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Commission Report COM(1999) 69 final [Not published in the Official Journal]Commission Report COM(1999) 508 final [Not published in the Official Journal]Commission Report COM(2000) 708 final [Not published in the Official Journal]Commission Report COM(2001) 700 final - SEC(2001) 1751 [Not published in the Official Journal]Commission Report COM(2002) 700 final - SEC(2002)1407 [Not published in the Official Journal]Commission Report COM(2003) 675 final - SEC(2003) 1206 [Not published in the Official Journal]Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]
The current VAT system in Malta is based on the main principles of the VAT legislation of the Community. However, some additional adjustments would be required to bring the VAT legislation completely into line with the requirements of the Community acquis.
The second 1998 Report stated that Malta should continue to make significant efforts to align VAT. In the field of excise duties, there were significant discrepancies between the Maltese regime and Community requirements, and considerable effort was therefore required to bring it into line with the Community acquis. It should be possible for Malta to participate in the mutual assistance arrangements.
The October 1999 Report stated that no progress had been made on excise duties and that Malta needed to prepare a structured targeted pre-accession strategy.
The November 2000 Report considered that Malta had made particular progress in the area of VAT.
The November 2001 Report noted that Malta had made significant progress, particularly as regards excise duties. In fact, Malta had amended its legislation on mineral oils, tobacco products and alcoholic drinks. Moreover, hydrocarbons and methane were now subject to tax. In the field of VAT, the laws had also been changed so as to apply the flat rate to the provision of foodstuffs in business and school canteens, whilst the provision of education, health and social assistance services had been exempted. In relation to direct taxation, there had been no harmonisation since the previous report. Administrative capacity had been strengthened through the creation of a department responsible for pre-accession issues. The number of tax inspectors had increased and computer programs for the management of tax debt had been installed.
The October 2002 Report highlighted the progress made in this area, particularly as regards indirect taxation and VAT. However, no notable developments could be reported in the areas of direct taxation and administrative cooperation and mutual assistance.
The 2003 Report finds that Malta has met its commitments under the accession negotiations in the fields of excise duty, VAT and administrative cooperation and mutual assistance. It is therefore expected to be in a position to implement these aspects of the acquis by accession. As it only partly meets requirements regarding indirect taxation, it must continue to transpose the relevant legislation. Urgent attention must be given to eliminating the preferential treatment given to international trading companies for non-residents and to foreign income, and introducing appropriate anti-abuse measures in relation to profit distributions from foreign shareholdings.
During the accession negotiations Malta was granted a transitional period allowing it to continue applying a zero rate on foodstuffs for human consumption and pharmaceutical products until 1 January 2010. It obtained derogations for VAT exemption of international and inland passenger transport and domestic inter-island sea passenger transport and VAT exemption without input VAT credit on water supplied by public authorities and on buildings and building land. Lastly, it was granted a derogation concerning VAT exemption and registration thresholds - EUR 37 000, EUR 24 300 and EUR 14 600 - for particular categories of small and medium-sized businesses (SMEs).
The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.
With regard to direct taxation, Malta has abolished the tax on capital and its legislation should now be fully in line with the requirements of the acquis.
With regard to indirect taxation, the last report noted that the greatest efforts were being made in relation to the taxation of automotive fuel and cable telephony, which are now taxed at a standard rate of 15%. The result of these measures has been a variation in the deduction entitlement of VAT on fuel used by commercial vehicles. Furthermore, the tax net has been cast wider so that public enterprises of the energy sector are now considered to be taxable persons.
With regard to excise duties, the main area of progress is the increase in the rate of duty on certain cigarettes, thus satisfying the EU's minimum criterion. The calculation of duties on mineral oils is now in compliance with the requirements of the acquis.
With regard to administrative capacity, the unit in charge of VAT has been strengthened and special units with responsibility for improving the quality of public services have been set up. A director has been appointed to the customs and excise duties unit to apply the customs component of the commercial strategy in view of accession and to successfully implement the companies reform plan for the customs and taxation units.
In general, Malta is aligning itself on the acquis to a reasonable extent, but it must still make some serious efforts.
Value added tax
VAT was reintroduced in January 1999. It constitutes the necessary framework for the transposition of the acquis, but a lot of alignment work needs to be done. The main deviations still concern the level of the rates applied and the number of exempt transactions, and also the overuse of zero-rating. It is therefore important that Malta define a structured pre-accession strategy in this area. In 2001, although some progress has been made, there are still differences between Malta's legislation and that of the Community in relation to rates and the list of exempt transactions.
In October 2001, the supply of gold by the Central Bank, which was previously taxed at zero-rate, became taxable at the standard VAT rate. The scope of the special VAT scheme for second-hand goods was broadened to include works of art, collector's items and antiques. Further alignment with the special VAT scheme for travel agents was also carried out.
In the field of VAT substantial legislative alignment is still required. This concerns in particular the taxable scope, the distinction between supplies of goods and services, the definition of imports, VAT exemptions without credit for input tax and intra-Community transactions.
At the end of 2003, Malta still needed to complete its transposition of the rules on the reduced rate of VAT for electricity and define the scope of the reduced and zero rates more precisely. It also needed to address taxable transactions by public authorities (electricity and steam) and to fully ensure equal treatment irrespective of origin of certain goods in some fields.
With regard to excise duties, Malta's legislation conforms with that of the acquis in 2001. Certain provisions were introduced in February 2002 in respect of the general arrangements on holding, movement and monitoring of products subject to excise duties.
Malta needed to address the issue of reduced excise duty rate on beer produced by small breweries, which should only be applied to small independent breweries, and not those operating under licence.
At the end of 2003 further alignment was still required, in particular on the taxable amount and the definition of some products, on the rates applied to some products, and on certain exemptions, some of which, granted on an ad-hoc basis, needed to be eliminated. It also needed to extend its suspension arrangements to include intra-Community transactions, and to ensure that they were implemented without discrimination, irrespective of origin.
As regards direct taxation, there was no alignment in 2001, so Malta needed to tackle this section of the tax acquis in 2002 in order to comply with the code of conduct for business taxation.
At the end of 2003, Malta needed to complete transposition of the acquis in terms of the taxation of capital raising and mergers, and to transpose the acquis on interest and royalties and taxation of savings income.
Administrative cooperation and mutual assistance
In the area of administrative cooperation and mutual assistance, Malta has yet to introduce the VAT information exchange system.
No progress was made in this area in 2002.
At the end of 2003 the Central Liaison Office and Excise Liaison Office had not yet been established. Preparations for setting up the VAT Information Exchange System (VIES), VAT on e-services, and the excise database (SEED) were ongoing.
With regard to administrative capacity, the main structures required for applying the acquis are in place but the implications of adopting the acquis and computerisation remain a challenge for Malta. In 2001, Malta needed to ensure that it fully implemented its plan to reform the management of the tax administration. In 2002, the modernisation of the tax administration needed to be continued and stepped up, particularly in the field of excise duty. The Commission report noted that there was an urgent need to plan and address the changes that accession would entail in this area, as well as the necessary reallocation and training of staff.
At the end of 2003 the capacity of the tax administration in the area of VAT was adequate. The necessary administrative structures for excise duty still needed to be further strengthened. Malta needed to give priority to improving the efficiency of excise duty collection and to introducing risk analysis and auditing techniques. The capacity of the tax administration in the area of direct taxation was adequate and qualified staff were gradually being recruited. Methods for the verification of transfer pricing needed to be established.
Last updated: 16.01.2004