Cap. 406, article 11
Malta VAT Article 11: what the small-enterprise scheme gives you
Updated
Article 11 is often called being exempt from VAT. It is closer to a registration trading input tax recovery for lighter compliance, with obligations of its own.
Question 1
Where is the business established?
Establishment is decided by article 2(2) and 2(3) of the VAT Act, not by where the company is incorporated alone.
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Is an Article 11 business VAT exempt in Malta?
Yes, exempt without credit. Item 16(1) of Part Two of the Fifth Schedule exempts the supplies of a person registered, and entitled to be, under Article 11. You charge no VAT and reclaim none.
That differs from supplies the Fifth Schedule exempts whoever makes them. Part One lists supplies exempt with credit, such as exports and scheduled bus transport. Part Two lists supplies exempt without credit, such as insurance, banking, health and education.
What you get
- Your supplies are exempt. Item 16(1) of Part Two of the Fifth Schedule exempts the supply of goods and services by a person registered under Article 11 and entitled to be so registered.
- No VAT to charge and no VAT returns. Instead of returns you file a declaration for a twelve-month period running 1 January to 31 December, due by the fifteenth day of the second month after the period ends, under item 5 of Part One of the Sixth Schedule.
- A number that is not a VAT number. Article 13(3) says a registration number allocated under Article 11 shall not have the MT prefix and shall not be treated for any purpose of the Act as a value added tax identification number. EU customers checking you in VIES will not find a VAT identification.
What you give up
Input tax credit. Article 22 gives the credit to persons registered under Article 10; an Article 11 registration does not carry it. With material purchases, equipment, stock or professional fees, the VAT on those costs becomes a real expense.
That is the scheme's trade, and why a business selling to VAT-registered customers usually registers under Article 10 voluntarily instead.
When the registration effectively starts
The provisos to article 11(2) split the answer. For an applicant not already under Article 10, registration starts on the first day of the month the Commissioner receives the application. If the economic activity commences later, it starts then.
For an applicant already registered under Article 10, it takes effect only from the first day of the month following receipt. The Article 10 registration is cancelled on registration under Article 11.
Leaving, voluntarily and involuntarily
- By choice: apply under article 11(5)(a) at any time; cancellation applies from the first day of the following calendar month.
- Because you outgrew it: article 11(5)(b) requires an application within fifteen days of no longer qualifying, and cancellation runs from the first day of the calendar month following the date you ceased to qualify.
- Because you stopped trading: article 11(5)(c) requires an application within fifteen days of the cessation of the economic activity.
- Because the Commissioner acted: article 11(8) allows cancellation with effect from the date the Commissioner determines you ceased to qualify, followed by immediate registration under Article 10 where you are liable for it.
The twelve-month lock
Item 2 of Part One of the Sixth Schedule stops an Article 10 registrant from qualifying as a small enterprise during the first whole twelve calendar months from that registration.
Sub-item (2) lets the Commissioner accept an earlier conversion, but only where the person qualifies as a small enterprise and has claimed no input tax credits under Article 10. Registering under Article 10 to reclaim VAT on start-up costs, then dropping to Article 11, is not a route the Schedule leaves open.
Article 11 does not exempt you from Article 12
Article 11(10) is explicit: an Article 11 registrant must also register under Article 12 if it makes intra-community acquisitions of goods subject to VAT under article 4(b). The same applies if it receives services liable under article 20, or supplies services in another Member State where the VAT is payable solely by the recipient.
Two registrations side by side is normal for a small Maltese business buying software or advertising from abroad. The Article 12 guide sets out when each trigger applies.