Important BUDGET Developments for Business

Change in tax rate cuts – Employers to upgrade payroll
system – Following the approval of the Budget
this week all employers need to update their payroll system to immediately
start to reflect the reduction of tax rate from 35% to 32%. Employees earning between €20,000 and
€60,000 a year should see a 3% per cent increase in their earnings with their
next paycheque.

This increase however is owed since
the beginning of the year because the new lower rate has been backdated to
January 1, meaning eligible workers are now owed a four-month tax rebate by the
Inland Revenue Department.

Employers should shortly be receiving
a circular with payroll update instructions from the Department of Inland
Revenue.

Once payrolls are updated, the Final
Settlement System mechanism would automatically look at how much income tax a
person had already paid this year, calculate how much they should have paid,
and refund the difference.

The changes mean that a person
earning €3,000 monthly before tax will likely find that their monthly €660
income tax deduction suddenly dip to €496 next month, to make up for having
overpaid tax since January. The figure would however then level at €619 for
subsequent months, meaning savings of €41 a month.

Vehicle Registration &
Licensing Measures

Transport Malta notifies that in line
with the new budgetary measures, the following changes will be applicable.
These are in addition to the measures that were already implemented between
January and March 2013 related to reductions in Registration Tax for EURO 5
Light Passenger Vehicles, all Motorcycles, and Goods Carrying Vehicles with a
mass not exceeding 3,500kg.

Measure 1: Registration Tax
on EURO 4 M1 Vehicles

The rates of registration tax for
Category M1 passenger vehicles with up to eight passenger seats besides the
driver's seat, with EURO 4 emission levels, will have their registration tax
increased. (table)

Measure 2:
Minimum Registration Tax for Used M1 Vehicles

The Minimum Registration Tax for Used
Category M1 passenger vehicles with up to eight passenger seats besides the
driver's seat, imported from outside the EU, and having five years from the
year of manufacture, will decrease in accordance with the table below. This
applies only for the lowest two CO2 tax bands (i.e. 0 up to 130g/km) as
follows:

These new minimum tax values will be
applicable as from 29th November 2012, and therefore refunds will be issued to
anyone that would have registered such a vehicle between this date and the 8th
April 2013.

Measure 3:
Conversions to Autogas

Category M1 passenger vehicles with
up to eight passenger seats besides the driver's seat that are either
converted, or run with Autogas will have their CO2 emission levels reduced by
10%. This will:

a) Reduce the registration tax for
vehicles registered as of 1st January 2013; and

b) Reduce the annual circulation
licence fee as of 1st January 2013 for vehicles licensed after January 2009,
and converted to Autogas after 1st January 2013.

Where such a vehicle is converted to
run on Autogas and no emissions are available for a converted vehicle by the
vehicle's manufacturer or by an approved accredited technical service, the CO2
emission value as quoted for an unconverted vehicle shall be automatically
reduced by 10%. Transport Malta will then use this value to calculate the
applicable annual circulation licence fee or registration tax as applicable.

Measure 4:
Registration Values for Authorised Licensed Dealers and Importers

Licensed vehicle dealers and
importers will have the facility to establish a fixed registration value for
their vehicle (for registration tax calculation purposes) at registration
stage, and the payment of the registration tax will be deferred until the
vehicle is actually licensed. This enables the licensed vehicle dealers and
importers to reduce the risk of fluctuations in registration values from the
time the vehicle is brought into Malta, and the time it is actually sold and
licensed. Individuals already have until the end of the month following when
the value would have been established.

This measure applies for all vehicle
values established as of the 29th November 2012.

Measure 5:
Classic, Vintage or Veteran Vehicles including Motorcycles

a) The single plate scheme that was
available to individuals who have more than one vehicle qualifying as classic,
vintage or veteran vehicles, enabling to pay once annual circulation fee for
all the fleet, will be abolished as of the individual vehicles' next licence
renewal date. Therefore as of the 29th November 2012, and all Classic, Vintage
or Veteran vehicles will not pay an annual circulation licence fee and will
only pay an administrative fee of €8 per vehicle on the renewal of the annual
circulation licence fee.

b) As of 29th November 2012, a
vehicle will classify as a Classic, Vintage or Veteran Vehicle at the age of 30
years from year of manufacture instead of 35. Such vehicles will continue to be
certified by a Vintage Vehicle Classification Committee appointed by Transport
Malta in accordance with the law.

c) Category M1 passenger vehicles
with up to eight passenger seats besides the driver's seat with an age of 50
years or over from the year of manufacture, and certified authentic by the
Vintage Vehicle Classification Committee appointed by Transport Malta, will not
pay any Registration Tax as of the 29th November 2012.

d) Motorcycles with an age of 50
years or over from the year of manufacture and certified authentic by the
Vintage Vehicle Classification Committee will not pay any Registration Tax as
of the 29th November 2012.

e) Goods Carrying Vehicles with an
age of 50 years or over from the year of manufacture and certified authentic by
the Vintage Vehicle Classification Committee will not pay any Registration Tax
as of the 29th November 2012.

Measure 6:
Annual Circulation Licence Fees (M1 Vehicles over 250g/km)

The Annual Circulation Licence Fee
for Category M1 passenger vehicles with up to eight passenger seats besides the
driver's seat that were registered on or after the 1st January 2009, and
falling within the highest CO2 category (ie. over 250g/km), and aged 11 years
or over, have been reduced as per the table below.

These new minimum tax values will be
applicable as from 29th November 2012, and therefore refunds will be issued to
anyone that would have paid such fee between this date and the 8th April 2013.

Measure 7:
Refunds on previously introduced measures

With regard to the measures that were
already implemented between January and March 2013 related to reductions in
Registration Tax for EURO 5, Passenger (M1) Vehicles, all Motorcycles, and
Goods Carrying Vehicles with a mass not exceeding 3,500kg, Transport Malta will
be issuing refunds in the coming weeks as stipulated below:

a) M1 (Passenger cars) with EURO 5 or
6 emission levels and registered between the 11th December 2012 and the 13th
January 2013;

b) N1 (Goods Carrying Vehicles) with
EURO 5 or 6 emission levels and registered between the 11th December 2012 and
the 1st March 2013;

c) Motorcycles registered between the
11th December 2012 and the 1st March 2013.

Incentive Schemes

Hotels: Malta Enterprise will allow licensed hotels to
benefit from an uncapped 15% tax credit calculated by reference to the capital
investment made.

Boutique Hotels: Tax deductions on investments related
to the purchase and development of Boutique Hotels in Valletta, Mdina and the Three Cities.
These will also benefit from reduced MEPA and MTA fees.

MicroInvest: Extended for another 2 years and applies
not to businesses that do not employ more than 30 persons (while before the
maximum was 9 employees)

B Start: Existing businesses will be able to claim a
deduction from their income tax liability up to €30,000 where there invest in
seed capital in new approved companies

Maternity leave

Maternity leave entitlement was
extended by two weeks in 2012 to 16 weeks and will increase by a further two
weeks in 2013.

Energy Incentives

New incentives for the installation of
PV panels that are not supported through other funding. The incentives take the
form of attractive feed-in tariffs as follows:

High Energy User Scheme which applied
to factories that consumed more than 2GwH per year, extended to industries and
hotels in Gozo

Changes in excise

Increase in excise duty of 6% on cigarettes and 8% on
tobacco

Increase in petrol and diesel by 2c per litre

Increase in excise duty on cement by €5 per 1000kg