Following the recent Budget Implementation Act, Malta has introduced a broad set of VAT and direct tax amendments that will impact businesses from 2026 onwards, with many VAT changes becoming effective from 1 January 2027. These reforms represent a significant modernisation of Malta’s tax framework and further alignment with EU developments, including the VAT in the Digital Age (ViDA) initiative.

Overall, the changes reflect a clear policy direction towards:

  • Increased digital compliance and real time interaction with tax authorities
  • Greater consistency with EU VAT systems and principles
  • Stronger enforcement and enhanced procedural certainty

While some of these changes may appear technical, they carry practical implications for VAT accounting, cash flow management, pricing, and cross border operations.

VAT – Key changes

A. Cross Industry Changes (All Businesses)

  • Digitalisation of VAT administration
    The Malta Tax and Customs Administration (MTCA) is transitioning from paper based processes to a fully digital VAT administration system. Official notices, demands, and communications will increasingly be issued via online portals rather than by post. Electronic service of notices is now formally recognised, without the need for handwritten signatures, and notices are deemed delivered once electronically issued.

    In addition, recovery of tax, interest, and penalties may be pursued through civil court procedures, and prescription periods may be interrupted through online publication of demand notices. Businesses should ensure their internal processes are aligned with electronic communications and reporting obligations.
     
  • VAT refunds linked to overall tax compliance
    VAT refunds are now more closely linked to a business’s overall tax compliance position. Where any VAT or income tax returns remain outstanding (including prior periods), refunds may be withheld until compliance is regularised. During such periods, interest on refunds is suspended.
     
  • Furthermore, any VAT refund due may be automatically offset against other tax liabilities under different revenue laws. This may have cash flow implications for businesses that rely on regular VAT repayments.
     
  • Shorter appeal timelines
    Businesses now have a uniform 30 day period to challenge VAT Tribunal decisions, and appeals may be lodged only on points of law. This creates a stricter procedural environment and requires businesses to act promptly if they wish to contest VAT assessments or decisions.
     
  • VAT and transfer pricing considerations – intra group transactions

    Intra group transactions must now be priced at open market value rather than the agreed consideration, particularly where one party has limited or no right to deduct input VAT. This arm’s length valuation rule becomes effective from 1 January 2027 and includes an expanded definition of related parties and minimum valuation thresholds based on purchase or cost price.

    Businesses with related party supplies should reassess their pricing structures to ensure they reflect what would be charged between independent parties, especially in partially exempt or non deductible scenarios.

Clearer rules on when VAT becomes due

VAT is due on the earlier of:

  • the date the invoice is issued, or
  • the 15th day of the month following the supply

From 1 January 2027, this clarification also explicitly applies to certain exempt intra Community supplies, increasing certainty around chargeability and reporting periods.
 

B. E-Commerce & Digital Platforms: Broader “deemed supplier” rules

From 1 January 2027, electronic interfaces facilitating intra EU supplies of goods by non established sellers may be treated as the deemed supplier for VAT purposes. This shifts VAT responsibility from the underlying seller to the platform, increasing compliance obligations for marketplace operators.

Expanded OSS / IOSS schemes
The One Stop Shop (OSS) and Import One Stop Shop (IOSS) schemes have been expanded in line with EU rules, allowing businesses to report VAT due in multiple EU jurisdictions through a single VAT return. While these schemes simplify compliance, they may introduce new reporting obligations depending on the structure of the business.

€10,000 cross border threshold
Businesses making cross border supplies of goods or certain services within the EU may apply simplified VAT rules until their total cross border turnover exceeds €10,000 per annum. Once exceeded, VAT generally becomes due in the customer’s Member State.
 

C. Retail & Consumer Facing Businesses: VAT inclusive pricing – default rule
Any price indicated by a person registered, or required to be registered, for VAT in Malta is deemed to be inclusive of VAT by default.

This deeming rule does not apply where:

  • VAT cannot be determined at the time the price is indicated; or
  • the supply is made to a customer who provides a valid VAT identification number, and it is clearly and unequivocally stated that the price is exclusive of VAT.

With immediate effect, when issuing proposals, engagement letters, or pricing documentation:

  • the client’s VAT number should be requested upfront;
  • the VAT number must be validated through VIES;
  • only where a valid VAT number is confirmed may prices be stated as VAT exclusive.

Electronic receipts formally recognised

Electronic receipts are now explicitly recognised for VAT purposes. Businesses may issue receipts digitally (e.g. via email or applications), provided all mandatory VAT information is included.
 

D. Hospitality & Tourism

  • Eco contribution increase
    From July 2026, the eco contribution on accommodation increases to €1.50 per night per person, capped at €22.50 per stay.
     
  • Food VAT classification updates
    Further clarification has been introduced distinguishing between basic food supplies and catering services, affecting applicable VAT rates and classification for hospitality operators.
     

E. Non Profits & Public Sector: Fundraising exemption clarified
VAT exemptions for fundraising activities have been clarified and are now limited to specific qualifying events organised for the entity’s own benefit, provided they do not create unfair competition with commercial businesses.

Broader non profit definition
The definition of non profit organisations has been strengthened through clearer registration and governance requirements, impacting eligibility for certain VAT treatments and exemptions.
 

F. Cross Border & International Businesses: New VAT registration obligations
Foreign businesses that are not established in Malta may now be required to register for VAT in Malta in more scenarios where the reverse charge does not apply, including:

  • selling goods located in Malta at the time of sale
  • holding stock in Malta
  • supplying certain services to Maltese consumers
  • facilitating sales through digital platforms as a deemed supplier

Call off stock – transitional deadlines

Call off stock arrangements have been aligned with EU transitional rules:

  • goods dispatched after 30 June 2028 will no longer qualify; and
  • the regime will cease entirely on 30 June 2029.


Direct Taxation – Key changes

  1. Enhanced deduction for research and innovation
    Businesses may claim a 175% deduction for qualifying R&D and innovation expenditure, subject to specific conditions. Capital expenditure is generally deductible over multiple years.
     
  2. Higher deduction for elderly and dependent care
    The maximum deduction increases from €2,500 to €4,500, effective from year of assessment 2027.
     
  3. Revised personal income tax bands
    Tax free thresholds have been increased for families with dependent children and qualifying residents, potentially reducing effective tax rates.
     
  4. Digitalisation of income tax administration
    Electronic tax notices and communications are formally recognised. Handwritten signatures are no longer required.
     
  5. Extended reassessment period
    In certain cases, the Commissioner’s reassessment period has been extended from five to ten years.
     

Preparing for 2026 and beyond

Businesses should review their tax and operational processes now, particularly if they:

  • operate internationally or make cross border supplies
  • sell through digital platforms or marketplaces
  • engage in intra group transactions
  • rely on regular VAT refunds
  • incur research and development costs

Early preparation can help mitigate compliance risks, manage cash flow impacts, and ensure systems are aligned with Malta’s increasingly digital and EU integrated tax framework.

How we can help 

If you would like to discuss how these changes may affect your business or require assistance in assessing their impact, please feel free to get in touch with: Timothy Zammit, Kenneth Cremona or Michela Scicluna. 

Article written by Michela Scicluna – Manager, Kurt Polidano - Lead Senior and Anthea Maria Camilleri – Senior, Indirect Tax Advisory and Compliance