Malta Budget Highlights 2017
The thrust of the 2017 Budget presented in Parliament by the Minister of Finance, focused on continuing prosperity whilst achieving social justice to ensure that everybody improves in one’s standard of living. .
Fiscal and Economic Review
The Maltese economy continued to register robust growth in the first half of 2016. Indeed, the Maltese economy grew at a nominal rate of 6.1 per cent, or a real rate of 4.1 per cent which was more than double the average growth recorded in the EU during the same period. Household consumption increased by 3.8 per cent in the first half of 2016, which was 0.1 percentage points higher than the growth registered in the same period of 2015. Growth in domestic consumption continued to be supported by strong and positive developments in the labour market.
The Government is reaching its targets to reduce its budgetary deficits and in fact it reached a deficit target of 1.5 per cent of GDP for 2015, and continued on this path of fiscal consolidation to further reduce the deficit to 0.8 per cent of GDP in 2016.
During the twelve months to June 2016, the number of people participating in the labour market continued to increase. This positive development was observed with declines in the unemployment rate. In line with past trends, employment growth has been mostly concentrated in the services sector.
At the end of June 2016, the labour supply stood at 201,206, reflecting an increase of 5,741 or 2.9 per cent over June 2015. Meanwhile, total employment increased by 6,513 or 3.5 per cent to reach 191,384 at the end June 2016. By end of the second quarter of 2016, the unemployment rate stood at 4.9 per cent, 0.5 percentage points lower than that recorded in the second quarter of 2015.
In the industrial sector growth was experienced in the primary, secondary and the tertiary sectors. Indeed, the industrial sector enjoyed a healthy growth rate in its GVA of 5.3 per cent, with mining, quarrying and utilities registering double digit growth rates and manufacturing increasing by 2.8 per cent. Employment in sectors remained stable during the review period while the compensation of employees experienced an increase of 2.9 per cent. GVA in the agriculture and fisheries sector increased by 7.3 per cent. In the meantime a fall in industry turnover of 4.9 per cent was incurred due to an estimated 8.8 per cent and 3.6 per cent decline in exports and domestic sales, respectively.
Between January and July 2016, the number of inbound tourists and nights stayed expanded significantly over the comparable period of 2015, thus suggesting that the buoyant performance within this industry persisted. In fact, all tourism indicators point to another outstanding year, both in terms of inbound tourists and bed-nights spent in Malta, and also importantly in terms of tourist expenditure and employment. The same applies for the cruise passenger industry, which experienced a robust growth performance.
During January to July 2016, inbound tourism increased by 9.7 per cent, reaching 1,055,189 persons. Nights spent by inbound tourists increased by 7.3 per cent, and expenditure from inbound tourists scaled up by 5.4 per cent. Average full-time employment in the accommodation and food services activities recorded an increase of 600 jobs during the year to April 2016. In the first two quarters of 2016, cruise passenger arrivals, excluding the embarkations and the Maltese cruise passenger arrivals, increased by 6 per cent over the corresponding period of 2015
Up to August 2016, a significant number of new licences were issued by the Malta Financial Services Authority.
In total, 9 investment services licences were issued, leading to 156 licences by the end of August 2016. The MFSA also issued 77 new Collective Investment Scheme (CIS) licences, increasing the total number of CIS licences to 1,293. Financial institutions were issued one licence, increasing the total as at end of August to 40 units. With regards to insurance companies, a new licence was issued, bringing the total to 58 insurance companies. Moreover, trustees increased by 7, to an aggregate of 153 trustees. With regards to retirement schemes, 8 schemes and 2 administrators were licensed, with the total increasing to 44 schemes and total administrators increasing to 16. In addition, during the period under review, 3,353 companies and partnerships were registered with the Registry of Companies.
As at the end of July 2016, there were 250 remote gaming companies in Malta, which collectively held 498 licences. This implies that the number of registered remote gaming licences increased by 6 per cent over the corresponding period in 2015. Data on the land-based sector of the MGA refers to the first six months of 2016, whereby by the end of this period, the number of casinos in Malta stood at 4, while the number of gaming parlours and bingo halls remained unchanged at the 2015 level, at 46 and 4, respectively.
