The following is a brief overview of the principal fiscal measures introduced by the Budget for 2002, presented by the Minister of Finance, the Hon. John Dalli on Wednesday the 21st of November, 2001.

Rates of income tax for married couples.

The Minister of Finance announced an adjustment in the rates of income tax for married persons who file a joint declaration of their income, as from year of assessment 2003. The applicable tax rates are now the following:

2001 2002
Lm 0 to Lm4000 @ 0% Lm 0 to Lm4100 @ 0%
Lm 4001 to Lm 5500 @ 15% Lm 4101 to Lm5900 @ 15%
Lm 5501 to Lm 7500 @ 25% Lm 5901 to Lm 8400 @ 25%
Remainder @ 35% Remainder @ 35%

The examples below show the effect on a married couple's tax liability as a result of this adjustment in the tax rates:

A couple whose joint income in 2001 was Lm 4500 paid Lm75 in Tax in 2001 and will pay Lm 60 in 2002, saving Lm 15.
A couple whose joint income in 2001 was Lm 10,000 paid Lm1600 in Tax in 2001 and will pay Lm 1455 in 2002, saving Lm 145.



Fringe benefits


Certain fringe benefits will cease to be so considered as from next year. The use of a van by an employee will no longer constitute a taxable fringe benefit as from 2002. Likewise, the private use of a motor vehicle that is used by a salesman or a support person will no longer be considered as a taxable fringe benefit.

In 2001 company officers could treat an insurance premium paid by a company on their behalf as an exempt fringe benefit only if they enjoyed the benefit as part of a scheme that is generally available to employees. As from 2002, company officers may benefit from the exemption even if the amount of insurance premium paid on their behalf is three times the premium paid for other employees.

Alimony payments

The Income Tax Act allowed a deduction from a person's taxable income in respect of an alimony payment as determined by the Courts of Malta. As from next year the deduction will be allowed also where the alimony payment is made subsequent to an out-of-court agreement between the spouses.

Pre-Trading Costs.

Income Tax legislation presently prohibits the deduction of pre-trading expenditure, such as employee training. As from year of assessment 2002, these will be considered as having been incurred during trading, and are therefore deductible.

International Trading Companies

The definition of "international trading company" contained in the Income Tax Act will be extended to include also the operation from Malta of ship management companies.

Foreign income account

The present provision in the Income Tax Act whereby banks may allocate profits from investments, assets or liabilities situated outside Malta to the "foreign income account" will now be extended also to financial institutions.

Registration scheme for foreign investment.

This scheme is intended for Maltese persons who have investments abroad and who possibly may have breached the Exchange Control and Income Tax regulations

Through the investment registration scheme, whoever registers his overseas funds, will ensure that he will not be questioned with regard to the source of such funds in the event that he is investigated by the Inland Revenue Department.

This scheme will be open for all investments that were held abroad on 1st September 2001 and registration of assets will be possible until the end of 2002. Such investments include bank deposits, bonds, shares, certificates of deposit, collective investment schemes, life and annuity long term insurance policies, precious metals as well as any other financial instrument.

The investor may decide either to repatriate his overseas investments or to retain them abroad. If he opts to repatriate, he may invest such funds in any local investment outlets offered by domestic banks or other local financial intermediaries, as he deems appropriate.

Persons who register their overseas investment under this scheme without repatriating such funds will be required to pay the Government a one-time registration fee equivalent to a percentage of the current market value of the registered investment as follows:

3% if registered by 31st March 2002
4% if registered between 1st April 2002 and 30th June 2002
5% if registered after June 2002.

Interests on these investments will be subject to the current provisions under the Income Tax Act.

Duty on Documents

The duty of 2.6% currently leviable on the assignment of a debt will be removed.

Exchange Control

The quantitative limits on certain current payments are being further relaxed with effect from 1st January 2002. The Lm 30,000 limit per annum which a person may invest abroad has risen to Lm 50,000.

This update is not intended to substitute professional legal advice – should further details be required, please do not hesitate to contact Muscat Azzopardi & Associates.