Act III of 2026 – Budget Implementation Act
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Please find below the salient changes to Maltese tax law brought about by the Budget Implementation Act enacted today 10th March 2026.
A. Income Tax Act
The definition of a company in Article 2 of the Act has been amended to also include any Special Limited Partnership Fund established in accordance with the Investment Services Act (Special Limited Partnerships Funds) Regulations.
The exemption from tax on certain dividend income (that effectively limit the full imputation credits) has been amended in line with the updated personal tax rates applicable as from year of assessment 2027.
A new deduction applicable to certain research and development activities is being introduced he Minister responsible for finance may by rulesdefine the activities that constitute research, development andinnovation for the purposes of this paragraph as well as prescribesuch other conditions:
- The deduction amounts to 175% of the actual amount of expenditure on research, development and innovation activities by a person engaged in any trade, business, profession or vocation (proved to the satisfaction of the Commissioner to have been incurred for the use and benefit of the trade, business, profession or vocation)
Such expenditure of a capital nature, unless it is an expenditure in respect of wear and tear and initial allowances can be claimed (in which case the additional deduction is not allowed), must be spread equally over the year in which it has been incurred and the five (5) subsequent years.
It is expected that further rules are to be issued to define the activities that constitute research, development and innovation as well as prescribe applicable conditions.
The annual cap to the tax deduction for fees paid in respect of homes for the elderly and the disabled is increased from €2,500 to is increased from €2,500 to €4,500 (as from year of assessment 2027).
Article 56 of the Income Tax Act which provides for the personal tax rates has been uploaded to reflect the update in the tax rates announced in the budget. These are in line with the tax rates on the MTCA portal which can be accessed here: https://mtca.gov.mt/personal-tax/tax-rates/tax-ratesindividuals/2026
B. Income Tax Management Act
Articles 28 and 29 regulating the signature of notices by the tax authorities have been updated mainly to permit the issue of electronic notices.
The period to file an adjustment form when a person disagrees with a determination issued by the Commissioner is increased from 5 years to 10 years.
C. Value Added Tax Act
Main Act Amendments
The definition of a public authority has been expanded to cover a corporation constituted by an Act of Parliament or any other body governed by public law (addition in red).
A new sub-article is introduced that permits the Minister to exempt from VAT (subject to conditions) supplies to, intra community acquisitions by and imports by diplomatic and consular arrangements. Article 70 is also being permitted to regulate refunds of such VAT in the case of diplomatic and consular arrangements.
Article 10 (4) is also being amended to require a registration under Article 10 of the VAT Act, a person who makes a taxable or exempt with credit supply taking place in Malta on which he would be liable for the payment of the tax on the said supply had that supply been a taxable supply.
The VAT Act has been amended to further extend the power of the Commissioner to offset any excess VAT credits against any amounts due by that person to the Commissioner in accordance with any of the provisions of the revenue acts.
Appeals to decisions of the Administrative Review Tribunal further restricted to a period of 30 days from the date of the decision of the Tribunal.
Article 49 regulating whether a price is inclusive of VAT or otherwise is being overhauled further restricting when prices are to be deemed excluding VAT:
Where any person registered or required to be registered indicates the price or consideration payable for goods or services which shall be supplied to any other person, such price or consideration shall be deemed to be inclusive of VAT. However, where:
the chargeable VAT cannot be determined at the time the price or consideration payable for a supply is indicated; or
the supply is made to another person who identifies himself for the purpose of that supply by means of a valid value added tax identification number,
and it is specifically and unequivocally indicated that such price or consideration payable excludes VAT, such price or consideration shall be deemed to excluding VAT.
Article 58 of the Act is being extended to permit the Commissioner to also sue for interest.
Article 73 is also being revamped to permit the service of notices by the Commissioner using electronic means.
Amendments to the Schedules to the VAT Act
Second Schedule
As from 1st January 2027, the deemed supply rule applicable to electronic interfaces that facilitate the supply of goods is no longer applicable where the taxable person carries out certain exempt supplies (related to shipping and aviation or related to diplomatic and consular arrangements).
Item 15 of the Schedule, relating to the private use of goods forming part of an economic activity will apply only when the VAT on such goods or the component parts was wholly or partly deductible, and when such supply of services would not be subject to an exemption with credit under Part One of the Fifth Schedule to the VAT Act.