Malta Enterprise continued to work on issuing new incentives related to start-up capital and energy efficiency. To this end, ME launched the Start-up Finance Scheme related to crowd funding and private equity and also re-launched the Business Start (B. Start) Scheme which was introduced in 2015 as a pilot project. By the end of the period under review, 40 beneficiaries were assisted under the B. Start Scheme. In the first nine months of 2016, ME reviewed and approved Investment Aid Tax Credits based on eligible investment or a total value of €46.6 million in favour of 185 beneficiaries. Furthermore, the Corporation received and processed 2,462 applications under the Get Qualified Scheme, as well as issued €8 million worth of tax credits under Micro Invest Scheme.
Malta’s monthly year-on-year harmonised inflation rate (HICP) as reported by Eurostat as from September 2015, decreased slightly and remained relatively stable thereafter, averaging around 0.9 per cent. In fact, it fell gradually from 1.6 per cent in September 2015 to 0.8 per cent in January 2016 and reached the rate of 1.0 per cent in August 2016. The 12-month moving average inflation rate stood at 1.1 per cent in August 2016, slightly higher from 0.9 per cent registered in August 2015. Malta’s RPI 12-month moving average inflation rate in August 2016 stood at 0.8 per cent.
For the period January to July 2016, Malta’s exports increased by 3.9 per cent over the corresponding period in 2015 to reach a value of €2,211.6 million. Total exports net of fuel increased by around 35.2 per cent. Such an increase in the value of exports was mainly attributed to chemicals exports that registered a significant growth of €556.5 million. In contrast, the largest decrease was recorded in fuel exports which declined by 42.2 per cent.
The total value of imports for the period January to July 2016 amounted to €4,060.0 million, an increase of 3.5 per cent, and equivalent to €138.1 million over the corresponding period of 2015. Imports relating to consumer goods registered a minor decline of 1.5 per cent owing to declines in durable goods and Food and Beverages imports. Importation of consumer goods amounted to €676.4 million, which represent 16.7 per cent of total imports. Imports of industrial supplies fell by €132.7 million mainly underpinned by a decline in semi-finished industrial supplies. Imports of capital goods registered a sharp increase amounting to €439.8 or 34.1 per cent to reach a level of €1,730.2 million. Exports contracted by 7.1 per cent when compared to the corresponding period in 2014, amounting to €2,107.4 million during the January to July period of 2Malta’s visible trade gap, which shows the difference between exports and imports, increased by €55.2 million. This gives a negative trade balance of €1,848.5 million in the January to July period of 2016. This increase is due to the fact that total exports increased to a lesser extent than imports.
Summary of Budget Measures
The fiscal and financial measures in summary include:
- Cost of living increase of €1.75 for all employees, pensioners and students (on a pro-rata basis).
- Removal of eco-contribution on batteries, mattresses, detergents, filters for motor vehicles, toiletries, kitchen plastic containers and similar utensils.
- Toiletries to be included in the excise tax system as from 1st January 2017.
- Excise tax on non-biodegradable garbage bags will increase from 20th October 2016. Recycling bags and bio-degradable bags will remain exempt from excise tax.
- Excise tax on cigarettes and cigars will increase by 3.76% while hand-rolled cigarettes will increase by 5.5%.
- Excise tax on non-alcoholic beverages will increase by €0.02 per litre but mineral water will remain exempt.
- As from 1st January 2017, a new excise tax will be introduced on iron beams and similar structures, wire mesh, glass sheets and tiles.
- Imported pre-cast concrete structures will also be subject to excise tax.
- Shareholders of listed companies quoted on the Malta Stock Exchange which distribute profits earned after 1st January 2017, will be subject to the full imputation tax refund. The respective shareholders should not own more than 0.5% of the share capital and right to distribution of profits.
