The 2016 Budget which was announced last week was a historic one as it was the first to be presented in the new House of Representatives by Malta’s Finance Minister, Professor Edward Scicluna. Its theme is “Malta – a strong economy”. The government chose this theme because every economic indicator is pointing towards this direction.
Economy and Employment
Malta’s economy is set on a sound footing. The national deficit is aimed to decrease from 3.7% to 1.6% by the end of 2015 whereas it is projected to decrease even further to 1.1% of GDP in 2016.
In 2015 Malta’s economic growth is expected to average 4.2% in real terms (four times the growth of other EU Members) whilst the growth for 2016 is projected to be 3.6% in real terms, with the majority of growth coming from the foreign sector.
The unemployment rate is expected to decrease from 5.8% in 2015 to a record low of 5.6% in 2016 with the labour force increasing even more at the same time (employment growth is expected to rise at an average of 2.3% in 2015 and 1.3% in 2016).
Cost Of Living Adjustment (COLA)
The cost of living adjustment (COLA) for 2016 will amount to €1.75 per week – compared to €0.58 last year – and will be received by pensioners as well as persons on social benefits. This increase will result in a minimum weekly wage in the amount of €168.01.
Pursuant to the 2016 Budget, individuals who did not benefit from a reduction in the top income tax rate over the previous three years will see their tax obligation reduced through the creation of a separate 25% bracket (as per the below tables). The Government announced a reduction in personal income tax through the increase of non-taxable income from €8,500 to €9,100 (singles), from €11,900 to €12,700 (married couples) and from €9,800 to €10,500 (parents). Furthermore, as per the change in an individual’s tax charge computation, individuals with an annual income of up to €19,500 will save up to €90 in tax (singles), individuals with an annual income of up to €28,700 will see their tax bill cut by up to €120 (married couples) and individuals with an annual income of up to €21,200 will have their tax reduced by €105 (parents).
Therefore, a couple were both partners are employed and opt for a joint computation will save up to €120 tax per year whereas this will rise to €180 per year when they opt for a joint computation.
The formula for the novel income tax regime is as per the below tables:
|Chargeable Income in Euros||Rate||Deduction|
|0 – 9,100||0||€0|
|9,101 – 14,500||15%||€1,365|
|14,501 – 19,500||25%||€2,815|
|19,501 – 60,000||25%||€2,725|
|60,001 and over||35%||€8,725|
|For Married Couples|
|Chargeable Income in Euros||Rate||Deduction|
|0 – 12,700||0||€0|
|12,701 – 21,200||15%||€1,905|
|21,201 – 28,700||25%||€4,025|
|28,701 – 60,000||25%||€3,905|
|60,001 and over||35%||€9,905|
|Chargeable Income in Euros||Rate||Deduction|
|0 – 10,500||0||€0|
|10,501 – 15,800||15%||€1,575|
|15,801 – 21,200||25%||€3,155|
|21,201 – 60,000||25%||€3,050|
|60,001 and over||35%||€9,950|
The 7.5% flat income tax rate chargeable on income derived by football and waterpolo players will be extended to coaches and players in any type of sport.
In a bid to encourage arts donations, an income tax deduction of 150% of the donated amount will be introduced.
As of January 2016, any income earned by police officers in the course of ‘extra duty work’ carried out for organisations, individuals and companies shall be taxable as separate income at a flat rate of 15%. This measure was welcomed by the Malta Police Force as police officers were not allowed to work part-time and therefore ‘extra duty work’ was the sole means to supplement their income.
Carers of elderly
A €1 million pilot fund will be launched targeting initially approximately 170 families who employ a qualified in-house carer to look after their elderly, subsidizing these families up to 50% of the carer’s wage. This initiative has been introduced to address the issue of waiting lists in government homes, which currently include about 1,400 elderly people. Those who benefit from such subsidy will be removed from the waiting list.
If a family employs a carer on a full-time basis, the government will provide a subsidy equivalent to half the minimum wage. In those cases where a carer is employed on a part-time basis, the subsidy will be calculated pro rata.
Pension reforms are scheduled to continue in 2016 as pensioners are among the most vulnerable societal categories with a percentage faced with the risk of poverty.
According to the Minister of Finance, the Government will not raise retirement age and will not introduce any new social security contribution. However, a balance should be struck between the number of contributory years and the number of years in which people get a pension. To this end, tax payers born after 1968 will have to make pension contributions for one extra year, i.e. 41 years. Professor Scicluna said that those who did not apply to start receiving their pensions after reaching pensionable age would be granted 1% more for every year they continued working. The processing time for these individuals, when they decide to apply for pension, shall be shorter as well. In the meantime, those aged over 75 shall continue to be entitled to an extra €300 per year. This scheme will only be available in agreement with the employer.
