VAT is a form of indirect taxation added at each stage of the production until the product or service reaches the final consumer. Whilst VAT is charged to businesses at each stage of the production, in most cases it is neutral to businesses as they can recover the VAT incurred on business expenditure, and the final consumer is burdened with the VAT cost.
VAT is a European Tax which is standardized at the EU Level with each EU Member State implementing its own regulations. Within limits, Member States are free to set their own standard rates. Some standard rates across the EU are as follows:
- Malta 18%
- Germany 19%
- France 20%
- Spain 21%
Italy 22%Other rates exist in each country for specific economic sectors. For example in Malta we have a reduced rates of 5%, 7% and 12% for specific economic activities.
VAT must be charged:
- on every supply of goods or services, which takes place in Malta for consideration by a taxable personacting as such;
- On every intra-community acquisition; and
- On every importation made in Malta.
Supply of Goods/Services
Supply of goods refers to the right to dispose of tangible property as owner whilst supply of services refers to a supply that is not a supply of goods. The Second Schedule of Chapter 406 of the Laws of Malta clarifies and categorizes specific supplies as either supplies of goods, services, or otherwise. Some of these provisions are the following:
| Item | Supply of Good | Supply of Service |
| Energy (electricity, gas, heating or cooling energy and other sources of energy) | ✅ | |
| Transfer of an immovable property | ✅ | |
| Rights over property or of any intangible property | ✅ | |
| Hire purchase | ✅ | |
| Contract of works | ✅ | |
| Obligation to refrain from an act or to tolerate an act | ✅ | |
| Incidental supplies | ✅ |
VAT should be charged on goods whose place of supply is Malta. Such rules are provided in the Third Schedule of the VAT Act.
The general rule for the place of supply of goods is that unless otherwise provided in the same schedule:
- supply of goods that are not transported takes place where the goods are at the time when they are placed at the disposal of the person acquiring those goods;
- supply of goods that are transported takes place where the goods are at the time when the transport of those goods begins;
- when the transport of goods begins outside the Community and ends in a Member State the supply of those goods by the importer and any subsequent supply up to the acquisition of those goods takes place in the Member State where they are imported.
The general rule for the place of supply of service is that:
- The place of supply of services to a taxable person acting as such shall be the place where that person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the taxable person who receives such services has his permanent address or usually resides
- The place of supply of services to a non-taxable person shall be the place where the supplier has established his business. However, if those services are provided from a fixed establishment of the supplier located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the supplier has his permanent address or usually resides.
The concept of consideration
Consideration is any form of payment for a supply, whether the payment is monetary or in kind (non-monetary). It is anything received in return for the supply of goods or the provision of services, not only the cash amounts charged, but also, for example, the value of the goods received in exchange. The non-monetary consideration must have a quantifiable monetary value.
Who is a taxable person?
A taxable person is a person who carries on an economic activity, whatever the purpose or result of that activity. “Person” includes a physical person, a body of persons, a public authority and any entity capable of carrying on an economic activity.
An economic activity is an activity carried out by a person, other than an employee acting as such and consisting of any one or more of the following:
- any trade or business;
- any profession or vocation and the provision of any personal services (excl. employment);
- the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis;
- the provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members;
- the admission, for a consideration, of persons to any premises.
The activities of a public authority acting in the exercise of the functions assigned to it by law shall not be deemed to be an economic activity. However, activities listed in Schedule 1 are deemed to be an economic activity. Some examples include:
- supplies of goods, such as fuel, gas, electricity and the sale of certain pharmaceutical products,
- and of services, such as telecommunications, transport and port and airport services, operation of trade fairs, exhibitions and warehouses, renting out of vehicles, etc.
An employee is an individual bound to an employer by a contract of employment or by legal ties creating the employer-employee relationship in relation to working conditions, remuneration, and employee’s liability. A taxable person is someone who ‘independently’ carries on an economic activity, thus an employee is not a taxable person since he is not independent.
A taxable person must be acting in his capacity as a taxable person in order for the supply to fall within the scope of Malta VAT.
Intra-Community Acquisitions
Intra-Community Acquisition made for consideration
- is the acquisition of goods made by a taxable person acting as such who is registered under article 10 or article 12 or a non-taxable legal person who is registered under article 12 pursuant to an intra-community supply that:
- takes place outside Malta; and
- is made by a taxable person acting as such who is not eligible, with respect to that supply for an exemption under a special scheme for small undertakings in force in a Member State; or
- it is an acquisition of new means of transport made by any person; or
- it is an acquisition of excise goods made by a taxable person or a non-taxable legal person.
The general rule for the place of supply of intra-community acquisitions is where the transport of goods to the person acquiring them ends.
Importations
Importation is the entry into the Community of goods transported from a third territory (non-EU Member State).
The general rule for the place of supply of importations is where the goods are at the time when the chargeable event takes place.
Reporting requirements
A VAT registered person has the obligation to send VAT returns at scheduled intervals, usually every three months. If a taxable person fails to submit the returns in time late submission fees and interest will be applied by the VAT Department.
For more information kindly contact the Apex Business Services on 21559999 or info@jcordina-andco.com