- Exemption from duty on the first €150,000 for first-time buyers, will be extended for another year during 2017.
- In 2017, a 12-month concession will be granted to family businesses whereby any of the parents who would like to transfer the business to their descendants, will benefit from a reduced stamp duty upon the transfer of the business from 5% to 1.5%.
- Two new schemes to be launched by the Planning Authority to refund first time buyers expenses carried out on restoration of properties within Urban Conservation Areas and other scheduled buildings at first and second grade.
- Buyers who would like to acquire residences in Gozo will be benefit from a reduced rate of stamp duty from 5% to 2% on condition that the promise of sale agreement is registered with the Inland Revenue Department by end of 31st December 2017 and the contract is concluded by end of 31 December 2018.
- Transfers of inherited property and subject to judicial auction, formerly subject to a self-assessment, will now be subject to a final and withholding tax of 7%.
- Simplification of a transfer of 2nd hand vehicle (previously exempt from motor vehicle registration tax) to a new owner (not subject to the exemption) where the payment of registration tax is spread equally over 10 years.
- Every lease agreement for 3 months or more, will have to be registered with the Inland Revenue Department either by the lessor or the lessee. In the absence of such registration, the lessor will be subject to additional tax and penalties as contemplated by the Income Tax Act.
- Work-in benefit for working spouses will increase by €200 per year, single parents will see an increase of €50 whereas if only one of the spouses is in employment, then the work-in benefit will increase from €150 up to a maximum of €350.
- Increase in the ceiling of supplementary allowance from €11,089 to €13,000 for married couples. Other single persons not earning more than €9,012 (net) will benefit from an increase of €126.36 per year. These increases in supplementary allowances are also applicable for elderly with low income.
- Minimum pension earners or pensioners whose pension is just over the minimum pension, will benefit from an increase in pension of €208 per year.
- Pensioners will become exempt from tax on pensions from all sources up to a maximum of €13,000. The exemption will be spread on 2 years. Married individuals will receive an additional exemption of €1,000 on other sources of income (other than pensions). This exemption will be spread on two years: €500 in 2017 and €500 in 2018, a total exemption of €1,000 by the end of 2018. Pensioners who qualify for the parent rates of tax will also benefit from this exemption.
- €300 allowance for elderly over 75 years and still live in their dwellings, will be extended for next year.
- The bonus earned by eligible individuals who paid contributions but do not benefit from a pension, will increase by €50.
- Increase of €200 in service pension. This increase is then deducted from the social security pension.
- Removal of gender discrimination with respect to payment of pensions. This measure may yield a benefit of up to €20 per week.
- Pensions specifically earmarked for the peace of mind for elderly people, will increase by €140 per week representing a total of €1,820 per year. Means test on carer allowances will remain in some cases whereas it will be removed for others.
- Government subsidy to lessees on rental agreements will increase by two times, as long as the lessees present the respective rent agreement.
- Lessors who agree to enter into contractual agreement for 7 years with families with low income, will benefit from a reduced rate of tax on rental income of 5%.
- Elderly persons who appoint a full-time or part-time care worker will benefit up to a maximum assistance of €5,200 per year.
- Launching Government Saving Bonds for pensioners to compensate for the low interest rates offered by Banks.
- Full-time students under 24 years of age and working as self-employed would be in a position to pay social security contributions pro-rata at a rate of 15% on the net earnings.
- A tax deduction of 150% up to a maximum of €35,000 per year to companies that offer transport to its employees (by themselves) and up to a maximum of €50,000 per year to every company that operates this service jointly with another company.
- Every person over 18 years old that uses public transport instead of their own car shall be given free public transport up to a maximum of €312.
- Incentives for companies investing in bicycle racks for their employees.
- An extension to technical services in agriculture practices to for farmers and other persons interested in agriculture.
- New regulations shall be introduced relating to transfers between family related persons of agricultural areas owned by the Government.
- Reduction in price of transfer of Government agricultural areas to young farmers during the first five years.
