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What is VAT?
Have you ever looked at a fiscal receipt and noticed letters like 'F' next to prices, or percentages added to the total price of your shopping? That’s VAT: Value-Added Tax.
In Malta, most goods and services are taxed at a standard VAT rate of 18%. But some things—like electricity, sweets, medical accessories, or bus fares—might have a lower rate.
💡 Tip: For example, you’d usually apply a 5% VAT rate to electricity, confectionery, and some health-related products. Items like pharmaceutical goods and scheduled bus services (Tallinja) are often charged at 0%. Just make sure to double-check you're applying the right rate with the relevant authorities.
If you’re buying or selling something as part of a business, the law states you need to set aside a portion of that amount as VAT and pass it on to the government.
Let’s say you’re issuing an invoice for a pair of sunglasses 😎 that cost €100. By law, you need to add 18% VAT. So, when creating the invoice, you’d enter €100 and select the correct VAT code. The system will automatically work out the VAT and update the total to €118.
Is all VAT the same?
Is all VAT the same?
There are two types of VAT:
Input: the VAT a business operator pays on goods and services acquired during their economic activities.
Output: the VAT a business operator charges when supplying goods or services to customers.
These taxes will then be registered in a VAT Account for sales (outputs) and purchases (inputs), ensuring the account balance reflects the amount you have to pay, or claim from, the Revenue Authority.
More on Accounts 👉 here.
VAT Codes and Rates
The different amounts of VAT that apply to transactions are called VAT rates. While VAT rates are set by law, businesses can create their own VAT codes to suit their specific needs.
💊 Knowledge Pill
According to the reverse charge mechanism:
The supplier doesn't include VAT on the invoice, but notes that the reverse charge applies.
The customer declares the VAT owed in the VAT return as output tax, which can then be claimed as input tax—if entitled to deductions (net result is zero).
Check 👉 the Annex X of the EU VAT Directive to learn all about deductions.
What is a VAT Return?
When processing transactions, you will often handle VAT (tax on goods and services). VAT is allocated to each transaction based on the applicable scenario.
These VAT amounts have to be declared to the Commissioner For Revenue (CFR), usually on a quarterly basis. This declaration is called a VAT Return. The VAT Return is actually a form (often electronic) where you have to detail the VAT you charged on sales (output tax) and the VAT you paid on purchases (input tax). Submitting this form ensures you identify and pay any difference to the tax authorities, or claim a refund if the input tax exceeds the output tax.
Always refer to the VAT Act to follow the right procedure for filing returns, to avoid penalties and safeguard your business' financial operations run smoothly.
💡 Tip: You can find a comprehensive guide on how to submit your VAT return electronically on the CFR page 👉VAT Online Services.
🤔 Did you know that we need two VAT accounts to post VAT and run a VAT Return? The VAT Control Account and the Annual VAT Account.
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