Malta Budget Highlights 2015
The thrust of the 2015 Budget presented in Parliament by the Minister of Finance, continued on the concept launched last year titled Making Work Pay.
Fiscal & Economic Review
Economic growth is projected to reach 3.0 per cent in 2014 and accelerate further to 3.5 per cent in 2015. The Maltese economy is expected to continue growing over the 2016-2017 period, rising by 3.4 per cent in 2016, and slowly converge to its potential and reach 2.9 per cent in 2017.
Employment growth is expected to maintain a strong momentum and rise by an average of 2.0 per cent in 2014 and 2015. Inflation should remain relatively low during this year at an average of 0.7 per cent but is expected to increase moderately to 1.5 per cent in 2015.
The Government is aiming to reach a deficit target of 2.1 per cent of GDP for this year, and to continue on this path of fiscal consolidation and further reduce the deficit to 1.7 per cent of GDP in 2015.
The labour market continued to perform well during the first half of 2014 as increases in the activity rate translated into higher employment whilst at the same time the unemployment rate decreased in comparison to 2013.
By the end of the second quarter of 2014, the labour force for persons aged 15 and over (i.e. the total number of people employed plus unemployed) increased to 187,893, reflecting an increase of 698 or 0.4 per cent over the second quarter of 2013. During the same period, total employment increased by 2,126 or 1.2 per cent to 176,969.
The unemployment rate during the second quarter of 2014 stood at 5.8 per cent, 0.8 percentage points lower than that recorded in the second quarter of 2013.
Total industrial turnover declined by 9.3 per cent in the first seven months of 2014 when compared to the same period in 2013. The decline in industrial turnover was mainly brought about by the deterioration of 17.7 per cent in the export market, which outweighed the 16.4 per cent increase in domestic sales.
Of particular interest, the manufacturing industry registered a decline of 9.9 per cent in turnover during the same period, arising from lower exports which were 17.7 per cent less than the level registered in the previous comparable period a year earlier. At the same time, domestic sales increased by 27.9 per cent.
In the first eight months of 2014, tourist activity has continued to prosper, with inbound tourism increasing by 8.4 per cent, over the previous corresponding period as total incoming tourists rose from 1,067,204 to 1,157,238. An increase was recorded in the majority of salient tourism indicators over last year, including, the nights spent by inbound tourists, which increased by 4.9 per cent as well as the expenditure from inbound tourism, which rose by 6.5 per cent.
With regards to the cruise passenger industry, arrivals that exclude the embarkations and the Maltese cruise passenger arrivals, increased by 2.7 per cent between January to September of this year over the corresponding period of 2013.
During the same period, a significant number of new licences were issued by the Malta Financial Services Authority. Financial institutions were issued 4 new licenses, increasing the total to 33. In total, 18 investment services licences were issued, leading to 137 licences by the end of September 2014. The number of recognised fund administrators increased by a unit to 28 administrations. The MFSA also issued 88 new Collective Investment Scheme (CIS) licences, increasing the total number of CIS licences to 1,074, as at the end of September 2014.
With regards to insurance companies, 2 new licenses were issued, bringing the total to 59 insurance companies. Moreover, trustees increased by 4, to an aggregate of 143 trustees. In the first nine months of 2014, 3,597 companies and partnerships were registered with the Registry of Companies.
During the first nine months of 2014, the total number of gaming licenses increased by 27.0 per cent, whereby class 1 licenses increased from 155 in the corresponding 2013 period to 218, class 2 licenses increased from 83 to 94, class 3 licenses increased from 61 to 67, while class 4 licenses increased from 44 to 56 licenses. During the same period under review, the total number of companies in this sector increased from 232 to 276.
The annual rate of inflation in Malta in September 2014 stood at 0.6 per cent, unchanged from the same level as previous year. In light of the developments in the annual rate of inflation, the 12-month moving average for Malta in September 2014 stood at 0.8 per cent, slightly above the rate for EU28 which stood at 0.7 per cent.
