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Malta Budget 2021 - An Overview

With the COVID-19 pandemic continuing to act as a tax on human activities, various economies worldwide have been negatively effected, including Malta's. On Monday 19th October, Minister of Finance Prof. Edward Scicluna announced various key measures as part of the 2021 budget in a bid to minimize this negative impact on the country's economy.




A rundown of 2020


  • Malta is expecting a reduction of 7.4% in its GDP over 2019, which is expected to stand at €12.5bn.

  • The deficit is expected to be around 9.4% of the GDP. A significant decrease from the 1.4% surplus expected prior to the pandemic.

  • Debt is set to increase to 55% of the GDP in 2020​.

  • Tourism sector took the hardest hit with inbound tourists, up to July 2020, downing to 419k from the recorded 1.5m in the previous year.

  • Unemployment rate as at August 2020 stood at 4.1%, a rate which is still significantly below the EU average (8.1%).

  • The 12-month moving average inflation rate in August 2020 stood at 1.1%.

Forecast for 2021


  • A recovery of the economy is expected in 2021 with a growth of 5% in real terms and 6.4% in nominal terms.

  • This growth is excepted to generate 7.5% in investment and 3.7% in private consumption.

  • Exports set to increase by 5.5%.

  • An increase of 2.3% in jobs is expected next year with unemployment set to remain hovering around 4%.

Incentives

Property Fiscal measures relating to property transfers which are already in force will be extended to 2021. These include;

  • Stamp duty exemption for first time buyers, in which the first €200,000 will be exempt from duty (increased from €175,000). This increase is set to start as of 20 October 2020;

  • Upon inheritance of property by heirs, a reduced rate of duty of 3.5% on the first €200,000 will apply. This has been upped from the previous €175,000;

  • The reduced rate of duty of 3.5% on the first €200,000 on the acquisition of residential property, even if not first time buyers, will continue;

  • Reduced rate of duty on the acquisitions of residential property in Gozo, and of property in Urban Conservation areas (2.5% instead of 5%);

  • Profits/gains arising from the assignment of immovable property under a promise of sale will be subject to a tax rate of 15% (Previously, the 15% rate only applied on the first €100,000);

  • The refund of duty on the purchase of a new residential home by “Second-Time Buyers” of up to €3,000, or €5,000 in the case of persons with disability, will be given;

  • The exemption from stamp duty on the first €250,000, which has been increased from €200,000, upon donations of immovable property from parents to children which are to be used for residential purposes, shall apply. A 3.5% rate shall apply on the additional value;

  • The COVID-19 regeneration measure attributable to the reduction of duty to 1.5% and the reduction of transfer tax to 5% on immovable property transfers on the first €400,000, shall be continued for promise of sale agreements entered into by 31 March 2021 and whose final contract is concluded by 31 December 2021.

Social Incentives


  • Tax refunds received are set to increase to a bracket of between €45-€95 depending on the level of income recorded by the individual in the preceding year;

  • Another set of €100 worth of vouchers are to be given to all residents, with a shift in the denominations of the vouchers (€10 and €15 vouchers to be used in restaurants as opposed to the previous €20 ones, whereas those to be used in retail are set to double to €40;

  • People hiring a carer to look after an elderly person or hiring a professional to look after a person with disability, will be given a grant of €6,000 (previously €5,291 and only for carers);

  • Post-secondary students will benefit from a year of free internet;

  • Cost of living allowance (COLA) of €1.75 to be given to all employees;

  • Extra day of vacation leave has been given to full-time employees with part-time employees entitled to pro-rata additional leave thereon;

  • Public sector workers suffering injustices set to receive compensation (subject to satisfactory passing of a board of inquiry);

  • In-work benefit threshold set to be extended;

  • Government bonds with favourable interest rates to be reserved for senior citizens;

  • Children's allowances are set to rise, with households having income under €25,300 experiencing a €70 increase per child, whereas households earning above that threshold will see an increase of €50;

  • Parents eligible for supplementary allowance will receive an additional cheque of €150 as of 2021;

  • Parents earning a maximum €13,798 and single individuals earning €9,701 yearly will be given weekly supplementary allowances ranging between €4.57 to €12.54 to help impoverished children;

  • Pensions are set to increase by €5 per week split between €1.75 COLA and an additional increase of €3.25, with the exempt bracket increasing to €14,058 from the previous €13,798. Furthermore, couples applying the married rate will have an additional exemption of €3,600 (previously €2,000) on income from other sources;

  • Contribution-to-a-private-pension deduction is set to increase to €1,500;

  • Workers or heirs of former dockyard workers who suffered asbestos poisoning are set to receive compensation;

  • €300 grant for parents who stopped working to care for a disabled child;

  • Foster care allowance upped to €10/week and a €1,000 grant for couples who adopt a child locally is set to be given.

Business


  • A reduces tax concession rate of 1.5% upon the transfer of business is being extended for another year;

  • The tax free threshold for VAT-exempt business, i.e. being registered under Article 11, has been increased from €20,000 to €30,000.

  • Agriculture and fisheries businesses will be given grants equivalent to the sales tax paid at vegetable and fish markets;

  • Voluntary organisations generating not more than €50,000 will be exempt from tax (income must not be of a trading nature);

  • Wage supplement introduced by the COVID-19 Regeneration package has been extended;

  • Schemes for business start-ups to encourage online business (digitlisation) and help firms attract new foreign investment will be introduced in the coming year;

  • Marketing assistance will be given for business operating in the tourism sector;

  • Job creation in Gozo schemes as well as a range of other schemes will be continued;

  • Royalty income earned by authors/co-authors will be taxed at a 15% flat rate;

  • A new plan for the tourism industry is set to be unveiled to better address the dramatic changes experienced by the sector as a result of the COVID-19 pandemic.

Environment


  • Reduction of licenses for motorists who opt to use their vehicles solely on weekends;

  • A grant of €400 will be given to owners who convert their vehicle to LPG;

  • Licenses for motorcycles set to be reduced from €65 to €25;

  • The issuance of green bonds to enable the financing of energy and environmentally efficient projects will be launched, with the aim to reduce air pollution;

  • Schemes to enable owners of private residences and commercial establishments to install green walls are set to be launched;

  • VAT Refund schemes on the purchase of bicycles and e-bikes will be extended;

  • Reduction in licenses and registration taxes will be experienced by consumers;

  • Vehicle scrappage scheme extended, with the grant increasing of up to €7,000, for owners seeking to purchase new vehicles with lower emissions;

  • Incentives for electric vehicles will be retained whereby no registration tax is charged and no road tax is levied for the first five years;

  • As of January 2021, the importation of single-use plastics will be banned with the sale of such plastics to be prohibited as of January 2022;

  • The Tourism industry is set to have a long-term implementation plan implemented in a bid to achieve a 'Net Zero, Carbon Neutral' environment.