- Empheteutical grants which has expired or will expire soon, will be transformed to new empheteutical grants with same conditions but subject to a payment of a new empheteutical grant.
- Leased or empheteutical granted shops located outside
wherein the property is government owned – will start benefiting from a temporary empheteutical grant for a period of 45 years. Valletta
- A new scheme will be introduced for owners who pay for expenses related to restoration of facades of historical facades. The government will contribute to part of the expenses.
- Removal of capping related to applications of development of large projects.
- A new bank will be introduced – the Maltese Bank for Development – which will specialise on development of investment in
- A new Agency – the Credit Agency for Exportation.
- A Joint Enforcement Task Force – to combat unfair competition relating to business and tax evasion. There will be controls and spot checks on employers that employ persons that are not registered and landlords that do not declare their property with the authority and unfair competition on certain importations.
- Assistance to local start-ups through an International Accelerator will be introduced.
- Relaunch of the MEUSEC agency.
- The set-up of a new authority – Office of Arbiter for Finance Services and Resolution Authority.
- A fiscal incentive in the form of Risk Investment Scheme for those that invest in SME or in new investment that is spread on various SMEs registered as alternative trading platform like Prospects on the Malta Stock Exchange. A tax credit of a maximum of €250,000 per annum.
- A fiscal incentive for entrepreneurs that offer shares to public on Listed Companies on the Malta Stock Exchange. Any gain upon listing is tax exempt. The tax exempt is applicable to entrepreneurs that register on the alternative trading platform.
- A fiscal incentive to employers that invest in a private pension for their employees. The incentive amounts to €150 for every €1,000 invested and the retirement plan will not be deemed to be a taxable fringe benefit in the hands of the employee.
- A new project – the Marsa dockyard shall be turned into a centre for oil, gas and logistics industry.
- Public Private Partnership – a new international logistic centre in Hal Far and a new authority will be set up to govern and regulate activities in these new hubs that are declared free trade zones.
- Maritime Proof of Concept Fund – to encourage students and academics to develop their ideas in maritime business related to business concepts
Maltatogether with MDA – to encourage foreigners to live and invest in . The main aim of Property Malta Maltawill be to promote and advertise to attract more investors and persons to buy holiday homes and settle in . Malta
Life Sciences Park
- The Gaming Authority – new reforms and regulations will be introduced.
- The Government network and data centres will be strengthened and a strategy for Cybersecurity will be launched.
Malta – fiscal credit granted to disadvantaged entrepreneurs in the form of finance assistance up to a maximum of €25,000 on research work. The financial assistance varies between 25% and 45% of the expenses. Enterprise
- Computer games with cultural theme - a fiscal credit will be granted up to 30% of the expenses in connection with the development of the computer game.
- A reduction in planning fees related to projects and industrial developments in industrial zones to replace the present commercial tariffs.
- The trading licence for shops and other commercial places will no longer be required.
- An electronic import system and online payment will be introduced.
- New graduates that set up new company and its turnover does not exceed €80,000 per annum. – either the company will not be required to be audited for the first two years or in case they opt for their company to be audited, a deduction of 120% of the auditor expenses will be given, up to a maximum of €700 per annum.
- Trademark, a new Public Private Partnership, will assist small companies to export their products and services.
- Hotels and restaurants will be granted a fiscal credit on expenses related to renovation up to a maximum of €50,000 for restaurants and €200,000 for hotels.
- Fiscal incentive for restaurants that employ experienced international chefs up to a maximum of €10,000.
- Donations given to political parties will be scrutinised by professional auditors.
- A proposal to introduce leave for parents when their child is sick.
- Fiscal incentives to be proposed for developers interested in investing in the development of public car parks.
- Individuals, entities and Local Councils may submit applications for the Planning Fund and be refunded up to 70% of the infrastructural expenditure, for the purpose of the embellishment of local open spaces.
The above information is being provided as a general guide only and should not be considered as a substitute for professional advice