Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Malta to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-01-10
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Malta, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 10.1.2018  COM(2018) 5 final 2017/0361 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Malta to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax  
 
 
EXPLANATORY MEMORANDUM 
Pursuant to Article 395(1) of Directive 2006/112/EC1 of 28 November 2006 on the common 
system of value added tax (hereafter the 'VAT Directive'), the Council, acting unanimously on 
a proposal from the Commission, may authorise any Member State to apply special measures 
derogating  from  the  Directive  in  order  to  simplify  the  procedure  for  charging  the  tax  or  to 
prevent certain types of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  22 September 2017,  Malta  requested  an 
authorisation  to  apply,  as  of  1 January 2018,  a  measure  derogating  from  Article  287  of  the 
VAT  Directive,  allowing  Malta  to  exempt  from  VAT  taxable  persons  whose  economic 
activity consists principally in supplies of services with a high value added (low inputs) and 
whose annual turnover is no higher than EUR 20 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  3 November 2017  of  the  request  made  by  Malta.  The 
Commission  notified  Malta  by  letter  dated  7 November 2017  that  it  had  all  the  information 
necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to 
apply  special  schemes  for  small  enterprises,  including  the  possibility  of  exempting  taxable 
persons  below a certain annual turnover. This  exemption implies  that a taxable person does 
not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT 
on his inputs. 

Under  Article  287  of  the  VAT  Directive,  particular  Member  States  which  acceded  after 
1 January 1978  may  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent  in  national  currency  of  the  amounts  at  the  conversion  rate  on  the  day  of  their 
accession as specified in that provision. Malta joined the euro on 1 January 2008.  

Under point 13 of Article 287 of Directive 2006/112/EC Malta, may exempt from VAT three 
categories  of  taxable  persons:  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 37 000 if the economic activity consists principally in the supply of goods; EUR 24 300 
if the economic activity consists principally in the supply of services with a low value added 
(high inputs); and EUR 14 600 in other cases, namely supplies of services with a high value 
added (low inputs). 

Since  its  accession,  Malta  has  made  use  of  this  provision  to  assist  small  businesses  and  to 
encourage  new  businesses  to  start  operating.  This  has  proved  to  be  a  useful  simplification 
measure  as  it removes  many  of  the  VAT  obligations  for  businesses  operating  below  certain 
annual turnovers, which reduced the operating costs of these businesses. At the same time, the 
effect  on  revenue  was  insignificant.  The  Maltese  government  is  committed  to  continue  to 
apply  measures  to  simplify  the  obligations  of  small  operators,  in  line  with  the  European 
Union’s  objectives  for  small  businesses,  as  laid  out  in  the  Commission  Communication 
“Think small first” - a “Small Business Act” for Europe”2. 

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2 

OJ L 347, 11.12.2006, p.1. 
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 of 25 June 2008. 

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For  this  purpose,  Malta  wishes  to  increase  the  current  applicable  threshold  for  the  category 
with the lowest turnover, that is EUR 14 600, to EUR 20 000. 

According  to  the  Maltese  Authorities,  such  increased  threshold  is  expected  to  potentially 
increase the number of small operators registered under the simplification scheme for SMEs 
in  the lowest  category  from 15,615 to  approximately 16,504, an increase of about 5.3%.  At 
the same time, it would enable the Maltese Revenue Authorities to allocate more staff to the 
fight against VAT fraud. 

By raising the threshold for a person to be identified for VAT purposes from EUR 14 600 to 
EUR 20 000,  it  is  anticipated  that  the  administrative  burdens  on  businesses  eligible  for  the 
scheme,  and  in  particular  on  micro-enterprises,  will  reduce  as  a  result  of  the  measure,  by 
releasing them from many of the VAT obligations under the normal VAT arrangements, such 
as keeping VAT records or submitting VAT returns.  

The  Maltese  Authorities  have  estimated  that  the  increase  in  such  threshold  would  lead  to  a 
potential  reduction  in  VAT  revenue  of  approximately  0.24%  of  total  VAT  receipts  and 
therefore,  has  no  significant  impact  on  state  revenues.  It  is  expected  that  such  insignificant 
reduction  in  revenue  would  be  compensated  through  increased  general  enforcement  and 
audits. 

Persons  whose  turnover  does  not  exceed  the  threshold  will  still  have  the  option  to  be 
registered for VAT purposes. 

