Reinvestment Tax Credit (Income Tax) Regulations, 2003

L.N. 187 of 2003

INCOME TAX ACT

(CAP. 123)

Reinvestment Tax Credit (Income Tax) Regulations, 2003

IN exercise of the powers conferred by articles 14(2) and 96 of the

Income Tax Act, hereinafter referred to as “the Act”, the Minister of

Finance and Economic Affairs has made the following regulations> -

The title of these regulations is the Reinvestment Tax Credit

(Income Tax) Regulations, 2003.

In these regulations, unless the context otherwise requires -

“base year” means the year during which the profit eligible

to be reinvested has been earned and subsequently declared in the

tax return for the relative year of assessment<

“Commissioner” means the Commissioner of Inland

Revenue<

“Corporation” means the Institute for the Promotion of Small

Enterprise Limited<

“eligible person” means a person resident in Malta deriving

eligible profits that are reinvested in an eligible reinvestment project

approved by the Corporation and conforming with the requirements

of regulation 3 hereof<

“eligible profits” means income deriving from any activity

carried out in Malta chargeable under the provisions of article

4(1)(a) of the Act and computed in accordance with the provisions

of the Act, and set-aside for the exclusive purpose of financing an

approved reinvestment project<

“eligible reinvestment project” means a project approved by

the Corporation under these regulations, in respect of which

qualifying expenditure has been incurred and is retained within

the business for at least two years or such other shorter period as

the Corporation may deem appropriate in view of the nature of the

project<

“qualifying expenditure” shall mean expenditure of a capital

nature exclusively financed by eligible profits, incurred as part of

an eligible reinvestment project as approved by the Corporation in

acquiring brand new plant and machinery, but excluding motor

vehicles unless these are specialised commercial vehicles that are

essential to the implementation of the project>

Provided that the Corporation may, in its absolute discretion, approve

expenditure within an eligible reinvestment project, incurred in

acquiring>

i. second-hand, refurbished or reconditioned plant and

machinery<

ii. any extension to an existing industrial building or

structure, including the cost of land forming an integral part of

such extension<

Provided further that such expenditure is incurred on assets -

i.

which are first used in Malta< and

ii. in respect of which no income tax benefit or incentive

has previously been obtained under any other legislation<

“qualifying profits” means income deriving from the same

activity in which eligible profits have been earned, computed in

accordance with the provisions of the Act, that is relieved by a

reinvestment tax credit.

(1) These regulations shall apply to eligible persons deriving Application and

eligibility.

eligible profits in any of the years of assessment 2003 to 2005 and

reinvested in an eligible reinvestment project within three years from the

end of the base year.

(2) In order to qualify for the benefits under these

regulations, a person shall have in the base year>

(i) had a turnover of not more than Lm250,000, and

(ii) had a minimum of two but not more than five employees

of whom at least two were full time employees, and

(iii) was registered as an FSS payor under the Final L.N. 88 of 1998.

Settlement System (FSS) Rules>

Provided that in the case of a company which prepares its financial

statements in a currency other than in Maltese liri, the turnover shall be

changed into Maltese liri by reference to the middle rate of exchange as

determined by the Central Bank of Malta.

(3) A person intending to benefit from the incentive

provided by these regulations, shall, by not later than one month after

the relative tax return date, notify the Corporation of such intention for

each base year by means of a letter of application specifying such

intention and providing the following details>

(i) the person’s name, address, income tax registration

number and employer number<

(ii) the profit declared for the base year<

(iii) the amount of eligible profits to be set-aside for

reinvestment

(iv) the turnover for the base year<

(v) the number of employees engaged during the year,

distinguishing between part-time and full-time<

(vi) the period during which the reinvestment is to be made,

(vii) the details of the reinvestment project, with a

breakdown of the major expense headings<

(viii) a certificate issued by a Certified Public Accountant

and Auditor confirming that the reinvestment project is viable,

that the expenses involved are reasonable and fair according to

market values, and that the reinvestment has the capacity to expand

the business>

Provided that any person who fails to notify the Corporation in

writing about the intention to apply for the incentive provided by this

regulation, shall forfeit the right to be eligible for the benefit.

Provided further that for the year of assessment 2003, such

notification shall reach the Corporation by not later than the 31st of

October 2003.

(4) The Corporation, on being satisfied with the application

referred to in this regulation, shall issue a certificate indicating the

amount of the eligible profits approved for reinvestment.