Moreover, the deemed supply has been extended to also include supplies of services carried out free of charge (other than a service which would be exempt with credit under Part One of the Fifth Schedule to the VAT Act and services carried out free of charge made to non-profit making organisations) by a taxable person for his private use or for that of his staff, or more generally, for purposes other than those of his economic activity, where any goods or services on which VAT was wholly or partly deducted are used or applied to provide such free of charge services.
The call-off stock arrangements are being time barred to 30th June 2029.
Third Schedule
With effect from 1st January 2027, the distance sales rules are being restricted to cases where the goods are dispatched or transported directly from the member state of establishment of the taxable person.
Moreover, a registration under the one stop shop mechanism (for distance sales and for electronic and telecommunication services shall be deemed to be an exercise of the option for the place of supply to be in the member state of consumption.
Fifth Schedule
New exemption with credit for the supply (and intra community acquisition) of goods for the benefit of disaster victims, and services related to such goods supplied or acquired including rental services, subject to the conditions and limitations established under Article101a of Council Directive 2006/112/EC.
The exemption without credit for supplies of goods and services by a non-profit making organisation in connection with events, is restricted to when such events are organised exclusively for their own benefit, designed to raise funds.
The definition of food supplied in the course of catering has been amended to exclude from the definition milkshakes and chocolate sealed in a package by the manufacturer and supplied in that original sealed package.
The definition of a non-profit making organsiation has been amended as follows:
- it now includes a public authority;
- but applies to other non-profit organisations only if it is registered as a voluntary organisation with the office of the Commissioner for Voluntary Organisations, or as may be approved by the Commissioner.
Seventh Schedule
A new Item 8A has been added to the Seventh Schedule that provides for the taxable value of certain supplies between related persons. The new Item provides that in the case of supplies by a person to a related person, the taxable amount shall be the open market value where:
the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction;
the consideration is lower than the open market value and the supplier does not have a full right of deduction and the supply is subject to an exemption without credit; or
the consideration is higher than the open market value and the supplier does not have a full right of deduction.
A person shall be deemed to be a related person to another person where:
that person is part of the same family as the other person;
that person is an employee, including a holder of office, of the other person, and including any family member of that employee;
those persons are cohabitants;
those persons, directly or indirectly, jointly own and, or hold the same asset;
any persons who owns and, or holds, directly or indirectly, as to more than 50% of their ordinary share capital or equivalent interests, voting rights or equivalent rights, or rights to profits available for distribution, by the related persons referred to in paragraphs (a) to (c);
one person owns and, or holds, directly or indirectly, more than 50% of the ordinary share capital or equivalent interests, voting rights or equivalent rights, or rights to profits available for distribution, of the other person;
those persons who own and, or hold, directly or indirectly, as to more than fifty percent (50%) of their ordinary share capital or equivalent interests, voting rights or equivalent rights, or rights to profits available for distribution, by the same person or persons; or
those persons collectively own and, or hold, directly or indirectly, as to more than 50% of the ordinary share capital or equivalent interests, voting rights or equivalent rights, or rights to profits available for distribution, of another person.
Provided that where a person is deemed to be a "related person" to another person, any immediate family members of such person shall also be deemed to be a related person to the other person.
The "open market value" shall be deemed to be the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax. Where no comparable supply of goods or services can be ascertained, "open market value" shall mean the following:
in respect of goods, an amount that is not less than the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of supply; and
in respect of services, an amount that is not less than the full cost to the taxable person of providing the service.
Fourteenth Schedule
As from 1st January 2027, the cash accounting option is not applicable for supplies of services by persons registered as small undertakings under the Union Scheme.
The rules applicable to distance sales presently restrict a taxable person who is not established within the Community using the distance sales one stop shop and incurs VAT on related services, from deducting VAT incurred in the Member States of consumption, although there is a right to a VAT refund. However, as from 1st January 2027, if the taxable person making use of the one stop shop scheme is required to be registered in a Member State for activities not covered by the OSS scheme, they shall deduct VAT incurred in such Member State, in respect of their taxable activities which are covered by the OSS scheme in the VAT return filed in that Member State.
Amendments to Eco Contribution Act
As from the 1st July 2026, the eco contribution on accommodation services is increasing to €1.50 per night with a capping of €22.50 per person per visit.
Get in Touch:
Josef Mercieca
jmercieca@quazar.mt / +356 2388 4600
