Updated VAT Registration Guidelines for Small Enterprises

Article 11 VAT registration for small enterprises established in Malta for supplies taking place in Malta

Article 11 of the VAT Act provides a framework for small enterprises to register for VAT purposes, offering certain exemptions and simplified procedures. To qualify as a small enterprise under this article, businesses must meet a specific domestic turnover threshold – applicable to the domestic annual turnover during the preceding calendar year (if any) and to the domestic turnover for the calendar year in which the application is made. 

Moreover, the Guidelines highlight that a backdated registration under Article 11 is not allowed. The registration under Article 11 only takes effect from the 1st day of the month in which the application is received by the authorities or from the date of commencement of the economic activity indicated by the taxable person, whichever the later.

Definitions of Turnover, Related Parties and Ancillary Transactions

The Guidelines define 'domestic annual turnover' as the total annual turnover from supplies of goods and services, exclusive of VAT, made within Malta during a calendar year. The 'domestic threshold' is set at €35,000. 

Additionally, the turnover calculations must include a proportional share of the turnover of related entities (applicable to persons other than a physical person). An entity is considered related if it owns or controls, directly or indirectly, more than 10% of the entity applying for Article 11 registration. Detailed criteria for a person to be deemed to be related to another person are laid down in the Guidelines.

Lastly, in terms of Item 3 (1) (c) of the Sixth Schedule to the VAT Act, the turnover calculation should include the value of immovable property transactions, financial transactions referred to in item 3 of Part Two of the Fifth Schedule, and insurance and reinsurance services, unless those transactions are ancillary transactions. For the purpose of defining transactions as ancillary transactions, the Guidelines provide that the term “ancillary transactions” shall refer to those transactions which do not constitute the direct, permanent and necessary extension of the usual business activity of the person concerned.

Additional Registration Requirements under Article 12

Beyond the provisions of Article 11, taxable persons must also register under Article 12 if they engage in certain activities, such as making intra-community acquisitions of goods subject to VAT in Malta and used for the purpose of their economic activity, receiving services where VAT is paid under the reverse charge mechanism, or supplying services in another EU Member State where the recipient accounts for VAT.

Practical examples provided by the Guidelines

To help taxable persons better understand and apply the requirements for a VAT registration under Article 11 of the VAT Act, the Guidelines list several practical examples. The examples present structures of two and three levels of related parties and show how persons should calculate the annual domestic turnover in order to determine whether they qualify for such VAT registration.

 

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