Consistency with existing policy provisions in the policy area 

• 
Similar  derogations  have  been  granted  to  other  Member  States.  Belgium3  was  granted  a 
threshold of EUR 25 000, Luxembourg4 was granted a threshold of EUR 30 000, Poland5 and 
Estonia6  a  threshold  of  EUR 40 000,  Lithuania7  a  threshold  of  EUR 45 000,  Latvia8  and 
Slovenia9  a  threshold  of  EUR 50 000,  Italy10  a  threshold  of  EUR 65 000  and  Romania11  a 
threshold of EUR 88 500. 

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Council  Implementing  Decision  (EU)  2015/2348  of  10  December  2015  amending  Implementing 
Decision 2013/53/EU authorising the Kingdom of Belgium  to introduce a special measure derogating 
from  Article  285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  330, 
16.12.2015, p. 51). 
Council Implementing Decision (EU) 2017/319 of 21 February 2017 amending Implementing Decision 
2013/677/EU authorising  Luxembourg  to  introduce  a  special  measure  derogating  from  Article  285  of 
Directive 2006/112.EC on the common system of value added tax (OJ L 47, 24.2.2017, p. 7).  
Council  Implementing  Decision  (EU)  2016/2090  of  21  November  2016  amending  Decision 
2009/790/EC  authorising  the  Republic  of  Poland  to  apply  a  measure  derogating  from  Article  287  of 
Directive 2006/112/EC on the common system of value added tax (OJ L 324, 30.11.2016, p.7). 
Council Implementing Decision (EU) 2017/563 of 21 March 2017 authorising the Republic of Estonia 
to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 80, 25.3.2017, p. 33). 
Council Implementing Decision (EU) 2017/1853 of 10 October 2017 amending Implementing Decision 
2011/335/EU authorising the Republic of Lithuania to apply a measure derogating from Article 287 of 
Directive 2006/112/EC on the common system of value added tax (OJ L 265, 14.10.2017, p. 15). 
Council Implementing Decision 2014/796/EU of 7 November 2014 authorising the Republic of Latvia 
to  apply a  measure  derogating  from  Article  287 of Directive  2006/112/EC on  the  common  system  of 
value added tax (OJ L 330, 15.11.2014, p. 46). 
Council  Implementing  Decision  (EU)  2015/2089  of  10  November  2015  amending  Implementing 
Decision  2013/54/EU  authorising  the  Republic of  Slovenia  to  introduce a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  302, 
19.11.2015, p.107). 
Council  Implementing  Decision  (EU)  2016/1988  of  8  November  2016  amending  Implementing 
Decision  2013/678/EU  authorising  the  Italian  Republic  to  continue  to  apply  a  special  measure 

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Derogations from the VAT Directive should always be limited in time so that their effects can 
be  assessed.  Moreover,  the  provisions  of  Articles  281  to  294  of  the  VAT  Directive  on  a 
special  scheme  for  small  enterprises  are  currently  subject  to  review.  As  announced  in  the 
VAT  Action  Plan12,  and  the  2017  Commission  Work  Programme13,  the  Commission's 
proposal in the form of a comprehensive simplification package is due to be presented by the 
end of 2017. 

It is  therefore  proposed to  allow for the raising of the threshold  of small enterprises, whose 
economic activity consists principally in the supply of services with a high value added, up to 
EUR 20 000  as  of  1 January  2018  until  the  earliest  of  31 December 2020  or  the  entry  into 
force of a  Directive amending the provisions of the VAT Directive on a special scheme for 
small enterprises.  

• 

Consistency with other Union policies 

The  measure  is  in  line  with  the  Union's  objectives  for  small  businesses,  as  laid  out  in 
Commission  Communication  “Think  small  first”  -  a  “Small  Business  Act”  for  Europe”14 
which  calls  on  the  Member  States  to  take  account  of  the  special  features  of  SMEs  when 
designing legislation and, therefore, to simplify the existing regulatory environment. 

2. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

Considering  the  provision  of  the  VAT  Directive  on  which  the  proposal  is  based,  the 
subsidiarity principle does not apply. 

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued, i.e. simplification for an additional number of small taxable persons and for the tax 
administration. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

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derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 
306, 15.11.2016, p. 11). 
Council Implementing Decision (EU) 2017/1855 of 10 October 2017 authorising Romania to apply a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 265, 14.10.2017, p. 19). 
Communication from the Commission to the European Parliament, the Council and the European and 
Social  Committee  on  an  action  plan  on  VAT,  Towards  a  single  EU  VAT  area  –  Time  to  decide, 
Brussels, 7.4.2016, COM(2016)148 final. 
Commission  Work  Programme  2017  -  Delivering  a  Europe  that  protects,  empowers  and  defends, 
Strasbourg, 25.10.2016, COM(2016)710 final 
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 of 25 June 2008. 

