Custody of securities
The Maltese VAT Act provides that the supply of certain financial services is VAT-exempt without credit. However, such exemption does not apply to all financial services and therefore certain financial services, including the safekeeping of securities, should "prima facie" be considered as taxable supplies.
By way of Legal Notice 231 of 2023, with effect from 1 January 2024, the VAT rate applicable to the custody of securities has been reduced to 12%. The Commissioner for Tax and Customs (CfTC) has published guidelines that provide definitions for certain key terms and generally provide clarifications on the applicability of the 12% VAT rate. In this respect:
Securities are defined as “any tradable financial instrument included in the Second Schedule to the Investment Services Act (Chapter 370, Laws of Malta)” and categorised into:
equity securities which confer a property right over legal persons;
securities representing debt; and
other securities such as tradable securities conferring an intangible right to carry out a further transaction.
but exclude documents which establish title to goods.
Custody is defined by reference to three separate categories:
Control of Assets which refers to services concerning the holding, safekeeping or control of securities referred to in the Investment Services Act (Control of Assets) Regulations (Subsidiary Legislation 370.05) or the Central Securities Depository (Control of Assets) Regulations (Subsidiary Legislation 345.13);
Depositary Services, in respect of Collective Investment Schemes which consist of the safekeeping, cash flow monitoring and oversight of securities in respect of a collective investments scheme as indicated in the Investment Services Act (Custodians of Collective Investment Schemes) Regulations (Subsidiary Legislation 370.32);
Any other services which are similar to Control of Assets and Depositary Services.
Global custody services
Global custody services typically incorporate a package of services concerning securities held by a person, which normally consist of:
Safekeeping;
Security Settlement;
Collection of dividends or interest on securities held;
Corporate action processing;
Cash management;
Securities lending; and
The supply of supervision (monitoring and oversight) services as described in Subsidiary Legislation 370.32.
In accordance with the Abbey National judgement by the Court of Justice of the European Union (CJEU), it is essential to recognise that the safekeeping and supervisory functions of a Depositary may not fall within the scope of the exemption applicable to the management of collective investment schemes, as set out in item 3(6) of Part Two of the Fifth Schedule to the VAT Act. In such cases, these functions should be considered as taxable supplies. This is particularly relevant when determining the VAT treatment of such taxable services when provided as part of a global custody services package.
In this context, the CfTC’s interpretation is that the provision of taxable supervision services by a Depositary, as part of a global custody services package, does not constitute a single supply from an economic perspective. This is due to the distinct and independent nature of these supervision services, provided that splitting them would not be artificial.
However, a package of global custody services, excluding any supervisory services forming part of that package would qualify as exempt in so far as such services (excluding supervisory services) constitute a single composite supply comprised principally of services which are exempt in terms of the VAT Act, as well as other ancillary services.
Nominee services
The guidance issued by the CfTC also includes reference to the provision of Nominee Services. In the case that a person holds some securities in his own name but on behalf of third parties, for the main purpose of providing to the beneficial owners services which are exempt in terms of the VAT Act, such services shall also be deemed to be exempt as long as such services together with the principal services form part of a single composite supply.
The official guidelines published by the MTCA can be found here.
Management of credit and credit guarantees
The management of credit and credit guarantees by the person granting the credit is exempt without credit supply. However, when such management is provided by a person or entity other than the person who grants the credit, the exemption does not apply and the supply is subject to VAT.
In terms of Legal Notice 231 of 2023, with effect from 1 January 2024, the supply of management of credit and credit guarantees by a person or entity other than those who granted the credit continues to be subject to VAT but only at the reduced rate of 12%.
Therefore, whereas the new rule does not impact the application of the VAT exemption (to the extent this is applicable), it provides for a reduced rate when the management of the credit and credit guarantees is provided by a third party to the credit arrangement.
The official guidelines published by the MTCA can be found here.
Management of securities
The Maltese VAT Act exempts (without credit), the management of investment schemes where such services are specific to and essential for the core activity of a defined scheme. It also exempts services that involve the reception, execution, and transmission of orders to buy and sell securities, where the consideration is strictly charged on a transaction-by-transaction basis. Additional services to the extent that these are considered ancillary to the above services and subject to a number of other conditions including that they are not charged for separately from the above services, should, in line with settled case law, be included in the said VAT exemptions.