As from January 2016 the national minimum pension will increase to €7,280 a year (or €140 per week). Approximately 12,000 pensioners are estimated to have a higher pension. Within the context of the pension reforms, come next year, the granting of pension will be effected on the day a person stops working instead of the following month, as per the current status quo.
The ‘in-work’ benefit was introduced last year as an incentive for more people to work and this year will extend to cover more people. Currently, where both parents are working with combined annual income between €10,000 and €20,000 a year, they are entitled to a benefit in the amount of €1,000 per child. In the case of a single parent with an annual income between €6,600 and €15,000 a year, the ‘in-work’ benefit amounts to €1,200 per child. With effect from 2016, this benefit will extend to families where only one member works and the other parent stays at home. These families with children below the age of 23 shall be entitled to an additional benefit in the amount of €150 per child per year provided that the family’s income is below €12,700 a year.
The exemption from the stamp duty for first-time buyers was a welcome measure in last year’s budget and this will be extended in 2016 as well. Therefore, first time buyers will benefit from savings of up to €5,000 on stamp duty with retrospective effect from 1st July 2015. Those who have already paid after 1st July this year (when the scheme as per the previous budget closed) shall be entitled to a refund.
The issue of vacant properties has also been addressed in the 2016 Budget by the Government. Currently, the main reason for the vast number of vacant properties is the litigation between the heirs. Under the new Budget, the period after which empty inherited property may be sold, following agreement on selling price on behalf of 51% of the heirs, is significantly reduced from 10 years to 3 years.
In an attempt to further encourage the use of vacant properties, the Government will be reducing the stamp duty by 50%, from 5% to 2.5%, on those transfers of property within an urban conservation area, given that such contracts are executed between 1st January and 31st December 2016. Furthermore, the final withholding tax on regenerated properties within an urban conservation area shall be reduced from 8% to 5%.
Pursuant to the previous Budget, income derived from residential property could, at the option of the taxpayer, benefit from a 15% final withholding tax. Under the 2016 Budget, this optional 15% final withholding tax regime will extend to cover income derived from the rental of commercial property as well. However, there will be exclusions with reference to rental income within a group.
The list of eligible buildings for the wear and tear allowance on capital expenditure currently includes industrial buildings or structures, hotels and car parks. This list shall extend to cover office premises as well.
The Government will be allocating €50 million to the Housing Authority for the rehabilitation of social housing estates. In order to incentivise the refurbishment of old buildings, grants to residents under the subsidy for Adaptation Works in Residences Occupied by Owners or Tenants increase by €1,000, from €10,000 to €11,000. Furthermore, grants under the Dangerous Structures Scheme shall also increase by €1,000, from €7,000 to €8,000.
Small enterprises in the manufacturing sector that rent additional space, for manufacturing purposes, from private entities shall be entitled to an annual relocation allowance of up to €10,000 for up to 2 years. This allowance will be supervised and administered by Malta Enterprise.
Malta Enterprise will also be launching a new scheme to assist new start-up companies. This assistance will take the form of financing of up to €200,000 and shall be repayable within a 10-year period. This amount may increase to €500,000, in case of enterprises developing innovative products or services, for the purchase of equipment. Assistance under this scheme may also be granted to enterprises which plan to raise funds through crowdfunding.
Furthermore, in order to incentivise women entrepreneurship, the Micro Invest Scheme will be modified in order to provide tax credits to both self-employed women as well as businesses which are majority-controlled by women.
The Government, in an attempt to aid small businesses access public procurement contracts, has decided that in those cases where the value of the public contract does not exceed €500,000, the requirement of a performance guarantee shall be reduced from 10% to 4%.
In a bid to boost research and innovation, the Minister of Finance said that enterprises which employ persons either holding or studying for a doctorate in science, information technology or engineering will be entitled to a tax credit of up to a maximum of €10,000 when such persons are retained in employment for a minimum of 12 months.
Companies which opt to donate a minimum amount of €2,000 to the Community Chest Fund within the course of 2015 shall be entitled to a tax deduction equal to the amount of such donation. Furthermore, the ‘group concept’ or ‘fiscal consolidation’ notion is being introduced this year. According to this, companies under common ownership shall be eligible to submit one consolidated income tax return. This measure has been introduced in order to facilitate the taxable income computation.
