VAT updates 2026

Input tax refers to VAT incurred by a taxable person on goods and services used in the course of an economic activity. The VAT Act allows recovery of input tax to the extent that it is attributable to taxable supplies or exempt with credit supplies. Input tax directly linked to exempt without credit supplies, or to out-of-scope activities, is not recoverable.

A 2025 judgment confirmed that a change in intended use of immovable property is not, in itself, sufficient to allow full input tax recovery: 

• A property development company constructed residential units with the initial intention to sell them. It later claimed to have changed its intention to rent out the units, applied for VAT registration with retroactive effect, and sought to recover input tax on all development costs. The MTCA and the Administrative Review Tribunal allowed input tax recovery only on two units actually used for taxable (rental) activities and confirmed the penalties charged by the MTCA in respect of overclaimed VAT on the other property units. On appeal, the court agreed that in the circumstances, the input tax deduction must be restricted to the part of the property effectively used for taxable activities and ordered the revised assessment to be finalised within a prescribed period.

The MTCA may notify taxpayers that an audit or investigation will be conducted on their VAT position and that of related parties. Once notified, taxpayers must submit all requested records and documentation to the Commissioner for Tax and Customs within 30 days, unless otherwise indicated. Failure to comply may result in tax assessments on undeclared transactions, together with penalties and interest.

The VAT Act grants the Commissioner broad information gathering powers and sets strict timelines. A 2025 Tribunal decision illustrates the consequences of noncompliance: 

• A company contested a series of VAT assessments, arguing that these were based on incomplete or incorrect information and that all requested documents had been provided. The Commissioner maintained that the company repeatedly failed to submit key documents on time, despite several reminders. The Administrative Review Tribunal held that the company had not supplied all requested information and had no reasonable excuse for the delay. Relying on Article 48(5) of the VAT Act, the Tribunal ruled that late submitted documents could not be taken into account, upheld the Commissioner’s position, and ordered the company to bear the costs of the proceedings.