ACCSPRING18_ONLINEVER

VAT
VAT for small business:
existing rules and current development
MATTHEW ZAMPA
MATTHEW ZAMPA IS ONE OF
THE FOUNDING PARTNERS OF
ZAMPA DEBATTISTA. HE HAS
BEEN SPECIALISING IN VAT FOR
TEN YEARS AND HAS EXTENSIVE
EXPERIENCE ON VAT MATTERS
APPLICABLE TO DIFFERENT
INDUSTRIES.
44 Spring 2018
When it comes to VAT, small and large businesses alike are
generally bound by the same set of rules and regulations.
This implies that the compliance burden derived from the
need to observe such rules and regulations represents
a compliance cost to tax payers, which in view of their
limited resources, is to a certain extent larger in the case
of small businesses.
For the purposes of alleviating this administrative burden,
the VAT Directive 1 allows Member States to adopt a special
scheme for small enterprises, which by and large, provides
for simplified procedures for charging and collecting VAT
and furthermore in certain cases exempt businesses
with an annual turnover below a certain threshold from
charging and deducting input VAT. Such measures are
optional at the level of the Member State and moreover
are optional at the level of the taxpayer. What is pertinent
to note in the case of the small businesses regime, is
that the rules regulating the regime specifically apply to
businesses who are established in a particular Member
State and consequently do not extend to supplies carried
out beyond the territorial boundary within which the
taxable person is established. This implies that taxable
persons registered as small businesses and who carry out
supplies which are treated as taking place in a Member
State other than that in which they are established, may
still have to follow and comply with obligations in that
other Member State, to the extent they are liable for the
payment of the VAT in that Member State.
SMALL UNDERTAKINGS
Malta, has adopted the above mentioned small business
threshold scheme which differentiates between three
broad categories of economic activities, each having
its distinct entry threshold. Taxable persons who opt to
benefit from such a scheme may avail themselves of the
scheme by registering under article 11 of the VAT Act, as
a result of which they would not be required to charge
and collect output VAT on supplies carried out thereby
while at the same time they cannot recover any input VAT
incurred on their expenses.
Category
Economic Activities consisting
principally in the supply of goods
Economic Activities consisting
principally in the supply of services
with a low value added
Other Economic Activities -
High value added
1
Directive 2006/112
2
Art. 17(3)
3
L.N. 14 of 1999 – Subsidiary legislation 406.02
Example
Distributors of products
Plumber; Mechanic
Lawyer; Accountant
The other economic activities threshold indicated
above is proposed to be increased to EUR20,000. In
fact, by means of Council Implementing Decision
(EU) 2018/279 of 20 February 2018, the Council of
the European Union has authorised Malta to apply a
special measure derogating from Article 287 of the
VAT Directive consisting in raising the threshold for
supplies of services by small businesses to €20,000.
The implementation thereof would require an
amendment to Item 8 of Part One of the Sixth Schedule
to the VAT Act which would be made by a legal notice.
ANNUAL ACCOUNTING REGIME
In terms of the enabling provision 2 in the VAT Act and
the implementing provisions in the legal notice 3 , small
businesses whose turnover does not exceed certain
specific amounts as prescribed in the Sixth Schedule
to the said Act, and who are registered under Article
10 of the VAT Act, are, unless the Commissioner
decides otherwise, allocated a twelve month tax
period. This measure, of itself is intended to alleviate
the taxpayer (and also the tax administration)
from the administrative burden of preparing and
submitting the VAT return on a quarterly basis as is
typically required by persons registered under Article
10 of the VAT Act.
CASH ACCOUNTING
While not specifically a small business scheme,
accounting for VAT on a cash basis is a scheme which
is applicable to certain categories of persons whose
turnover, does not exceed a predetermined amount
of two million Euro. Such businesses, account for VAT
upon receipt of payment for a supply, irrespective
of the day of delivery of a good or performance of a
service. However, for the purposes of ensuring fiscal
neutrality to such supplies, input VAT incurred on
expenses may only be recovered to the extent it is
paid to the supplier. This implies that businesses who
adopt the cash accounting regime are not faced with
cash flow issues relating to VAT.
Turnover
€35,000
€24,000
€14,000