Exports contracted by 3.4 per cent when compared to the corresponding period in 2013, amounting to €2,486.8 million during the January to August period of 2014. This contraction mainly stemmed from the reduction registered in machinery and transport equipment and miscellaneous manufactured articles which declined by 14.1 per cent and 8.8 per cent, respectively.
Aggregate imports amounted to €4,005.6 million during the January to August period of 2014, increasing by €42.2 million or 1.1 per cent, over the level recorded during the corresponding period in 2013. The visible trade gap widened by €128.9 million or 9.3 per cent, to stand at €1,518.8 million during January-August 2014, attributable to the decrease in exports of €86.7 million coupled with an increase in imports of €42.2 million. In terms of growth, exports contracted by 3.4 per cent whilst imports expanded by 1.1 per cent.
The fiscal and financial measures in summary include:
- Eco-contribution on tyres, ammunition cartridges and certain kind of oils will be removed and replaced by a new excise tax. Effective introduction date: 1st January 2015.
- Introduction of new excise tax on fish feed used for fish farms. Effective introduction date: 1st January 2015.
- Introduction of new excise tax of €0.20 per litre on wine. Effective introduction date: 1st January 2015.
- Increase in excise tax on cigarettes and tobacco. Effective introduction date: 18th November 2014.
- Increase in excise tax on mobile phone service from 3% to 4%. Effective introduction date: 1st January 2015.
- Increase in excise tax on cement to increase by €8 per tonne. Effective introduction date: 1st January 2015.
- Revision in duty on insurance policies (excluding life insurance policies) to 11% of premium paid, with a minimum duty payable of €13. Effective introduction date: 1st January 2015.
- Marginal increases in motor vehicle licenses except for those vehicles where were registered as from 1st January 2009 and with carbon emissions not exceeding 100g/km. Effective introduction date: 1st January 2015.
- Reduction by approximately 50%, of the registration tax for quad bikes and ATVs. Effective introduction date: 1st January 2015.
- Complete removal of registration tax on motor cycles classified as ‘vintage’ but which their engine capacity is less than 250cc. Effective introduction date: 1st January 2015.
- Tower cranes occupying up to 10m2 will pay a crane permit of €10 per day, whereas cranes occupying more than 10m2 will pay €15 per day.
- Swimming pool licenses to increase by 15%. Effective introduction date: 1st January 2015.
- Relative increase in office fees charged by various Government Departments.
- Price for gas will remain fixed at €18 up to end of April 2015.
- Excise tax on “leaded petrol”, “gas oil”, diesel, biodiesel, heavy fuel oil and paraffin will increase by €0.02 per litre whereas the duty on unleaded petrol will increase by €0.01 per litre. Effective introduction date: 1st January 2015.
- Overall decrease in the price of unleaded petrol by €0.02, to €1.42 per litre and decrease in the price of diesel by €0.01 to €1.35 per litre. These prices will remain fixed up to end of March 2015.
- Cost of living adjustment to be paid at €0.58 per week.
- Widening of the individual tax bands as follows:
Single Computation (€)
Joint Computation (€)
Parental Computation (€)
0 – 8,500
0 – 11,900
0 – 9,300
8,501 – 14,500
11,900 – 21,200
9,301 – 15,800
14,501 – 60,000
21,201 – 60,000
15,801 – 60,000
By virtue of these adjustments, a single individual will save a maximum of €1,620 per annum, a married individual will save a maximum of €1,252 and married couples utilising parent rates, will save a maximum of €1,552 (per individual).
- Complete removal of income tax on individuals receiving minimum wage. This applies also to pensioners who receive pensions not exceeding the minimum wage.
- Individuals to register the location of their main residence. This exercise is mainly being carried out to curb on abuse by those individuals benefiting from the 3-year exemption from the sale of residential dwelling.
