VAT and the letting of immovable property

Generally speaking, the letting of immovable property constitutes an exempt without credit supply. This means that the lessor is generally not required to charge VAT on the lease of his/her property however would not be in a position to claim VAT incurred on any related purchases. This rule is subject to five exceptions, one of which relates to the letting of or the provision of accommodation to “tourists”. Such a supply is subject to VAT at the rate of 7%.

In the past, a tourist was defined in terms of the Malta Travel and Tourism Services Act (MTTSA) to mean “any person who travels to a place other than that of his usual environment for less than twelve months and who stays at least one night in the place visited.”

This meant that any foreign person just arriving in Malta however staying in Malta for purposes other than tourism, for example, a foreign person just arriving in Malta for reasons of employment in Malta, was also considered to be a tourist. Consequently, the lessor of a property to such a person was required to obtain a license under the MTTSA and charge VAT at the rate of 7% for the first 12 months of the lease.

This situation has changed somewhat by virtue of ACT No. XII of 2016 of 5th February 2016. In terms of this Act, the definition of a tourist now means “any person who is travelling to and staying in places outside his usual environment for not more than one consecutive year for leisure, business and other personal purpose other than by taking up employment or to establish a business in the place visited."

As one may note from the above, in accordance with this new definition, the letting of property to a person who has just arrived in Malta for employment purposes or to establish a business no longer requires to be licensed under the MTTSA and consequently VAT is NOT chargeable.

From a practical perspective, and particularly with respect to the provision of accommodation to persons establishing businesses in Malta, it is yet to be determined how this will be implemented by different accommodation providers.

We hope that more light will be shed in this respect, in the near future.

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