Technological Implications on VAT Declaration

As the world economy moves to predominantly e-commerce transactions and third-world country economies open up their doors to more open access to the internet, online businesses have a feeding frenzy on the acquisition of goods and services online. The UPS’s and DHL’s of this world have spread further their wings extending delivery reach to places that till a few years ago would have been completely inaccessible. The past few years have seen an unprecedented growth in demand. Online sales are trebling monthly and coupled with a change of buying habits, consumers want more and more comfort with some companies even offering drone delivery of goods right to your door. The truth is that distance does not matter anymore whilst choice and speed of delivery have become paramount. The online world has revolutionised the way business is being done, however, this revolution does not come without its fair share of problems.

The shift from a physical oriented environment to an electronic environment poses issues in relation to taxation and taxation regimes. Cross border e-commerce may complicate matters further seeing that it requires online traders to register for VAT in each member state in which they sell goods. Even if you’re selling digital services cross border, one still needs to think about VAT. When do I charge VAT? How much do I charge? How do I pay? These are all questions which one could have when setting up their business. This is where the famous “mini-one-stop-shop” comes into force which aim is to try and minimise the VAT declaration in each different member state. This is done by allowing taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which they do not have an establishment, to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified. Along with the VAT implications one must also consider the corporate tax payable.

Taking these issues into consideration, one may realise that Malta may be a favourable country to set up a structure with the necessary substance in place to carry out the operations from and within Malta. Why is therefore Malta favourable for such a structure? As an EU member state, Malta’s applicable VAT rules are easily understood and implemented across the board in a transparent and effective manner. Notably also, the VAT rate in Malta remains to be one of the lowest within the EU at 18%. The “mini-one-stop-shop” MOSS system has already been implemented in Malta for some sectors and therefore the knowledge and expertise are readily available to guide an individual accordingly whilst providing peace of mind. The requirement of substance in the country from which operations are carried out also gives Malta an edge as Malta remains a cost effective choice of country in line with excellent professional services, a wide and efficient eco-system of supporting services for business, a wide pool of human talent as well as a thriving real estate market. Another determining factor is that compared to other jurisdictions a Malta companies operational costs remain low, the corporate tax incentives are varied, robust, effective and onshore rather than offshore. A variety of tax programmes to attract highly skilled foreign workers into Malta is in place and there is also no withholding tax for companies. Corporate tax in Malta is taxed at a flat rate of 35% on profits. However, by applying Malta’s refundable tax credit system one can reduce the net effective tax rate to 5% hence giving the opportunity to shareholders to fully utilise this advantage to further invest in their business and grow. The setting up process is quick and efficient with a period of 2-3 working days to set up a Malta company.

About the Authors

Malcolm Ferrante forms part of our International Tax Advisory department at CSB Group. His role involves assisting a portfolio of clients with tax advice while also assisting with the preparation and submission of Company Tax Returns and Tax refund forms.

Roger A. Strickland Jr is a Group Director and leads the iGaming Services unit. Roger consults companies setting up in Malta to make the right choices, understand the licensing and regulatory requirements as well as assist in setting up their respective Malta-based operations.

For any tax advice required please contact Malcolm Ferrante on [email protected].