VAT (MALTA) Why registering under Art 11 might be a “shit” choice for your business!

“Qis mitt darba u aqta’ darba”  – Maltese proverb which more or less means “measure multiple times before the final cut so you won’t regret it”

We’ve all done things we regret, and as strange, perhaps weird as it sounds, let’s not also add a wrong VAT (Malta) registration to the list. It could prove to be an expensive regret!

Don’t believe the hype, not all is what it seems. Sometimes the counter intuitive is the best option, despite everyone around you calling you mad. Same goes for when deciding to register for your VAT number.

Depending to whom you speak to, many will tell you to opt for being VAT exempt so you can avoid having to add VAT on top of your sale and all the other fun stuff that comes along.

I am here to tell you that they might actually be right!  But whether it is right for you though, is another story! This depends on your business Model and goals.

Much more detailed information about Pros and the massive Cons of being exempt, can be found in our other VAT articles, but below are some basic yet important questions to ask yourself.

Before registering as VAT exempt, sit down, and ask yourself:

1. Who are my clients?

It makes a BIG difference if customers are consumers who cannot claim Vat or businesses who can claim back the Vat charged.

2. What am I selling?

Are you selling your time, i.e services with little expenses or are you selling products, which you’ll get from suppliers?

Suppliers will charge you Vat on top the products’ Net price. That is VAT (Malta) which you cannot claim back as VAT exempt!

3. Under what VAT Rate do I fall under?

Do you fall under the 18% VAT rate were you must charge a full 18% or do you fall under the 5% of 7% , which will enable you to charge a low VAT rate to consumers but claim back all expense at 18%…( cash flow ideal)  which brings us to the next question

4. What is the cost of the initial investment to start my business that I need to fork out immediately?

If your’re opening a shop or an office, you could easily have thousands in VAT (Malta) on the furniture, signage, design fees etc.  As VAT exempt this VAT cannot be claimed, and you might think that’s ok , it’s still worth being Exempt in the long run. Fair enough could be so, but then again this also depends on the next point.

5. What are my yearly expenses and do they involve VAT

How much VAT (Malta) do you estimate will be lost as VAT exempt on yearly expenses such as advertising and marketing , diesel (if commercial) , telephone bills, repairs and maintenance , new assets to grow the business etc.

Still not convinced …again you could still be right. It’s always a case by case basis

However let’s introduce one very overlooked yet important factor in the next point…the Vat thresholds so you’ll have the whole picture.

6. What is are my total estimated Sales?

 For how long exactly will you remain Exempt? Exceed the Exempt thresholds and boom, from that day onwards you’ll find yourself under Art 10 charging VAT… but with no option to claim back the initial costs if you started as VAT Exempt!

If you already have reason to believe that sales will pick up and fast, then there is a very good chance that in the first year or first few months you’ll exceed the thresholds and have to register under Art 10 anyways.

If that is the case then do your CASHFLOW a big favour and immediately register under Art 10. Why? That way you’ll not lose the VAT incurred in points 4 and 5 as you were exempt at the time! Instead, invest it in growing your business and sales!

7. How fast do I intend to grow?

Is it a part time activity or full time, do I intend to grow, does my business need lots of vat-able investments to kick off? Perhaps also a bank loan and a certain amount of profit to even be considered for a loan? These are all factors which might NOT leave you VAT exempt for long. So this must also be factored in, together with the other points mentioned.

Food for thought dear current friends, and those I have yet to meet and help!  

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