The Economic and Financial Affairs Council (ECOFIN) within the Council of the EU reached a political agreement on 5th November to modernise the EU’s VAT system through three key pillars: Implementing digital reporting and e-invoicing, addressing VAT in the platform economy, and expanding single VAT registration to simplify compliance.
This move aims to align VAT rules with the digital economy, improve compliance, and create a more uniform tax landscape across member states.
The proposed changes come as part of the ‘VAT in the Digital Age’ (ViDA) package. These measures are particularly focused on addressing gaps in VAT collection and ensuring platforms take on a greater role as “deemed suppliers”.
This shift centralises VAT collection to larger, established entities, reducing discrepancies and aiding in the prevention of tax fraud. For Malta, these reforms will have a considerable impact on various sectors, including the platform economy, tourism, and SMEs operating across EU borders.
Finance professional Mark Zammit has provided an in-depth look for WhosWho.mt to see how these upcoming VAT regulations will influence Malta’s market, particularly in the short-term accommodation and passenger transport sectors.
- Short-term rentals in Malta
In Malta, short-term rentals have gained popularity among tourists, with platforms such as Airbnb serving as a common choice for bookings. Under the new ViDA regulations, if a host who is not VAT-registered lists their property on Airbnb, the platform itself will be responsible for collecting and remitting VAT.
Example: A homeowner in Valletta who rents out a guest room through Airbnb and does not meet the VAT threshold currently avoids charging VAT. Starting on 1st January 2025, Airbnb will need to include VAT in the guest’s bill, collect it, and remit it to Maltese tax authorities. This ensures pricing parity with traditional hotels, which already incorporate VAT.
- Ride-sharing and passenger transport services
While ride-sharing in Malta operates on a smaller scale compared to other EU countries, services like Bolt and Uber do see steady demand from locals and tourists alike. The new VAT rules will mean that these platforms must collect VAT on rides provided by drivers who are not VAT-registered.
Example: A driver in Malta using Bolt for ride-sharing who is not registered for VAT currently does not include VAT on rides. From 2025 onwards, Bolt will need to collect VAT from passengers and remit it on behalf of such drivers, aligning these services more closely with the traditional taxi industry in Malta.
- Uniformity across the EU for Maltese SMEs
The extended One Stop Shop (OSS) provision simplifies VAT compliance for Maltese SMEs that conduct business across EU borders. Presently, such businesses need separate VAT registrations in each EU country where they have customers. The new OSS will allow them to handle their VAT obligations through one central EU registration.
Example: A Maltese company selling artisanal products online to clients in Italy, France, and Germany currently needs individual VAT registrations for each of those countries. With the OSS, this company can now manage all VAT reporting through a single platform, reducing administrative overhead.
- New reporting requirements for digital transactions
By 2028, ViDA will introduce real-time digital reporting for cross-border transactions, boosting tax authorities’ ability to detect VAT fraud. Maltese businesses involved in EU-wide sales will need to adapt to these new practices, which include issuing standardised e-invoices shared across EU tax authorities.
Example: A Maltese e-commerce store selling jewellery to EU customers will issue e-invoices under the new system. This ensures that both Maltese and EU tax authorities can access transaction data instantly, improving accuracy and reducing errors.
- Challenges for platforms operating in Malta
The “deemed supplier” model introduces new responsibilities for platforms in Malta, necessitating systems to track each user’s VAT status and collect VAT as required.
Example: Airbnb will need to update its systems to check if a Maltese host is VAT-registered. If not, Airbnb will collect and remit the VAT. This requires platforms to maintain records and adapt payment processes for compliance.
- Impact on tourism and local market competition
Given Malta’s popularity as a tourist destination, the addition of VAT on short-term rentals may slightly increase prices for guests. This move, however, ensures that private hosts and hotels contribute equally to VAT, levelling the playing field.
Example: A tourist comparing accommodations may find that private Airbnb listings now include VAT, making their prices closer to those of hotels. This aligns with the EU’s goal of fostering fair competition.
- Simplified compliance for small providers
For individual hosts and part-time service providers, the shift in VAT collection to platforms simplifies compliance. These individuals will not need to handle VAT directly, as platforms will manage it on their behalf.
Example: A part-time property owner in Gozo listing on Airbnb will not need to register for VAT or process VAT payments. Instead, Airbnb will apply VAT to transactions, ensuring compliance with minimal effort from the host.
Hence, the new VAT regulations mark significant changes for Malta’s digital economy.
By placing VAT collection responsibilities on platforms, the EU aims to streamline compliance and ensure fair competition between traditional and digital service providers.