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Other  means  would  not  be  adequate  because  under  Article  395  of  the  VAT  Directive, 
derogation  from  the  common  VAT  rules  is  only  possible  upon  authorisation  of  the  Council 
acting unanimously on a proposal from the Commission. A Council Implementing Decision is 
thus the most suitable instrument since it can be addressed to an individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Malta and concerns only this Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The  proposal  for  a  Council  Decision  aims  at  introducing  a  simplification  measure  which 
removes  many  of  the  VAT  obligations  for  businesses  whose  economic  activity  consists 
principally in the supplies of services with a high value added and low inputs, operating with 
an  annual  turnover  no  higher  than  EUR 20 000.  It  will  therefore  have  a  potential  positive 
impact  on  the  reduction  of  administrative  burden  for  a  number  of  taxable  persons  and, 
subsequently, on the tax administration. 

Because of the narrow scope of the derogation, and its limited application in time, the impact 
will, in any case, be limited. 

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Malta  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) No 1553/8915. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause. 

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OJ L 155, 7.6.1989, p. 9–13. 

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2017/0361 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Malta to apply a special measure derogating from Article 
287 of Directive 2006/112/EC on the common system of value added tax 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, 

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Under Article 287(13) of Directive 2006/112/EC, Malta may exempt from value added 
tax  (VAT)  three  categories  of  taxable  persons:  those  whose  annual  turnover  is  no 
higher than EUR 37 000, if the economic activity consists principally in the supply of 
goods;  EUR 24 300  if  the  economic  activity  consists  principally  in  the  supply  of 
services with a low value added (high inputs), and EUR 14 600 in other cases, namely 
supplies of services with a high value added (low inputs).  

By letter  registered with the Commission  on 22 September 2017, Malta requested an 
authorisation  to  increase  the  level  of  the  lowest  threshold  from  EUR 14 600  to 
EUR 20 000  for  supplies  of  services  with  a  high  value  added  (low  inputs)  as  of 
1 January 2018.  Through  that  measure,  those  taxable  persons  would  be  exempt  from 
certain  or  all  of  the  obligations  in  relation  to  VAT  referred  to  in  Chapters  2  to  6  of 
Title XI of Directive 2006/112/EC. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed  the  other  Member  States  by  letter  dated  3 November 2017  of  the  request 
made by Malta. The Commission notified Malta by letter dated 7 November 2017 that 
it had all the information necessary to consider the request. 

The requested derogation is in line with the objectives of Commission Communication 
"Think small first" – a "Small Business Act" for Europe" 25 June 2008)2. 

Given that this derogating measure should result in reduced VAT obligations and thus 
a reduction in the administrative burdens and costs for small enterprises, Malta should 
be authorised to apply the measure for a limited period, until 31 December 2020. The 
special scheme is optional for taxable persons. 

(6) 

As  Articles  281  to  294  of  Directive  2006/112/EC  governing  the  special  scheme  for 
small  enterprises are subject to  review, it is  possible that a directive amending those 

1 
2 

OJ L 347, 11.12.2006, p. 1. 
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 final.  

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(7) 

(8) 

provisions of Directive 2006/112/EC will enter into force before the period of validity 
of the derogation expires, in which case this Decision will cease to apply.  

Based  on  information  provided  by  Malta,  the  increased  threshold  will  have  a 
negligible impact on the overall amount of tax revenue collected at the stage of final 
consumption. 

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added tax because Malta will carry out a compensation calculation in accordance with 
Article 6 of Council Regulation (EEC, EURATOM) No 1553/893, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 287(13) of Directive 2006/112/EC, the Republic of Malta 
is  authorised  to  exempt  from  VAT  taxable  persons  whose  economic  activity  consists 
principally  in  supplies  of  services  with  a  high  value  added  (low  inputs)  and  whose  annual 
turnover is no higher than EUR 20 000. 

This Decision shall apply from 1 January 2018 until 31 December 2020, or until the entry into 
force  of  a  directive  amending  Articles  281  to  294  of  Directive  2006/112/EC  governing  the 
special scheme for small enterprises, whichever date is earlier. 

Article 2 

This Decision is addressed to the Republic of Malta. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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Council  Regulation  (EEC,  Euratom)  No  1553/89  of  29  May  1989  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 
9). 

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