VAT Perspective-Transaction Analysis
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 EU VAT Directive.
All supplies of goods or services in Malta where profit is made, through a taxable individual/company, is subject to VAT.
Questions to inquire prior to determining the accounting treatment of VAT:
1.Who does the transaction involve?
2.What is the type/purpose of the transaction and is it happening in Malta?
3.Could there be an exemption- hence paying no VAT?
4.Who is responsible to make 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 one of the two once identifying the taxable persons and the status of the individual/ business carrying out the transaction.
2. What is the purpose of the transaction and is it happening in Malta?
VAT relates to supply of goods and services, importation of goods and intra-community of goods.
a. Example of supply of goods:
A Maltese electronics retailer sells a laptop to a customer in Malta. This is an example of a supply of goods because the transaction involves a transfer of tangible movable property (laptop) from the seller to the buyer for consideration (payment). This is subject to VAT at the standard rate in Malta – being 18%.
b. Example of a supply of services:
A Maltese accountant provides bookkeeping services to a local business. This is an example of 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 a standard VAT rate of 18%.
One can determine whether the transaction will be happening in Malta or not based on which jurisdiction will have the authority to tax that specific transaction. Each transaction will have its own regulations on how to determine which jurisdiction has this 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 (non-profit organisations), some cultural services as well as letting of immovable property.
- Exemptions with credit – 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, exports and certain intra-community supplies.
4. Who is responsible to make the VAT payment?
Refer to Article 7 for more details regarding VAT payment liability.
This is the individual/ business who will be passing on the VAT payment to the respective authorities, in our case being 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 some instances where the responsibility will be that of the customer and not the supplier.
Conclusion
To conclude, VAT in Malta usually follows a standard regulation as stipulated in the EU VAT directive however there may be some instances which will 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 of submitting a VAT adjustment form to the Malta Tax Authorities.
