VAT on Malta accommodation to foreigners - Renting property to foreigners.

Wednesday, August 17, 2011
by Simon Busuttil MEP

Renting property to foreigners
Carmel Farrugia writes:

A foreign resident who is a citizen of an EU country and is living and working in Malta as his principal place of residence is still considered as a tourist for the purposes of renting property in Malta. As such, he is required to pay VAT on accommodation.
I feel that he should not and cannot be considered a tourist particularly if he is a citizen of an EU country. There is a one-year limit but this should not come into the equation at all because it does not apply in the case of a Maltese citizen.

Am I right or wrong in this context? Why should he be treated differently from a Maltese citizen and be made to pay VAT?

The reader is referring to the imposition of value added tax (VAT) on the lease of property by EU citizens who are not Maltese.
The VAT law in Malta makes it clear that the letting of or the provision of accommodation in any premises that is required to be licensed in virtue of the Malta Travel and Tourism Services (MTTS) Act is subject to a reduced VAT rate of seven per cent.

A crucial element in imposing VAT is therefore the requirement of a licence in accordance with the MTTS law I have just referred to. In general, this law imposes an obligation on the person providing accommodation to tourists to be issued with a licence.

A tourist is defined as “any person who travels to a place other than that of his usual environment for less than 12 months and who stays at least one night in the place visited”.
There seem to be four main categories of people for whom the provision of accommodation would require a licence according to the MTTS law, namely: short lets to foreigners staying less than one year; short lets to Maltese citizens, except where the place is used as a principal place of residence; long lets to foreigners in the first year of their stay in Malta and long lets to foreigners who have previously been in Malta over a year but had interrupted their stay for more than three months.

In all these cases, accommodation is taxable at a reduced rate of seven per cent.
The only difference that can be established between Maltese citizens and other (non-Maltese) EU citizens relates to the time-window of the first 12 months during which accommodation to Maltese nationals who use the premises as their principal place of residence is not subject to VAT whereas accommodation to non-Maltese EU citizens in the same situation is subject to VAT.
On the basis of the above, let me make some observations.

To start with, the licence requirement is not intended to discriminate against non-Maltese. If anything, it is intended to discriminate in their favour by ensuring that tourism standards are retained at a certain level and are subject to monitoring and regulation by the authorities.
The fact that the same does not apply for leases to Maltese nationals ordinarily living here does not mean that there is discrimination against non-Maltese. Obviously, Maltese nationals are more likely to be residing here rather than staying here for tourism reasons.

So, in general, the licence requirement in the tourism legislation does not appear to be incompatible with EU law, especially since the scheme requiring a licence is there in order to maintain standards in the tourism industry. This is perfectly understandable.

As to the imposition of VAT, this requirement is intrinsically tied to the need of obtaining a licence under the MTTS law. However, treating Maltese and other EU citizens differently for VAT purposes may indeed give rise to problems. This seems to be the case with EU citizens living in Malta as their primary place of residence since they are required to pay VAT on accommodation during their first year of residence whereas there is no such obligation in the case of Maltese nationals.

To my mind, in this case, the same treatment should apply to the EU citizen. This means that EU citizens who come to live in Malta as their primary place of residence should not need to be required to stay in a licensed place or pay VAT on the same basis as tourists in their first year because there is no such requirement for Maltese nationals.

simon.busuttil@europarl.europa.eu
Dr Busuttil is a Nationalist member of the European Parliament.
Source: Times of Malta

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