Higher licence fee and tax on used cars illegal, EU Court tells Malta

Updated at 7:20pm with ministry statement

Malta’s higher licence tax for used cars registered before 2009 has been declared incompatible with EU law, which prohibits taxes favourable to domestic products over imports from other member states.

The European Commission had asked the European Court of Justice to rule on whether Malta had breached EU rules on the way it taxes used cars imported to Malta.

The decision found that the taxes imposed on second-hand cars registered before 2009, was incompatible with EU laws that prohibit taxes favourable to domestic products, over EU imports.

Malta applied a higher fee on second-hand motor vehicles imported from other member states, than the applicable fee for similar domestic motor vehicles.

The Annual Circulation Tax (ACT) for motor vehicles registered in other EU states before January 2009 and then imported to Malta was charged at higher rates than that applied to brand new cars registered in Malta.

In 2019, the European Commission sent a letter of formal notice to Malta, stating that ACT fees for second-hand cars was in breach of EU provisions. In 2021, the Commission initiated court action.

Malta contends that the ACT – the licence fee system levied on cars according to carbon emissions and size – is based on the “polluter pays” principle, favouring newer, smaller and cleaner vehicles.

It argued that a proposed reformed ACT system would have adverse consequences for vehicle owners of second-hand vehicles registered before 2009, because it would devalue those cars and subject the owners to a higher tax,.

The Commission, on the other hand, emphasised that an unfavourable tax on imported goods in favour of similar domestic goods, was prohibited. IT said Malta should equalise the ACT rates for used cars from another member state, to those registered in Malta as brand new.

The ECJ found Malta had failed in its obligations under EU law, affirming the purpose of the relevant EU provision in guaranteeing equality between internal taxation on national products and imported products. The Court said Malta’s ACT cannot be considered compatible with EU law since it is aimed at excluding imported products by way of a bigger tax than that imposed on domestic goods.

In reference to the ruling, the finance ministry issued a statement on Thursday noting that Transport Malta has since introduced the previous registration tax and annual circulation licence fees for all used passenger vehicles and motorcycles which have been registered in another EU member state before 2009 and imported into Malta after 1 January 2024.

"The new rules which came into force, ONLY apply to vehicles belonging to EU citizens resident in Malta (excluding vehicles imported from the UK by Maltese residents) that were imported after 2008 and registered as Used Passenger vehicle. This includes motorcycles imported after 1 January 2009 which have been registered in another EU Country including Northern Ireland before 2009, with the intention to be registered in Malta. These now have the option to decide between which registration tax and annual circulation licensing regime to be registered and licensed under."

"Owners of used passenger vehicles and motorcycles which were registered in another EU member state (including Northern Ireland and excluding UK before 2009) and were imported and registered in Malta after the 1 January 2009, currently under the post 2009 ACT regime, will have the option to re-assign their vehicle under the old regime (both in terms of registration tax and the annual circulation licence fees)."

"The Government is confident the issues mentioned in the judgement have been adequately addressed."