How do we assess accounting entries from a VAT perspective?
We will have to analyse whether the entry is within the scope of Malta VAT. Refer to Article 2 of the EU VAT Directive.
All supplies of goods or services in Malta where profit is made, through a taxable individual or company, are subject to VAT.
Questions to ask before determining the accounting treatment of VAT
- Who does the transaction involve?
- What is the type or purpose of the transaction, and is it happening in Malta?
- Could there be an exemption, and hence no VAT payable?
- Who is responsible for making the VAT payment?
1. Who does the transaction involve?
It is important to take into consideration the status of the individual carrying out the transaction. Refer to Article 2 for further information regarding the status of a person.
A transaction may either be B2C (business-to-consumer) or B2B (business-to-business). One will be able to identify which of the two once the taxable persons and the status of the individual or business carrying out the transaction are identified.
2. What is the purpose of the transaction, and is it happening in Malta?
VAT relates to the supply of goods and services, the importation of goods, and intra-community acquisitions of goods.
Example of a supply of goods. A Maltese electronics retailer sells a laptop to a customer in Malta. This is a supply of goods because the transaction involves a transfer of tangible movable property from the seller to the buyer for consideration. This is subject to VAT at the standard rate in Malta, being 18%.
Example of a supply of services. A Maltese accountant provides bookkeeping services to a local business. This is a supply of services because it involves performing bookkeeping without transferring any physical goods. The time of supply depends on when the payment is received or when the service is completed, whichever is earlier. This is also subject to the standard VAT rate of 18%.
One can determine whether the transaction is happening in Malta based on which jurisdiction has the authority to tax that specific transaction. Each transaction has its own regulations on how to determine which jurisdiction holds that authority.
3. Could there be an exemption?
There are many VAT exemptions found in Articles 5 and 6. These include:
- Exemptions without credit (no input VAT), such as services related to banking, credit, loans, insurance, health and medical services such as hospitals, religious and charitable activities, some cultural services, and the letting of immovable property.
- Exemptions with credit, where input VAT can be recovered. Examples include transport of goods outside the EU or between EU countries, export of goods to destinations outside the EU, and supplies of goods from Malta to VAT-registered customers in other EU member states. These may be summarised as intra-community supplies and exports.
4. Who is responsible for making the VAT payment?
Refer to Article 7 for more detail on VAT payment liability. This is the individual or business passing the VAT payment on to the respective authorities — in our case, the Malta Tax Authorities. The person providing the service is normally the one who should be passing the VAT payment for the transaction to the authorities, however there may be instances where the responsibility falls to the customer rather than the supplier.
Conclusion
VAT in Malta usually follows the standard regulation as stipulated in the EU VAT Directive, however there may be instances which need to be viewed on a case-by-case basis to ensure the proper VAT treatment and avoid future penalties. Incorrect VAT treatment may also result in further complications, such as the requirement to submit a VAT adjustment form to the Malta Tax Authorities.
