VAT and Income Tax Aspects in the Travel, Hospitality and Leisure Industry

The Travel, Hospitality and Leisure Industry constitute a very important economic pillar of the Maltese Industry. Based on official statistics, in 2015 this industry contributed directly to around 14% of Malta’s GDP and when one also includes the wholesale sector to this industry, the contribution to GDP is a staggering 23%. Thus given the importance that this industry has in our economy, it comes as no surprise that there are indeed certain tax benefits, available under Maltese laws to assist and promote such a sector.

Income Tax

At the outset, following amendments made to our Income Tax Act some years ago, investments in hotels do qualify as an investment which can attract capital allowances. This in itself is a fair deduction and attempts to compensate the hotel owner for the investment made in the hotel. Moreover, given that investments made to refurbish a hotel could be substantial, Investment Aid, limited to an amount of €200,000 is available. Usually operators of a travel insurance for example, or those involved in the leisure industry, may not require such a substantial investment and the Micro invest schemes granting a pure tax credit of up to €30,000 could also be availed of.

Recently there has also been certain debate and discussion that a European Regional Development Fund (ERDF) grant will be available for investments made in boutique hotels and Palazzini. Such structures are currently mushrooming over certain parts of the island (mainly Valletta) and a grant to assist the investor is most certainly welcome, and a step in the right direction.

It is also hoped that more tax incentives are designed to try to generate further investment in certain sectors of the Hospitality sector which so far have not really blossomed. These include the typical “agri tourismo” concept, which is so popular in nearby Sicily and for which much potential exists in both Malta and Gozo. Another possible incentive could be to extend the favourable tax rate available for families acting as host families, to guest houses and small unclassified hotels. It is hoped that such a reduced rate of tax on income would encourage further investment in these structures.

Indirect Taxes

When it comes to indirect taxes, it is my opinion that this sector may deserve some better treatment. At the outset, the sector is indeed plagued by a certain degree of bureaucracy whereby people who engage in the provision of accommodation services to tourists do now have quite a few compliance obligations, particularly:

  • obtaining of a license issued by the Malta Tourism Authority and payment of the applicable fees;
  • VAT registration, charging 7% VAT (unless the person is registered under article 11 of the Maltese VAT Act as an exempt business) and fulfilling of the relevant VAT compliance obligations;
  • registration for Environmental Contribution purposes, applying a charge of EUR0.50 per person over 18 years of age, per bed night (subject to a maximum of EUR5.00) and fulfilling of the relevant Environmental Contribution compliance obligations;

Another point to mention, which this time is positive, is the fact that this sector does have an advantageous rate of VAT of 5% which is applicable on the sale of tickets for admission to museums, concerts, art exhibitions and theatres. Unfortunately however, through Maltese case law, a question has been raised as to whether an audio-visual experience in a Museum constitutes a supply services which benefits from a reduced rate or the viewing of a film, which is subject to VAT at the full rates. The Court had concluded that VAT at the full rate of 18% should apply in this respect.

Another important and critical VAT consideration in connection with travel and related services is that certain jurisdictions may not be applying the TOMS (Tour Operators’ Margin Scheme) as the VAT Directive conceived this idea. This has led to situations where Maltese operators in this industry, when competing internationally to attract a conference to Malta, for example, have been in a disadvantageous position because other Member States have given a more liberal interpretation on how the TOMS is to be applied.

To sum up, whereas incentives are certainly available in our tax laws in this sector and whereas the adoption of a reduced rate of VAT for certain services forming part of this sector have helped this tourism and entertainment sector flourish the implementation of new ERDF schemes and VAT initiatives would be welcome.

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