Malta has published the Act to implement Budget Measures for the Financial Year 2021 and other administrative measures (Act No. XVIII of 2021), which was enacted on 16 April 2021. The Act provides for the implementation of some of the budget measures first announced in October 2020, as well as certain others, and is generally deemed to have come into force on 1 January 2021.

One of the key changes made to the Income Tax Act is the introduction of a new defensive measure in relation to the EU non-cooperative jurisdiction list and Malta's participation exemption for income or gains derived by a company registered in Malta from a participating holding or from the transfer of such holding. The defensive measure is an addition to all other existing conditions for the exemption and is as follows:

"Provided further that the exemption contemplated by this paragraph shall not apply to income derived from a participating holding in a body of persons resident for tax purposes in a jurisdiction that is included in the EU list of non-cooperative jurisdictions for a minimum period of three (3) months during the year immediately preceding the year of assessment unless it is proved to the satisfaction of the Commissioner that the said body of persons maintains sufficient significant people functions in that jurisdiction as is commensurate with the type and extent of the activity carried on in that jurisdiction and the income earned therefrom. Where such three (3) months are consecutive and fall in two (2) subsequent consecutive basis years, the exemption shall not apply in respect of any such income derived in any one (1) of the two (2) years;"

Other changes to the Income Tax Act include:

• The list of non-deductible expenditures is extended to include: "(i) any payment the making of which constitutes a criminal offence or, in the case of a payment made outside Malta, would constitute a criminal offence if made in Malta.";
• A new Article 31F is added containing provisions regarding the taxation of royalties on qualifying literary works, including that an individual in his capacity as author of a qualifying literary work by virtue of his title to the copyright will be subject to 15% tax on royalties received from 1 January 2021, at the option of the individual;
• A new Article 51A as is added regarding transfer pricing, providing "The Minister responsible for finance may make rules in relation to transfer pricing generally and may, in particular by such rules, provide for the determination of the arm's length pricing of a transaction or a series of transactions, any adjustments in relation thereto and advance pricing agreements."

A couple of important changes are also made to the Income Tax Management Act, including:

• The time limit for responding to information requests from the Commissioner is reduced from 30 days to 20 days in relation to information exchange request from foreign tax authorities where reciprocal exchange of information for tax purposes exists; and
• With regard to the five-year limit for applying a reduction or increase in tax payable after a year of assessment where a further (corrected) return is furnished, a provision is added to provide that the five-year limit does not apply when a further return is filed with the Commissioner for the purposes of implementing an agreement reached pursuant to a Mutual Agreement Procedure.

Act No. XVIII of 2021 also make various amendments to the Customs Ordinance, the Social Security Act, the Duty on Documents and Transfers Act, the Motor Vehicles Registration and Licensing Act, the Excise Duty Act, the Arbiter for Financial Services Act, and subsidiary legislation.