- The option to tax immovable property transfers either at 35% on the profit or a final withholding tax of 12% on the transfer value within a window time frame of 12 years will be removed. It will be replaced by a final and withholding tax of 8% on the transfer value. Where the transfer is not being made in the course of trading, the final withholding tax on property transfers will be 5% if the property is being transferred within a window time frame of 5 years. In the case of any property acquired before 1st January 2004, the rate of final withholding tax on property transfers will stand at 10%. Other exemptions as stand in the law today, will remain in force. This measure will be effective from 1st January 2015 (excluding any registered promise of sale agreements up to 17th November 2014).
- Exemption on duty on transfers related to divisions of immovable property.
- Exemption on duty on acquisition of immovable property by first time buyers up to a value of €150,000, will be extended up to 30th June 2015.
- Removal of eco-contribution on electronic equipment on condition that operators in the sector have to enrol themselves with an approved recycling scheme. The eco-contribution will be removed with effect from 1st September 2015.
- Persons with turnover not exceeding €7,000 have to apply for Value Added Tax (VAT) and will no longer be considered as outside the scope of VAT. The registration will have to be under Article 11 (Small Undertakings) of the VAT Act.
- VAT inspectors will be trained to start investigating tampering with software systems by business operators and there will be stricter enforcement on the production of a fiscal receipt.
- Introduction to automatic electronic payments to start replacing payments through cheques and cash which fuel tax evasion.
- Establishment of a Special Unit replacing the former Revenue Corps to ensure fair collection of the respective taxes and tariffs so that all business are on the same playing-field in terms of competition.
- Pensioners to receive full increase in the Cost of Living Adjustment.
- A one-time additional bonus of €35 per year payable to all full-time employees (which will not benefit from a reduction in income tax), all pensioners, beneficiaries of social security benefits, part-timers (pro-rata) and students (pro-rata). The bonus will be entirely paid by the Government and not by the Private Sector.
- Introduction of work-in benefit for working married couples with children younger than 23 years of age and the wife should not be earning more than €3,000 and the total income for the couple should read between €10,000 and €20,400. The work-in benefit for these families will be entitled up to a maximum of €1,000 per child. Single parents will be entitled up to a maximum of €1,200 per child and the total income for the same single parent will be between €6,600 and €15,000. The benefit will be calculated after deducting the NI contributions from the gross pay. All other benefits paid to the respective families will not be reduced irrespective of the work-in benefit entitlement.
- Individuals (including single parents under 23 years of age) who are on an unemployment benefit and refuse to enrol themselves in the Youth Guarantee scheme, their unemployment benefit will be suspended.
- From 1st January 2015, single parents, with children under 18 years and who are in employment, will have their social benefits tapered by 35% in 2015, 55% in 2016 and 75% in 2017. Single parents who get married or engage themselves into a civil union, will also have their social security benefit tapered on a period of three years.
- One-time amnesty for individuals abusing of social security benefits to regularise themselves by 28th February 2015.
- Re-introduction of the TAF scheme to finance training for employees. In the case of the Access to Employment scheme, the employer will receive 50% of the salary of a newly employed disadvantaged individual up to a maximum of €5,000. In the case where the individual employed is a single parent, the maximum refund will tally to €10,000. Part-time employment also qualifies for this scheme and the reimbursement will be pro-rata.
- Employers who engage new employees through the Work Programme scheme, will receive up to €2,750 in reimbursement for every employee over three years.
- As from 1st January 2015, the rate of maternity benefit paid by the government for the 15th to the 18th week of maternity leave, will increase to the equivalent of the weekly minimum national wage. All women (employed and self-employed) will be eligible for this increase.
- As from 1st January 2015, maternity benefit equivalent to the national minimum weekly wage will be extended to women who are self-employed.
- Grant of €300 per annum to elderly persons of 75 years and over.
- Introduction of the third pillar pensions as announced last week.
- Removal of anomalies with certain pensioners especially those which were forced to early retirement because their employment was terminated by way of redundancy. The adjustments will be factored in payments made during 2015.
- Opportunity for prospective pension applicants to pay 5 years’ worth of social security contributions to enable them receive the social security pension.
- Individuals of age between 62 and 74 years, who retired from employment, will receive a bonus of €200 if during their employment they paid more than 5 years’ contributions and €100 if they paid less than 5 years’ contributions.
