Digital content, including e-books, music, videos, online games and smartphone apps, are costing Maltese customers more due to new VAT rules set by the EU.

Until last year, Maltese users who downloaded an app on their smartphone or an e-book from Amazon used to pay 15 per cent VAT as almost all companies offering such services were normally based in Luxembourg, taking advantage of the lowest VAT rate in the EU.

In an attempt at harmonising VAT rules across the EU and preventing large multinational like Amazon, Apple and others from routing their sales and profits via low-tax countries, all sales of digital products will, as from the beginning of the new year, be taxed at the country of purchase and in line with the VAT rate of that particular country.

This means that a Maltese consumer will now have to pay the Malta VAT rate of 18 per cent.

All companies selling telecoms, broadcasting and digital services will be hit by the new rules

The change could have a positive effect on Malta’s coffers because, so far, despite more online purchases of digital content, the tax paid ended up in the coffers of other member states.

AT Department sources confirm that Malta is set to benefit.

The sources also pointed out that Malta could lose some tax proceeds because a number of international companies offering digital products had set up shop here to take advantage of the island’s relatively low VAT rate. Malta has the second lowest VAT rate in the EU after Luxembourg.

All companies selling telecoms, broadcasting and digital services will be hit by the new rules.

To introduce such changes, which touch a very sensitive subject in the EU – taxation – a compromise with Luxembourg had to be struck. According to the agreement, the Duchy will now be paid €1.1 billion in compensation by the other 27 EU member states to make up for the lost revenue in the next three years.