees
Exempt supplies can be with or without credit to the Supplier. In both cases the supplier would not charge VAT on his supplies, but this determines whether the supplier can or can not claim back input VAT on his purchases (in full or in part).
Some examples of exempt without credit activities include activities falling under the Insurance Business Act, the Investment Services Act, the Health Care Professions Act, Education by registered institutions and public postal services.
Some examples of exempt with credit activities include the supply of food for human consumption (non-catering and non-confectionery items which have separate VAT treatments) and the supply of pharmaceutical goods.
The VAT period for VAT in Malta is generally 3 months, although the first VAT period may be longer.
The VAT return and payment fall due within six weeks from the end of the relative VAT period.The activity is considered to being established in Malta if the taxable person has an economic activity or fixed place of establishment in Malta, or if the taxable person does not any fixed place of business, the taxable person would then have their permanent address or usual residence in Malta.
Claiming back input VAT
The VAT paid by a Supplier which purchase is wholly incurred in making his taxable supplies for the furtherance of his business, and which purchase can be supported by a properly prepared Purchase Invoice, can generally be claimed back and deducted from any Output VAT collected from his sales. VAT paid by a Supplier for goods or services of personal use, as opposed to business use, is not deductible.
Blocked Input VAT
For some items purchased the input VAT is blocked, some of these items include alcohol, tobacco, supply and maintaining of motor vehicles, vessels and aircrafts with some exceptions, purchases involving entertainment and hospitality with some exceptions.
When the supplier is VAT registered in one member state, and makes a distance sale that involves goods being delivered to Malta, the Supplier may choose whether to VAT register his business in Malta and charge Maltese VAT, or to charge VAT at the rate of the member state where he is based until the distance sales threshold is reached (generally Eur35,000 per year sales to Malta non business customers, however as from 01/01/2021 the threshold will be 1 EU wide threshold of Eur10,000 per year), in which case then VAT registration in Malta would be mandatory and no longer optional.
Typical examples of Distance Sales include;
i. Through Own Website Sales
ii. Sales through Website Service platforms such as Shopify
iii. Amazon marketplace with various options on warehousing, delivery (Fulfilled by Amazon (FBA)) and VAT compliance. Generally if you opt for Amazon to store your goods in various countries in Europe, to better meet the orders in these respective countries, you would generally register your business for VAT in these other countries
iv. Ebay and similar auction sites
v. TV sales and shopping networks
Mini One-Stop Shop (MOSS)
A taxable person with an economic activity including both taxable and exempt supplies, with and without credit, would charge VAT depending on the product type and VAT treatment applicable, and would claim back input VAT which is either directly attributable to the taxable supplies, or proportionately attributable to the taxable and exempt with credit supplies. A partial attribution adjustment with definitive and provisional ratios, would be required at each VAT quarter to implement this treatment.
Determining the Place of Supply for VAT purposes
The main factor for the VAT treatment for Digital Products, is firstly whether your Customer is a business or a non-business Customer. Also important is where your Customer is located.
When B2C sales do not exceed Eur100,000 per year, the company is obliged to only obtain 1 piece of evidence showing where the Customer is located, rather than obtaining 2 pieces of non-contradictory evidence (eg. IP address and customer residential address).
When B2C EU sales of digital products that do not exceed Eur10,000 per year, a business can opt to use the VAT treatment of its home country (subject to conditions being met). After this threshold is reached, the VAT of the country of consumption (that is the country of the non-business Customer) would apply, and one then either VAT registers the business in this other EU country of the non-business Customer, or utilises the MOSS system.