The registration fee payable to the Registry of Companies shall be reduced from €250 to €100 for those companies which have authorised share capital below €1,500 and effect their registration electronically.
Measures to boost the employment of disabled have been introduced under the 2016 Budget as well. According to these measures, employers who do not conform to the legal quota of disabled workers (for companies with more than 20 workers, 2% of employees have to be disabled) will have to compensate by paying €1,600 for every disabled person that should have been employed. The money will go to the Lino Spiteri Foundation, a fund used for employment and training of disabled people, as well as to employ job coaches who are able to aid employers and disabled people at work. In order to further encourage the employment of disabled people, the respective employers shall be exempt from social security contributions for disabled employees and they are entitled to claim back 25% of the salary along with a €125 subsidy for 3 years.
The Minister of Finance has announced an increase in the amount of €300 with reference to stipends to Gozitan students who study in Malta.
Stipends for mature students following a course at MCAST or the University, implementation of the ‘one tablet per child’ measure as well as further investments in state schools, MCAST and the University shall be introduced starting from January 2016.
As from 1st April 2016, tourists over 18 years will have to pay an environmental contribution in the amount of €0.50 per tourist per night, capped at €5 per tourist, for hotel accommodation. Tourists below the age of 18 as well as language students shall be exempt from this contribution.
Maltese and Gozitans will be subject to this contribution as well when staying in a hotel.
The funds generated from this tax, which is expected to be approximately €6 million, will be used by the Foundation for Tourism Zone Development to upgrade and maintain key public spaces around the island.
Furthermore, €56 million will be invested in a new Institute of Tourism Studies (ITS), which is planned for construction in Smart City. The Government will, as from next scholastic year, start providing grants in the amount of €233 to students of ITS.
The Government further introduced a new system as an incentive for hotels to invest in systems to improve their energy efficiency. This new scheme will comprise ‘white certificates’ being issued on account of energy that has been saved due to hotel investments. These certificates may subsequently be redeemed by the hotel for a variety of financial incentives.
The VAT rate shall remain unchanged at 18%. However, Professor Scicluna announced that VAT tax on sports activities, including gym memberships, fitness centres, football nurseries and similar sports activities will be reduced from 18% to 7%.
Last year, the Minister of Finance announced in his Budget speech that the Eco contribution on electronic and electrical equipment would be removed. Following the same route, he announced this year that the Eco contribution would be removed from other products as well and would be further replaced with a respective increase in excise duty (to be charged, however, per litre rather than per bottle or can). Consequently, excise duty on alcohol and other alcoholic beverages is being increased at rates between 1.33% and 2.5% depending on the type of product.
Excise duty on cigarettes and tobacco shall increase, with the price of a packet of cigarettes going up by an average of €0.30 whereas excise duty on cement will also increase by €5 per ton.
Whilst the excise duty on petrol and diesel are set to increase, the prices will, with effect from 1st January 2016, decrease by €0.03 and €0.04 respectively.
The National Fund for Social Development will proceed to the investment of €52.5 out of the €75 million (70%) collected from the Individual Investor Programme.
The use of motorcycles with less than 125cc is encouraged through the introduction of a flat licence in the amount of €10. No registration tax shall be imposed on such motorcycles.
Within the context of a scrappage scheme applicable to cars which are more than ten years old, a grant of €7,000 will be provided by the Government to car owners who scrap their previously owned car and replace it with a new electric car. Where a new electric car is purchased without replacement of an old car, such grant will be reduced to €4,000. A grant in the amount of €2,000 will also be given when a new electric quadricycle is purchased.
Owners of hybrid passenger vehicles with emissions between 50 and 65g/km will be entitled to a grant in the amount of €2,000 whereas those of plug-in hybrid electric cars with emissions between 1 and 50g/km of €3,000. Furthermore, owners of vehicles with emissions not exceeding 100g/km shall be entitled to a grant of €900 whereas this amount will decrease to €700 in cases of vehicles with emissions between 101 and 130g/km.
Hybrid and electric cars will be exempt from the Controlled Vehicular Access (CVA) fees when entering Valletta whereas companies which buy such vehicles may benefit from a tax deduction amounting to 50% of the cost of the vehicle (in the year during which such vehicle is bought).
When a vehicle has a mileage of more than 160,000 km, it will have to undergo the Vehicle Roadworthiness Test (VRT) control every year (instead of every two years as it was previously the case).
The content of this article is intended to provide a general guide to the subject matter and should in no way be construed as advice. Specialist advice should be sought about your specific circumstances.