The deduction of input VAT is an integral part of the VAT system and in principle may not be limited.
The European Court of Justice (“ECJ”) has reiterated extensively that the deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. Consequently, the common system of VAT ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided they are themselves subject in principle to VAT.
In accordance with Article 168 of the VAT Directive, a taxable person is only entitled to deduct input VAT in so far as the goods and services are used for the purposes of his taxed transactions therefore eliminating from the remit of deduction expenses connected to exempt without credit supplies As a result, given the exemption within the legislation, initially one may think that businesses operating within the gaming sector would not have a right to deduct input VAT. However, this was classified in the guidelines issued by the Commissioner for Tax and Customs (“CfTC”) which effectively identified which gambling transactions when supplied in Malta are treated as exempt (without credit) i.e. supplies which give no right to deduct input VAT.
As a general rule, businesses exclusively involved in making either taxed or exempt transactions, do not have difficulty in determining the extent to which input VAT may be deductible. However, the reality is that as a result of the activity classification in the guidelines, many Gaming Operators in Malta carry out both taxable gambling supplies and exempt gambling supplies. As a result, Gaming Operators which may not attribute costs to taxable supplies will have a limited right to deduct input VAT. In fact, the deduction of input VAT for a given cost will often depend on whether the cost can be allocated as a direct cost or as a general cost.
Summary on the allocation of expenses and the right of deduction
|Expenses attributable to||Direct Cost or General Cost||Input VAT Recovery|
|Taxable Supplies||Direct Cost||Full Right of Recover|
|Exempt without credit||Direct Cost||No Right|
|Both Supplies or General Cost||General Cost||Partial Right|
Where a Gaming Operator incurs general costs, then it will partially deduct the input VAT. The deductible proportion shall be determined, in accordance with Articles 174 and 175 of the VAT Directive, for all the transactions carried out by the taxable person.
How can we help?
We can carry out an assessment of the activities carried out by the Company, with a view to determining any VAT exposures and offering our assistance to ensure that the VAT treatment of such activities is in line with the VAT legislation.
 Council Directive 2006/112/EC
 When a Gaming Operator receives a service from outside of Malta and in terms of the place of supply rules, the service is treated as taking place in Malta, it is pertinent to determine whether such service is strictly required, related and essential to the gaming transaction itself. Should that case, the supply could possibly be treated as exempt without credit and as a result, no VAT would be chargeable.