Businesses operating under Malta’s small enterprises VAT exemption scheme (commonly referred to as ‘Article 11 registration’) are subject to newly revised rules.

The Commissioner for Tax and Customs has issued detailed guidance clarifying the scope and application of these updated VAT regulations.

For business leaders and entrepreneurs, understanding these changes is essential – particularly for those operating in smaller structures.

What Is Article 11 and Who Can Register?

Article 11 of the VAT Act provides an exemption – without the right to deduct input VAT – for small enterprises established in Malta making supplies within Malta. To qualify, the business must have had a domestic turnover not exceeding €35,000 in the previous calendar year.

Notably, the guidance reiterates that backdated Article 11 registrations are not permitted. New applicants not already registered under Article 10 will have their Article 11 registration take effect from the start of the month in which the application is received, or the declared commencement date – whichever is later.

Those shifting from Article 10 to Article 11 will only see their new status take effect from the first day of the month after the application is received.

What now counts towards turnover?

The definition of “turnover” has been sharpened. Only supplies deemed to take place in Malta – as determined by VAT place-of-supply rules – are now counted toward the €35,000 threshold.

Crucially, the new rules also bring certain exempt transactions into the turnover calculation if they are not considered ancillary.

These include:

• Transactions involving immovable property
• Financial transactions
• Insurance and reinsurance services.

For instance, a single long-term rental of a private property by an individual is now classified as an ancillary transaction and excluded from turnover. However, if multiple properties are rented, this may be seen as a core economic activity – and thus included.

Businesses must therefore assess how their property holdings or financial activities could impact their eligibility under Article 11.

Related party turnover now counts

A significant development for business owners is the anti-abuse provision targeting non-physical persons, such as partnerships and companies. Entities must now include a proportion of the turnover of related persons when calculating their total domestic annual turnover.

A person is deemed “related” where there is direct or indirect ownership or control of more than 10 per cent – whether in terms of shareholding, voting rights, or entitlement to profits. This measure is designed to prevent businesses from structuring themselves into smaller units solely to benefit from VAT exemptions multiple times.

If you're part of a partnership or corporate group, this provision may affect your VAT obligations more than you realise.

Additional VAT obligations

Small enterprises registered under Article 11 may still be required to register under Article 12, particularly when:

• Acquiring goods from other EU countries exceeding the €10,000 threshold,
• Receiving services from EU or non-EU suppliers, or
• Providing services in other EU Member States under reverse-charge rules.

This dual registration approach ensures that businesses involved in cross-border trade comply fully with VAT obligations.

Practical scenarios to guide decision-making

The guidelines also include illustrative examples that highlight the complexities of the new system.

For instance:

• A new partnership formed by two Article 11 registered individuals must consider their combined proportional turnover when applying.
• A limited liability company set up by two self-employed individuals may be ineligible for Article 11 if even one of the founders has significant Malta-based turnover.
• Rental income from multiple immovable properties could tip a sole trader above the threshold, requiring a shift to Article 10.

Failing to account for related party turnover or exempt-but-included transactions could lead to non-compliance and unexpected VAT liabilities. On the other hand, correct application may present opportunities to simplify VAT reporting and reduce obligations – provided the structure is carefully considered.