As from 1st January 2015, Maltese VAT-registered persons required to charge VAT on their supplies within the EU have a right to recover input VAT even though their services are generally classified as ‘exempt without credit’ in Malta. This is pursuant to Act XLIII of 2014. The amendment is of particular relevance to iGaming companies which typically were not in a VAT recoverable position but which as from 1st January 2015 may be obliged to charge VAT to their customers in other Member States.
Prior to 2015, Maltese iGaming companies providing online gambling services to players were not in a position to claim VAT by virtue of the fact that their services were deemed to be supplied in Malta and with an exempt without credit status. Although from a Maltese perspective this status has remained unaltered, as from 1st January 2015, such companies are required to apply the VAT rules of the Member State of consumption pursuant to the 2015 place of supply rule changes on electronically supplied services.
The gambling exemption provided for in the EU VAT Directive is not applied in a harmonised manner across the EU and therefore Maltese iGaming operators are now required to charge VAT to those players located in Member States where iGaming is considered to be a taxable supply.
This means that Maltese iGaming companies who typically could not recover VAT are now facing an output VAT charge in some Member States.
With iGaming companies in mind, an amendment to the Maltese VAT Act was published whereby with effect from 1st January 2015 a right to recover input VAT will be provided to taxable persons providing “supplies taxed outside Malta which if made in Malta would have been treated as exempt without credit supplies”. Through this amendment iGaming companies established in Malta engaged in exempt without credit supplies are now entitled to recover input VAT which is attributable to those supplies which are subject to VAT outside Malta (in terms of the VAT laws of the country in which the customer is located).
Input VAT recovery will be linked to a partial attribution formula whereby iGaming operators will be entitled to:
a) Recover in full any input VAT which is directly attributable to supplies which are taxed outside Malta; and
b) Recover in part any input VAT which is attributable both to supplies which are taxed outside Malta and to other supplies which do not grant a right to recovery.
It is our understanding that the intention of the Maltese VAT authorities is that the partial attribution method applied by iGaming companies would be agreed upon with the VAT Department on a case by case basis.
Further amendments affecting the local gambling VAT regime are expected in 2015. To date a blanket VAT exemption is applicable on all forms of gambling activities deemed to take place in Malta. In an event organized by the Maltese Gaming Authority, the possibility that the gaming exemption will be restricted to certain types of gambling activities was announced. Our understanding is that the proposed changes to the gaming VAT exemption are still in the making.
The right to recover input VAT brings with it the need for iGaming companies to determine whether it pays them to recover input VAT attributable to their taxable supplies outside Malta. If recovery rights will be exercised, this would require such companies to switch their Maltese VAT registration from one under Article 12 of the VAT Act to an Article 10 registration (the registration which enables a taxable person to recover input VAT). An Article 10 VAT registration requires the submission of VAT returns with the VAT Department on a quarterly basis. A change in the VAT registration number would also lead to other implications such as the need to inform the respective suppliers.
In addition the switch from an Article 12 to an Article 10 VAT registration number would most probably trigger an 18% VAT charge on any office lease which could possibly outweigh any input VAT credit relating to taxable supplies outside Malta.
Moreover iGaming companies engaged both in supplies which are taxed outside Malta and others which are not will be required to determine the manner in which to compute the partial attribution ratio and reach an agreement thereon with the VAT Department.
Worth mentioning is the fact that the VAT recovery rights brought about by Act XLIII of 2014 are not limited to iGaming companies but they could be availed of by any other person engaged in exempt without credit supplies if they are obliged to charge VAT outside Malta.