However, transactions consisting of the management in shares and other securities are excluded from such exemption. By way of Legal Notice 231 of 2023, with effect from 1 January 2024, the VAT rate applicable to the management of securities has been reduced to 12%.
The guidelines issued by the MTCA clarify that the term “management of securities” specifically pertains to securities portfolio management services. These services involve ongoing commitment to monitor and manage a client’s securities investment portfolio, including formulating investment decisions or recommendations. Such portfolio management services can be provided either on a discretionary basis (where the manager invests funds on behalf of the client) or an advisory basis (where the manager provides personalised recommendations to the client before any investment transactions are undertaken).
For the purpose of applying the reduced rate of 12% in this context, the term “management of securities” in principle excludes investment advice and services related to providing advice on matters such as capital structure, corporate strategy, mergers, and similar areas. Such services remain taxable at the standard rate of 18%.
In line with settled case law, when a package of services includes both asset management (specifically, the management of securities) and the reception, execution, and transmission of orders to buy and sell securities and these elements are so intrinsically linked that they constitute a single economic supply such that it would be artificial to split, this entire service must be considered as a whole. Given the strict applicability of VAT exemptions, the supply should not fall within the scope of the exemption mentioned above and as a result, VAT at the reduced rate of 12% should apply to such package of services.
Hiring of pleasure boats
In terms of Legal Notice 231 of 2023, with effect from 1 January 2024, the supply of certain short-term hiring of pleasure boats taking place in Malta, which up to 31 December 2024 would have been subject to VAT at 18%, is subject to a reduced rate of 12%. The place of supply of short-term hiring (a period not exceeding 90 days) of a pleasure boat, is in Malta if the place where the pleasure boat is put at the disposal of the customer (or a third party acting on the customer’s behalf) is Malta.
The reduced rate applies on the hire of a pleasure boat to a person for a term, that if applicable, when added to the term of previous hirings (of the same or similar goods) to the same person, does not exceed the cumulative duration of five weeks within the previous twelve months.
If the cumulative hiring term is longer than 5 weeks, the 12% rate only applies to the initial part of the term that, when added to the term of any previous hirings to the same individual during the previous 12 months, does not exceed 5 weeks. Any excess will be subject to VAT at the standard VAT rate (18%).
The hiring of a pleasure boat consisting of the provision of seating or space on board a pleasure boat along with other passengers, where such seating or space is separately provided, does not fall within the scope of the reduced VAT rate - and should therefore be chargeable at the standard VAT rate.
The guidelines issued by the CfTC, also provide some detail on situations where the supply of hiring of a pleasure boat (which if supplied separately would qualify for the reduced VAT rate) is supplied as part of a package of services. To the extent that the whole of the service offering constitutes a single composite supply, with the hiring of the pleasure boat being the principal component thereof, then the reduced VAT rate would apply to the whole package of services. If the said supplies are provided additionally to the hiring of the pleasure boat and are made available at the request of the customer, then such services cannot be considered as forming part of composite supply with the hiring of the pleasure boat and should therefore be subject to VAT at the standard rate.
Furthermore, only goods that are typically offered during the hiring of a pleasure boat (and are provided to the customer when the pleasure boat is made available to him), and those items not specifically requested by the customer, could potentially be considered as part of a single composite supply of the hiring of a pleasure boat.
The official guidelines published by the MTCA can be found here.
The care of the human body
The provision of medical care provided by qualifying health care professionals in the exercise of their profession and as outlined in guidelines issued by the CfTC in September 2023 are VAT exempt. Qualifying healthcare professionals are those regulated by the Health Care Professions Act (Cap 464) and the Psychology Profession Act (Cap 471).
On the other hand, other services consisting of the care of the human body required to be delivered by qualifying health care professionals including services supplied in the course of a health studio business are not VAT exempt. Such services, as further defined in guidelines issued by the CfTC are, with effect from 1 January 2024, subject to VAT at 12%.
Services consisting of the care of the human body but that are provided in circumstances outside those strictly outlined above and which therefore fall outside the mentioned exemption (or others in the VAT Act) and that also do not meet the criteria for the 12% reduced rate (such as services that are not required to be provided by qualifying health care professionals) will continue to be subject to the standard VAT rate of 18%.
The official guidelines published by the MTCA can be found here.
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