Partial Attribution in VAT: A Guide for Businesses in Malta

What is Partial Attribution in VAT?

Partial attribution is a method used by businesses to figure out how much VAT (Value Added Tax) they can get back when they buy things for their company.

In Malta, this applies when a business sells both taxable and exempt goods or services.  Since VAT can only be claimed back on taxable sales, you need to split your business costs to know what part of VAT you can recover.

This rule is outlined in the VAT Act, Chapter 406 of the Laws of Malta, specifically under the Tenth Schedule (Articles 22 and 23).

Why Does This Matter?

Let’s say you run a business that:

• Sells taxable services, like consultancy (where VAT is charged to customers)

and

• Offers exempt services, like education services (where the service is an exempt without credit supply).

You can only reclaim VAT on costs related to the taxable services, not the exempt ones. 

Hence, you will only be eligible to claim VAT on a partial attribution basis.

Why Is It Important?

If your business provides both taxable and exempt services, you cannot claim back the full amount of VAT on general expenses like office rent, advertising, or utilities. Instead, you must only recover the portion that relates to your taxable output.

Failing to do so could result in over-claiming VAT and penalties if audited.

Common Sectors Where This Applies

Partial attribution is particularly relevant in industries where mixed activities are common. Some typical examples include:

Industry	Taxable Income Examples	Exempt Income Examples
Education	Corporate training courses	Academic tuition (e.g. private schools)
Healthcare	Cosmetic treatments	General medical services

Methods of Partial Attribution in Malta

There are three main ways to calculate how much VAT you can reclaim:

1. Pro-Rata Method

This is the most widely used method.  It calculates the proportion of taxable sales out of total sales and applies that percentage to shared input costs.

Example: If 70% of your total income comes from taxable activities, you can recover 70% of the VAT on shared expenses.

2. Direct Attribution

If a cost can be clearly linked to either a taxable or exempt activity, VAT is either fully recoverable or fully non-recoverable.

• Example: The VAT on an invoice for a training event that only supports your VATable services can be claimed in full.

• If the cost relates only to exempt supplies (e.g. classroom hire for exempt education), no VAT can be reclaimed.

Shared costs still need to be apportioned separately using the pro-rata method.

3. Special Method

For more complex or unique businesses, a tailored method of apportionment can be proposed. This must be approved in advance by the Office of the Commissioner for Revenue.

These are often used where standard methods do not provide a fair outcome, such as in investment companies or businesses with fluctuating income types.

For further information or assistance, please contact Quazar at quazaroffice@quazar.mt.

Get in Touch:

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Cleaven Abela

cabela@quazar.mt / +356 2388 4600