- Pension for retired employees working with the Civil Protection Department and compensation for disability suffered by soldiers, members of the Police Force and members of the Civil Protection Department.
- Supplement of €400 for each of the first three children (and €200 for every other child) of those families with low income, on condition that the children have to attend at least 95% of school days.
- Exemptions from duty causa mortis related to inheritance trusts and foundations where the beneficiaries are disabled children of a married couple.
- Disabled persons who engage themselves into some form of employment will still continue to receive the invalidity pension.
- Employers who employ disabled individuals will receive full exemption from the payment of social security contributions and a tax credit not exceeding €4,500 for every disabled individual employed.
- Employers employing more than 20 individuals, would need to employ 2% equivalent of its work force, in disabled individuals. In the absence thereof, the employer is expected to pay an annual contribution of €2,400 for every disabled person which should have been employed with a maximum of €10,000 per annum. This measure will be implemented in a tapered manner: 1/3 in 2015, 2/3 in 2016 and full payment as from 2017.
- 50% of donations (not less than €2,000) made to the Malta Community Chest Fund will be allowable as a tax deductible expense.
- Bidders of Government tenders will have to disclose details on the declared wages and salaries of the employees assigned on the particular contract and have to at least equate the minimum salaries portrayed by the Government Payment Scales.
- Students will be paid a pro-rata cost of living adjustment to their stipends and the same stipends will be exempt from income tax
- Reduction of VAT on e-books, audio books, books published on CDs, DVDs, SD-Cards and USB drives from 18% to 5%.
- Set-up of Entrepreneurship Centre at MCAST in conjunction with Malta Enterprise to offer assistance to students with business start-ups.
- Set-up of arbitrage centre for the financial services sector.
- Cruise-liners berthing in Maltese harbours will be allowed to open their casinos on board for the passengers during the night, as long as they will be paying the necessary gaming license in Malta.
- Set-up of a simple VAT refund system for tourists.
- Establishment of a Development Bank to finance strategic projects.
- Prospective fiscal and non-fiscal incentives to promote Seed Capital and Venture Capital Funds.
- Tax credit up to a maximum of €250,000, for investors engaging under the Seed Investment Programme. With every €1 invested will be compensated by €1 in tax credits, subject to the maximum tax credit indicated.
- Implementation of the Family Business Act in the coming months in particular including fiscal incentives to ensure smooth handover of the business from one generation to another.
- Introduction of new incentives for the Film Industry but no details were revealed in the Budget Speech.
- Rebranding of the current Lotteries and Gaming Authority to Malta Gaming Authority and the establishment of a Gaming Academy to identify and train the necessary human resources for the Gaming Industry in Malta.
- Introduction of schemes to attract foreign pensioners retiring from international organisations such as the United Nations, to become residents of Malta.
- The Real Estate Agent sector will be regulated.
- Introduction legislative changes to accommodate Sukuk and Islamic Banking.
- Proposed revision in the opening hours of retail outlets.
- Proposed legislative reform for Co-operatives in Malta to make them more attractive as a business vehicle.
- Reduction of water and electricity tariffs for businesses with effect from March 2015.
- Opportunity for former beneficiaries of photovoltaic panel installation grants to increase the number of existing panels installed and benefit from a feed-in tariff of €0.22. The extension expires by 30th April 2015.
- Parents making use of school transport will receive a reduction in the taxable income of up to €150 per annum.
- Motor Vehicle scrappage grant of €700 to €900 effective from 1st December 2014. Grant of €200 will also be awarded to individuals altering their motor vehicle to autogas.
- Grant up to 15.25% on acquisitions of bicycles and electronic bicycles.
- Increase or retaining employees on a full-time basis in the Tourism Sector in Gozo, will benefit from a partial refund of the payment of social security contributions up to €1,000 for every new employee.
- Reduction of income tax to 7.5% for water polo players.
- Amendments in the Income Tax to accommodate Civil Unions.
The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.