Regulations 2004

L.N. 318 of 2004

VALUE ADDED TAX ACT

(CAP. 406)

Value Added Tax

(Adjustments relating to Input Tax on Capital Goods)

Regulations 2004

IN exercise of the powers conferred by articles 23, 48(4), and 75

of the Value Added Tax Act, and item 7 of the Second Schedule and

item 7(1) of the Tenth Schedule to the Act, hereinafter referred to as

“the Act”, the Prime Minister and Minister of Finance has made the

following regulations>-

(1) The title of these regulations is the Value Added Tax Citation and

Act (Adjustment relating to Input Tax on Capital Goods) Regulations, commencement.

2004. (2) These regulations shall be deemed to have come into

force on 1st May 2004, and shall apply only to input tax that was

chargeable on or after the 1st of May, 2004>

Provided that where a balance of input tax was due as on 30th

April, 2004 in terms of the limitation imposed by item 12 of the Eleventh

Schedule to the VAT Act, 1998 prior to its amendment by Act X of

2003 which came into force on 1st May, 2004, such balance shall be

refunded in four equal instalments and the provisions of subarticle (3)

of article 24 of the Act shall not apply. The first payment may be

claimed back in any tax return which ends between the 31st May, 2004

and the 31st July, 2004. Subsequent instalments may be claimed in

each tax return as it falls due.

(1) For the purposes of these regulations, unless the context Definitions.

otherwise requires -

“capital goods” means all tangible fixed assets, which can be

used on a long term basis as working tools or other means used for

the carrying on of a an economic acticvity. Small-equipment,

working tools and office furniture, where their price, or open market

value, is less than five hundred liri, as well as packaging materials,

even if they can be used more than once, are not within the scope

of these regulations<

“immovable property” that is subject to rights in rem is

considered to be capital goods in the name of the holder of the

right in rem<

“input tax on capital goods” means input tax paid on

operations related to the realisation, the transformation or the

improvement of capital goods referred to above. The following is

not considered as input tax on capital goods>

(a) input tax paid on the repair or the maintenance of

capital goods as well as the purchase, the intra-Community

acquisition or the importation of spare parts used for such

operations<

(b) input tax paid for the renting of capital goods, and

more generally input tax paid for the giving up or the granting

of the use of such goods<

“other tangible property” is considered to be capital goods in

the name of the person who lets them out or, more generally, the

person who gives up or grants their use<

“period of reference” means, in the case of capital goods

excluding immovable property, a period of five years, and in the

case of immovable property, a period of twenty years.

(2) For the purposes of these regulations, a contract of works

consisting of a construction contract shall be deemed to be a supply of

(3) Other terms and expressions in these regulations shall

have the meaning assigned to them in the Act.

The initial deduction shall be adjusted>

(a) in respect of capital goods, excluding immovable

property, during a period of five years which shall start to run from the

first day of the month of the tax period during which the right to deduct

(b) in respect of immovable property, during a period of

twenty years which shall start to run from the first day of the first month

of the tax period during which the right to deduct arises>

Provided that, if the goods, both of a capital nature and contracts

of works, are not used during the tax period during which the right to

deduct arises, the starting date of the period of adjustment will be the

first day of the month of the tax period during which the goods are first

used.

The adjustment is made where, during the period of reference Adjustments.

as the case may be>

(a) the capital good is used by the taxable person both for

private purposes or for the purposes of operations in respect of

which value added tax is not deductible or in respect of which

value added tax is deductible in a proportion other than that of the

initial deduction<

(b) there are changes in the elements used for the calculation

of the deducted input tax<

(c) the capital good is subject to a supply for which the value

added tax is deductible, insofar as the right to deduct input tax on

this good has been limited. In this case, the additional amount of

input tax which can be deducted is limited to the amount obtained

by applying the taxable amount of the supply, the rate at which

input tax was calculated for which the right to deduct is adjusted<

(d) the capital good ceases to exist within the framework of

the enterprise, unless it is proved that the capital good was subject

to a supply for which the value added tax was deductible or that

the capital good has been destroyed or stolen<

(e) the taxable person becomes a non-taxable person or only

carries out operations for which the value added tax is not

deductible, unless it is proved that the capital good was subject to

a supply for which the value added tax was deductible.

(1) The adjustment referred to in paragraph 4 (a) of these Period of

adjustment.

regulations is made with respect to one-fifth or one twentieth of the

input tax initially deducted, as the case may be, for each year during

which a change in the use occurs. If the capital good is used totally for

private purposes or for operations for which the value added tax is not

deductible, the adjustment is made once for the whole period of

adjustment still to be covered, including the year during which the change

occurs.

(2) The adjustment referred to in paragraph 4 (b) of these

regulations is made each year with respect to one-fifth or one-twentieth

of the input tax deducted, as the case may be, according to the conditions

established by article 23 of the Act and item 6 ot the Tenth Schedule

thereof.

(3) The adjusment referred to in paragraphs 4 (c), (d) and

(e) of these regulations, are made once for the whole period of adjustment

to be covered, including the year in which the reason for which the

adjustment occurs, and up to one-fifth or one-twentieth for each year,

as follows>

(a) in the cases referred to in paragraph 4 (c) of these

regulations, for the amount of input tax affected by the limitation

of the deduction for which this provision takes account<

(b) in the cases referred to in paragraphs 4 (d) and (e) of

these regulations, for the amount of the input tax initially deducted.

When the deduction is subject to the adjustment of input tax

on capital goods, the time limit for the retention of records referred to

in subarticle (4) of article 48 of the Act shall start to run from the end of

the period of reference, as the case may be.

The taxable person must keep a list of the capital goods subject

to the adjustment on capital goods allowing the control of all input tax

deducted and adjustments made. This list must be retained for the period

referred in regulation 7 of these regulations and shall form an integral

part of the records required to be kept under the Act.

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press