VAT regimes — 18 / 7 / 5 / 0%

VAT (Value Added Tax) is the indirect tax levied at each stage of the commercial chain. In Malta the standard rate is 18% — one of the lowest in the entire European Union, tied with Luxembourg. It is a structural argument for headquarters and iGaming. The framework is set by the VAT Act (Cap. 406), administered by the CFR (Commissioner for Tax and Customs). Four rates coexist: 18, 7, 5 and 0%.

History — from the 1998 VAT Act to 18%

Malta had a turbulent VAT journey: introduced at 15% in 1995, abolished and replaced by a CET tax in 1997 on political grounds, then reintroduced definitively by the VAT Act (Cap. 406) in 1998. EU accession in 2004 locked in alignment with the European VAT directive and raised the standard rate to 18%, where it has stayed ever since — a rare stability.

1995       | Malta introduces a VAT on accession to the regime, then
           | briefly replaces it with a CET (Customs and Excise Tax)
           | in 1997 for political reasons.
           |
1998       | The Value Added Tax Act (Cap. 406) reintroduces VAT
           | definitively. Initial standard rate 15%.
           |
2004       | Malta joins the European Union: alignment with the EU VAT
           | directive, intra-EU thresholds, MT + 8-digit number.
           |
2004       | The standard rate moves from 15% to 18% — held ever since,
           | making it one of the lowest standard rates in the EU.
           |
2011       | Introduction of the 7% reduced rate for tourist accommodation
           | (hotels, licensed holiday lets) — a pillar of the economy.
           |
2017-2023  | Refinement of the 5% rates (electricity, books, printed
           | matter, medical items, confectionery, minor services). Listed
           | in the Eighth Schedule of the VAT Act, aligned with Annex III
           | of Directive 2006/112/EC.
           |
2025-2026  | Status quo: 18 / 7 / 5 / 0%. No increase announced. SAF-T and
           | ViDA thinking led by the CFR, with no impact on rates.

Governance — CFR + VAT Act Cap. 406

Maltese VAT is governed by the Value Added Tax Act, Chapter 406 of the Laws of Malta, supplemented by its subsidiary legislation (S.L. 406.x) and schedules. Administration falls to the CFR (Commissioner for Tax and Customs — Kummissarju tat-Taxxi u d-Dwana), handling registration, periodic returns and audits. The reduced rates are listed in the Eighth Schedule, transposing Annex III of Directive 2006/112/EC.

Schema — rates and e-invoice coding

For an EN 16931-compliant invoice (PEPPOL BIS 3.0 or EDIFACT), each line carries a VAT category (BT-151 / UNCL5305 code) and a rate (BT-152). The standard codes are S (standard or reduced rate), Z (zero-rated), E (exempt), AE (reverse charge), K (intra-EU), G (export outside EU).

Rate       | BT-118 code | Main scope (VAT Act Cap. 406)
-----------+-------------+------------------------------------------------
18%        | S (standard)| General regime — goods and services by default.
           |             | Lowest standard in the EU (tied with Luxembourg).
-----------+-------------+------------------------------------------------
7%         | S (reduced) | Licensed tourist accommodation (hotels,
           |             | holiday lets) — Eighth Schedule Part 2.
-----------+-------------+------------------------------------------------
5%         | S (reduced) | Electricity, books/printed matter, medical
           |             | items, confectionery, museum entry, minor services.
-----------+-------------+------------------------------------------------
0%         | Z (zero)    | Exports, intra-EU supplies, international
           |             | transport, listed food and pharma.
-----------+-------------+------------------------------------------------
Exempt     | E (exempt)  | Health, education, financial services,
           |             | insurance, immovable property leasing (no
           |             | right of deduction).

In practice, the trap is that a reduced rate of 7% or 5% uses the same category code S as the 18% standard rate: it is the Percent field that distinguishes them, not the code. Example for a hotel night taxed at 7%:

<!-- PEPPOL BIS 3.0 invoice line — tourist accommodation 7% -->
<cac:InvoiceLine>
  <cbc:ID>1</cbc:ID>
  <cbc:InvoicedQuantity unitCode="NgT">3</cbc:InvoicedQuantity>
  <cbc:LineExtensionAmount currencyID="EUR">450.00</cbc:LineExtensionAmount>
  <cac:Item>
    <cbc:Name>Hotel night 4* — Sliema</cbc:Name>
    <cac:ClassifiedTaxCategory>
      <cbc:ID>S</cbc:ID>
      <cbc:Percent>7</cbc:Percent>
      <cac:TaxScheme><cbc:ID>VAT</cbc:ID></cac:TaxScheme>
    </cac:ClassifiedTaxCategory>
  </cac:Item>
  <cac:Price>
    <cbc:PriceAmount currencyID="EUR">150.00</cbc:PriceAmount>
  </cac:Price>
</cac:InvoiceLine>

Comparison — Malta vs EU

Adoption — taxable persons and returns

• Registration: three VAT Act articles — Article 10 (standard taxable person with right of deduction), Article 11 (small undertakings below threshold, exempt), Article 12 (intra-EU acquisitions).
• Returns: periodic (generally quarterly) via the CFR portal, with a recapitulative statement for intra-EU flows and VIES reporting.
• Tourism: the 7% rate structures a major share of Maltese hotel invoicing, a key sector of the island economy.
• iGaming: many gaming services are VAT-exempt (gambling article), creating specific coding patterns detailed in the iGaming page.

Common pitfalls

• Coding 20% "as the EU default". Malta's standard is 18%. An ERP set to a continental rate skews the whole VAT calculation.
• Confusing 7% and 5%. 7% = tourist accommodation only; 5% = electricity, books, medical, confectionery. Swapping them skews the return.
• Category S for any non-zero rate. 18%, 7% and 5% share category code S; only the Percent field distinguishes them. Mapping on category alone is a classic error.
• Forgetting iGaming exemption. A gaming service exempt-coded as S 18% generates phantom VAT.

Cross-links

• Malta hub — full view
• Identifiers — MT VAT + MBR
• iGaming — MGA data exchange
• Voluntary PEPPOL B2G
• Laws of Malta — VAT Act Cap. 406
• CFR — VAT section