The reduced VAT rate of 12% applies to a limited list of supplies of services in the financial services and healthcare industry that were previously subject to VAT at the standard rate of 18%, therefore effectively reducing the VAT rate on such services from 18% to 12%. Moreover, the attractive 12% reduced VAT rate will apply to certain short-term hires of pleasure boats.

During the first quarter of 2024, the Commissioner for Tax and Customs issued a number of Guidelines on the application of the 12% reduced VAT rate to the specific financial and healthcare services listed under Items 12 to 15 of the Eight Schedule to the VAT Act.

Guidelines on the application of the 12% reduced VAT rate applicable to the supply of management of securities

For the purpose of determining whether the reduced VAT rate applies, the Guidelines provide that management of securities should be interpreted to refer to securities portfolio management services. Such services include an ongoing commitment to monitor and manage a client’s securities investment portfolio to formulate investment decisions or recommendations. 

Respectively, services consisting of the provision of advice to persons such as that relating to capital structure, corporate strategy and related matters, advice services relating to mergers and the purchase of undertakings, are excluded from the defined scope of management of securities when assessing whether the reduced rate is applicable.

Guidelines on the application of the 12% reduced VAT rate applicable to the custody of securities

To determine whether the reduced VAT rate applies, custody should be interpreted as: 

• control of assets consisting of services related to the holding, safekeeping or control of securities;
• depositary services for collective investment schemes, such as the services provided by a custodian, consisting of the safekeeping, cash flow monitoring and oversight of securities in respect of a collective investment scheme;
• any other services concerning securities identical in nature to the services listed under points i) and ii) above.

For avoidance of doubt, and for the purpose of determining whether the reduced VAT rate applies, securities should mean any tradable financial instrument included in the Second Schedule to the Investment Services Act, broadly categorised into the following:

• equity securities which confer a property right over legal persons;
• securities representing debt;
• other securities such as tradable securities conferring an intangible right to carry out a further transaction.

The Guidelines provide that the definition of securities should exclude any documents that establish title to goods. Moreover, the Guidelines provide further clarity on services commonly referred to as “global custody services”, and the relevant VAT treatment thereof.

Guidelines on the application of the 12% reduced VAT rate applicable to management of credit and credit guarantees by a person or body other than those who granted the credit

The Guidelines differentiate the VAT treatment of supply of management of credit and credit guarantees by the person granting the credit (treated as exempt without credit in terms of Item 3, Part Two of the Fifth Schedule to the VAT Act) and the supply of management of the same credit and credit guarantees by a taxable person other than the person granting the credit, which supply would be taxable at a reduced rate of VAT of 12%. The Guidelines establish that to determine whether the reduced VAT rate would be applicable, “credit and credit guarantees” should be interpreted as any credit and credit guarantees the supply of which would be exempt in terms of Item 3, Part Two of the Fifth Schedule to the VAT Act.

Guidelines on the application of the 12% reduced VAT rate applicable to hiring of a pleasure boat

The Guidelines for the application of the reduced VAT rate of 12% on the hiring of pleasure boats that takes place in Malta provide that the reduced VAT rate is applicable to short term charters of pleasure boats, (or the part thereof), when during the previous twelve months (ending on the date of the beginning of the excising hiring) a previous hiring, of the same goods or of other goods of the same kind, together with the existing hiring (or part thereof) do not exceed 5 weeks (35 days). Moreover, the Guidelines bring further clarity on the practical aspects when the reduced VAT rate is not applicable to the full duration of the existing hiring but could only be applied to part of the hiring term. Consequently, the standard rate of VAT of 18% would be applicable to the remaining term of the hiring.

The concept of a composite supply is also discussed and interpreted in the Guidelines, clarifying that a composite supply of goods and services would be subject to the reduced VAT rate of 12 % when the principal component of such composite supply is a supply of hiring of a pleasure boat subject to the reduced rate of 12%. It is to be noted that goods which are not made available upon putting the pleasure boat at the disposal of the customer cannot be deemed to form part of a single composite supply. In addition, goods which are not of a consumable nature should in no case be deemed to form part of a single composite supply together with the hiring of a pleasure boat.

Guidelines on the application of 12% reduced VAT rate applicable to services consisting of the care of the human body

Supplies of medical care which is provided either by a person in the exercise of any profession regulated by the Health Care Professions Act or the Psychology Act, as well as the supply of medical care provided by such a person through a hospital or institution approved by the Minister for this purpose, are deemed to constitute an exempt without credit supply in terms of Items 11 (1) and (2), Part Two of the Fifth Schedule to the VAT Act. However, the exemption does not apply to all supplies made by Health Care Professionals for the benefit of their patients. Any services carried out by Health Care Professionals which do not qualify as a “medical care” and therefore not eligible for the said exemption, may be subject to VAT at the reduced VAT rate of 12%. 

For the avoidance of doubt, the guidelines provide that the term “medical care” should contain any services that have as their purpose the protection (including maintaining and restoring) of human health and the diagnosis, treatment and, in so far as possible, cure of diseases or health disorders in humans. Moreover, “health” should include the mental health of a patient. Any other services consisting of the care of the human body which do not qualify for the exemption from VAT or for the application of the reduced VAT rate, would be subject to VAT at the standard VAT rate of 18%.

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