Developments in the Member States

Part II

VAT and excise duties

The standard VAT rate is 18 % with a 7 % reduced rate applicable to holiday accommodation, and a 5 % reduced M
rate, introduced in 2011, on letting of sites for artistic or cultural activities, electricity, printed material, medical
accessories and goods intended for the use of disabled persons. Zero-rated supplies include food, pharmaceutical a
goods, local transport and cultural services. VAT was introduced in 1995, replaced with a sales tax following a l
change of government, following which the revenues dropped by more than 1 % of GDP. A further change of t
government led to its reintroduction in 1999. The rate was increased from 15% to the current 18% in 2004.
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Excise duties are moderate on light alcoholic beverages, close to EU average on fuels and relatively high, in
comparison with other new Member States, on both strong liquors and tobacco. The 2012 budget foresees that the
customs duty on bunkering fuel for ships outside territorial waters will increase to € 5 per tonne. While minimum
excise duty on cigarettes will increase by 5.8 per cent on each packet of twenty cigarettes, excise duty on other
tobacco products will increase by 8.5 per cent.

Environmental taxes
In September 2004 the so-called eco-contribution was introduced in Malta mainly to finance the development of a
waste water management system. It is chargeable on a number of white goods, containers, batteries, plastic bags,
tyres and other specified products that are deemed to result in waste. Currently taxes on pollution yield 0.2 % of
GDP, which is the fifth highest level in the EU.

From 2011, registration taxes of commercial vehicles up to Euro Standard 3 have been increased in order to
encourage the purchase newer and cleaner vehicles Companies can also benefit from a reduction in company tax
up to 125 % on the amounts spent on electric cars. All motor vehicles with Euro 1 to 3 emissions (or worse) will
have an increased registration tax from January 2012.

In 2011, an excise duty of € 9 was introduced on every tonne of cement. This is increase by 3 euro per tonne for
2012.

Wealth and transaction taxes

There is no wealth tax but the transfer of immovable property by individuals and companies is normally subject to
a rate of 5 % of the transfer value (3.5 % on the first € 117000 in the case of acquisitions for the purpose of
establishing the purchaser's own residence). Transfers of immovable property situated in Malta are subject to a
12% withholding tax on the transfer value. Various exceptions to this rule are applicable, e.g. where the transfer is
made within 7 years after the acquisition, in which case the transferor has the option to be charged to tax at the said
12% or in accordance with the general rules. The 2012 budget introduces a reduction of the final withholding tax to
10% in case a person invests in restoration of the property for the purpose of selling.

While there is no withholding tax on dividends or royalties, the distribution of untaxed corporate income, the
interest paid by Maltese banks and government and the capital gains arising from the disposal of shares in
investment schemes are subject to withholding tax at 15 %.

Social contributions
Maltese workers are covered by a social security system under which the employee, the employer, and the
government each contribute 10 % of an employee's basic salary (up to a maximum contribution of € 37.85 per
week for persons born on or after 1 January 1962 and € 33.50 for persons born on or before 31 December 1961);
the self-employed contribute at a rate of 15 % of their net income received from a trade, business or profession
during the previous year. The weekly contributions range from a minimum of € 23.03 to a maximum of € 56.78.
Social security contributions are not deductible for income tax purposes. The employer's share of social security
contributions is deductible for income tax purposes.

Taxation trends in the European Union 127