Major VAT Changes for SMEs in Malta – Effective 2025
- Sergio Montebello
- Apr 9
- 3 min read
The Maltese government has announced significant changes to the Value Added Tax (VAT) system for small and medium enterprises (SMEs), set to take effect from January 1, 2025. These amendments, driven by EU Directive (EU) 2020/285, aim to reduce compliance costs and administrative burdens while facilitating cross-border trade for SMEs. Below is a summary of the key changes:
New VAT Exemption Thresholds for SMEs
Currently, SMEs in Malta can only benefit from VAT exemptions for transactions within the country. However, starting in 2025:
SMEs established in other EU Member States will also be able to apply for VAT exemption in Malta, provided they meet the necessary conditions.
The domestic VAT exemption threshold remains at €35,000 in annual turnover.
For SMEs conducting business in multiple EU Member States, a new Union-wide threshold of €100,000 will apply.
Introduction of VAT Registration Categories
The amendments introduce three key VAT registration categories:
Article 11 (Domestic VAT Exemption): Available for SMEs with an annual domestic turnover below €35,000.
Article 11A (Cross-Border VAT Exemption): Allows Maltese SMEs to claim VAT exemption on transactions in other EU Member States, subject to their local thresholds.
Article 11B (Foreign SMEs Operating in Malta): Enables SMEs from other EU countries to register in Malta for VAT-exempt transactions.
Updated Rules on Turnover Calculation
For SMEs determining whether they qualify for VAT exemption, the new rules clarify that:
The total turnover includes taxable and exempt supplies, except for proceeds from the sale of capital assets.
For partnerships and companies, turnover from related parties (e.g., owners, shareholders) must be proportionally included in the threshold calculation.
Businesses exceeding the €35,000 threshold at any point in the year must transition to VAT registration under Article 10.
Streamlined VAT Registration and Reporting
The new framework aims to simplify VAT registration and reporting requirements:
SMEs opting for VAT exemption must apply electronically through the Malta Tax and Customs Administration portal.
VAT-exempt businesses must submit an annual declaration electronically by February 15 of the following year.
SMEs operating under Article 11A (Cross-Border Exemption) will need to file quarterly VAT declarations.
A business that switches from VAT registration (Article 10) to exemption (Article 11) must not have claimed input VAT on purchases during its VAT-registered period.
Enhanced Compliance and Penalties
The VAT amendments also introduce stricter compliance measures:
Failure to notify the tax authorities within 15 days of exceeding the turnover threshold will result in penalties.
SMEs must update or cancel their VAT-exempt registration within 15 working days if they no longer qualify.
The Tax Commissioner has the authority to revoke VAT exemptions if there is evidence that a business no longer qualifies.
Additional Changes to VAT Schedules
Several VAT schedules have been updated to align with EU requirements:
The Third Schedule has been amended to reflect new VAT rate structures under EU law.
The Fifth Schedule now includes provisions for VAT-exempt supplies under Articles 11, 11A, and 11B.
The Eleventh Schedule introduces new record-keeping obligations for SMEs benefiting from VAT exemptions.
Conclusion
These VAT changes represent a major shift in how SMEs in Malta handle VAT compliance, especially for businesses engaged in cross-border transactions. SMEs should assess their eligibility for exemption, review their financial records, and ensure timely registration under the appropriate VAT category. Businesses that need guidance on these changes are encouraged to consult their tax advisors or contact the Malta Tax and Customs Administration.
Feel free to reach out to our dedicated VAT Compliance team to get further information on how we can assist with such ongoing regulatory changes.