The Malta Tax and Customs Administration has issued a recent guideline on Beneficial Loan Arrangements for the purposes of rules 26 and 27 of the Fringe Benefit Rules (SL 123.55).
In accordance with the current Fringe Benefit Rules, the provision of a loan to an employee constitutes a taxable fringe benefit in the hands of the employee. The value of the benefit is the excess, if any, of the interest that would have been payable if the beneficiary had been required to pay interest on the loan at the benchmark rate, over the amount of interest that is actually paid, if any, for the period in question. The current benchmark rate is 6.5%.
In the case of loans advanced by licensed banks or authorised financial institutions to their employees, the benchmark interest rate in this case is the rate on the main refinancing operations as applied by the Central Bank of Malta. Moreover, the value of the fringe benefit in this case qualifies for the in-house benefit reduction.
Scope
The Commissioner for Tax and Customs is empowered to determine any other rate as the benchmark rate and may determine different rates for different types of loans.
Effective from the year of assessment 2025, basis year 2024, this guideline seeks to establish the benchmark rate of interest applicable to loans granted by a licensed bank or by a financial institution authorised to lend to the general public under Maltese law, when provided to an employee of such a bank or financial institution, typically involving loans with reduced or zero interest rates.
Key Changes
The recently established guidelines specify the applicable benchmark interest rates for different types of loans, as outlined below:
- For loans intended for the purchase of a primary residence, the applicable benchmark is the average interest rate on Overnight Deposits, as published by the Central Bank of Malta;
- For any other home loan, the benchmark interest rate is the average interest rate on Lending for House Purchases, as published by the Central Bank of Malta; and
- In all other cases, the benchmark interest rate is the average rate on Consumer Credit and Other Lending, as published by the Central Bank of Malta.
The average rates in relation to the above mentioned loans will be determined by reference to the interest rates prevailing at the end of each month over the 12-month period ending on 30th September of the year prior to the year in which the benefit is considered to arise, as published by the Central Bank of Malta’s Statistics database entitled the Interest Rates and Other Key Financial Market Rates.
This guideline takes precedence over the provisions of the Fringe Benefits Rules and any another guidance notes previously issued in relation to the benchmark rate of interest on loans by banks and financial institutions to their employees.
Impact
Such changes shall impact mainly Maltese licensed banks or authorised financial institutions who provide a loan agreement to their employees. Employees are also impacted with regards to the withholding of income tax on the calculated fringe benefit, through payroll, in accordance with the new guidelines.
Get in touch
Our team is here to help you navigate through the changes and assess their impact. Feel free to reach out to CLA Malta for further guidance.