Issue link: https://maltatoday.uberflip.com/i/691413
maltatoday, SUNDAY, 12 JUNE 2016 Property & Construction III 14 0 0 , Po r to ma s o S t re e t, St Julians STJ 4014 - Malta T : + 3 5 6 2 1 3 1 3 0 2 9 S t . L e o n a r d S t r e e t , Victoria, VCT 9070 - Gozo T : + 3 5 6 2 1 5 5 9 3 0 2 Necessary licence required for tourist letting ANTHONY PACE ACT XII of 2016 was published on 5th February 2016 amending the defini- tion of a 'tourist' as provided for in the Malta Travel and Tourism Services Act (MTTSA). Through this amendment a 'tourist' is now defined as "any per- son who is travelling to and staying in places outside his usual environment for not more than one consecutive year for leisure, business and other per- sonal purpose other than by taking up employment or to establish a business in the place visited." In terms of the Maltese VAT Act the letting of or the provision of accommo- dation in premises which is required to be licensed in virtue of the MTTSA falls outside the scope of the VAT exemp- tion which is generally applicable to the letting of immovable property. Indeed income from licensable rental activities is subject to a 7% reduced VAT rate. In terms of the MTTSA premises is required to be licensed when the let- ting/accommodation is provided to a tourist. Prior to the publication of ACT XII of 2016 a tourist was defined as "any per- son who travels to a place other than that of his usual environment for less than twelve months and who stays at least one night in the place visited". On this basis short-term lets to both Mal- tese and foreign citizens were subject to 7% VAT. Moreover, based on the interpretation given by the Malta Tour- ism Authority any foreign person who travelled to Malta (for any purpose) and rented immovable property herein was considered to be a tourist during his first year of stay. Consequently, in the case of long-term lets to foreigners a lessor was required to charge 7% VAT on the rent charged for the first year of the lease. In terms of the new definition a for- eign individual who travels to Malta to either take up employment or establish a business is no longer considered to be a 'tourist'. This implies that a les- sor is no longer required to obtain a license under the MTTSA with respect to property leased to a person satisfy- ing these criteria, even if such person stays in Malta for less than a year. On this basis rent charged by a lessor to persons travelling to Malta for em- ployment purposes or to establish a business now falls within the scope of the exemption (without credit) and no Maltese VAT is chargeable. KPMG Observations The application of this new definition affects both lessors and lessees of res- idential immovable property in Malta. Lessors will have to consider the impli- cations of applying the VAT exemption which is without credit and therefore will lead to a lower input VAT recovera- bility ratio. Foreign individuals travelling to Malta for employment purposes or to establish a business should no longer be charged Maltese VAT on the lease instalments. This also implies that companies leasing residential property for their foreign employees will eradi- cate the sunk cost with respect to the 7% VAT which up till now they incurred during the first year of the lease (as recovery of such input VAT is blocked for VAT purposes). In view of the lack of guidance on the new definition and its interpretation by the relevant authorities, a number of questions arise as to the extent of its applicability and what particular situations are covered by the specific exclusions from the term 'tourist'. From a practical perspective one needs to consider also the evidence that would need to be provided to the lessors to justify the application of the exemption, particularly in the case of persons trav- elling to Malta to establish a business. Anthony Pace is KPMG Malta part- ner, tax services. The content of this article is in- tended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Source: Mondaq.com