The Budget Measures Implementation Act introduces a series of targeted amendments across Malta’s tax framework, affecting both direct and indirect taxation. The measures are aimed at incentivising investment, refining existing rules, and aligning local legislation with upcoming EU developments.
Below, we outline the key changes.
Income Tax Act (ITA)
A headline measure is the introduction of a 175% deduction for qualifying research, development, and innovation (R&D) expenditure, applicable from YA 2027. While the enhanced deduction is expected to encourage investment in innovation, its effectiveness will depend on the practical guidance to be issued by the tax authorities. Capital expenditure that does not qualify for wear and tear allowances will be spread over a six-year period.
The definition of a “company” has been extended to include Special Limited Partnership Funds, bringing such vehicles formally within the scope of the Income Tax Act as from YA 2026.
Amendments have also been made to the exemption applicable to certain dividend income, aligning the provisions with the revised personal tax rates coming into effect from YA 2027.
From a personal tax perspective, the deduction for elderly and disability home fees has been increased from €2,500 to €4,500. Updated personal income tax brackets, as published by the Malta Tax and Customs Administration, will likewise apply from YA 2027.
Income Tax Management Act (ITMA)
The amendments in this area are primarily procedural.
Notably, the time limit to submit an adjustment form following a determination by the Commissioner has been extended from five years to ten years. This provides taxpayers with additional time to regularise their position where required.
Value Added Tax (VAT)
The VAT changes introduce a mix of clarifications and forward-looking measures.
It is now clarified that the private use of goods gives rise to a deemed supply only where input VAT has been deducted, whether fully or partially. A similar principle is extended to services supplied free of charge for private use, where input VAT has been claimed. Services provided to qualifying non-profit organisations remain excluded.
Looking ahead, call-off stock arrangements will be phased out by 30 June 2029, in line with the EU’s VAT in the Digital Age (ViDA) initiative.
With effect from 1 January 2027, several structural changes will apply:
- Distance sales rules will be limited to goods dispatched from the supplier’s Member State of establishment.
- Registration under the One Stop Shop (OSS) will automatically be treated as an exercise of the option to tax supplies in the Member State of consumption.
- Taxable persons using the OSS scheme, who are also required to register in another Member State for non-OSS activities, will be able to recover VAT incurred in that jurisdiction through the local VAT return.
Additional amendments include:
- A new exemption with credit for supplies of goods and services in the context of disaster relief.
- A restriction to the exemption without credit for non-profit fundraising events, now limited to events organised exclusively for the entity’s own benefit.
- The introduction of open market value rules for related party transactions, aimed at addressing VAT leakage.
From an administrative standpoint, the Commissioner is now empowered to pursue the recovery of interest through legal action. Appeals on points of law must be filed within 30 days of the Tribunal’s decision, and excess VAT credits may be offset against liabilities arising under any revenue act.
Eco-Contribution Act
As from 1 July 2026, the eco-contribution applicable to accommodation services will increase to €1.50 per night, subject to a cap of €22.50 per stay.
How NCMB Can Assist
At NCMB, we work closely with our clients to help them deal with changes to Malta’s tax landscape practically and straightforwardly. Whether it’s understanding how these new measures impact your business, making the most of available incentives, or ensuring everything is implemented correctly, we aim to provide clear and commercially focused advice at every step.