(1) Where it appears to the Corporation that eligible profits Reinvestment

Credit.

derived by an eligible person have been set aside for the exclusive

purpose of financing an eligible reinvestment project as shall have been

approved by the Corporation, and that the eligible profits or part thereof

have in fact been used for such purpose, the Corporation shall issue a

certificate showing compliance and thereupon the person shall be entitled

to the benefit under subregulation (2) hereof.

(2) The benefit available under these regulations shall be in

the form of a reinvestment tax credit equivalent to the tax chargeable

on that part of the eligible profits that is reinvested in an approved

project on the basis of the following formula>

tax on total income for the base year

less

tax on total income after excluding that part of the eligible profits for

the same base year that is being reinvested, calculated at the rates applicable

for the base year.

(3) A person entitled to a reinvestment tax credit in respect

of a year of assessment shall be entitled to deduct from the amount of

tax which is due on qualifying profits for that year of assessment the

amount of the reinvestment tax credit, calculated as a proportion of the

qualifying expenditure to the eligible profits that are deemed reinvested

and multiplied by the maximum tax credit entitlement derived by

applying the formula in subregulation (2) hereof.

(4) (a) Where the reinvestment tax credit for any year of

assessment exceeds the tax payable by such person for that year, the

excess shall be added to the reinvestment tax credit, if any, for the

following year>

Provided that so much of the reinvestment tax credit which is not so

utilised at the end of any year is carried forward up to the year of

assessment 2010 and may not be set off against the tax due on any other

source of income or to generate a refund of tax.

(b) The reinvestment tax credit shall only be deducted from

the tax due on qualifying profits from the same source of the eligible

profits and for the purpose of this subregulation qualifying profits are

deemed to be the last part of the total income.

(c) The reinvestment tax credit granted under these

regulations shall not be allowed if the eligible profits have not been

reinvested, even if such profits had been set aside for reinvestment under

an eligible reinvestment project.

(5) Where a person has benefited from the provisions of this

regulation, the reinvestment tax credit for any year of assessment shall

be deemed to have relieved from tax so much of the qualifying profits

for the year which when multiplied by the rate or rates of tax at which it

was chargeable in that year, is equal to the reinvestment tax credit.

(6) The chargeable income which is deemed to have been

relieved from tax in accordance with subregulation (4) hereof, shall,

for the purposes of the Act, be retained in the business for at least until

the end of the year of assessment 2009, and>

(a) in the case of an individual it shall be included in the

capital account and the movements in such account shall be

disclosed by way of a note to the audited financial statements<

(b) in the case of a limited liability company it shall be

disclosed separately in the audited financial statements in a reserve

entitled “Reinvestment Reserve”.

(7) (a) In the case of a limited liability company the

qualifying income which is deemed to have been relieved from tax is

allocated to the Maltese Taxed Account and, upon distribution, shall be

exempt from tax in the hands of the shareholders up to the ultimate

shareholder.

(b) The company shall state in the dividend warrant

pertaining to any such distribution that such income has been relieved

by a reinvestment tax credit in accordance with these regulations, and

the tax which has so been relieved shall not be available for refund for

any purpose of the Act.

(8) Where the benefit provided by these regulations is due

to a partnership, any such benefit shall be due to the partners of any

such partnership>

Provided that the reinvestment tax credit is calculated separately

for each partner on the share of qualifying profit attributable to such

partner in the manner set out in subregulation (4) hereof.

(1) A person wishing to claim a reinvestment tax credit for

any year of assessment, shall submit to the Corporation, by not later

than three months before the relative tax return date, a written application

supported by audited financial statements and any other documentary

evidence requested by the Corporation.

(2) Any application required to be submitted to the

Corporation in order to benefit from these regulations shall be in such

form and contain such particulars as the Corporation may require.

(3) The Corporation, on being satisfied with the submissions

referred to in this regulation and within sixty days from the receipt of

all relevant information it may request, shall issue a Certificate of

Compliance confirming that all the provisions of these regulations have

been complied with.

(4) On granting its approval for any purpose under these

regulations, the Corporation shall confirm its approval in writing setting

out the conditions to be satisfied by the person, and the person’s

entitlement to the benefit provided by these regulations shall be

conditional on the production of such written approval.

(5) The Corporation shall forward to the Department of

Inland Revenue copies of certificates and approvals issued under the

provisions of these regulations.

(a) Where a benefit has been provided in terms of these Examination of

Records.

regulations, the Corporation may –

i. from time to time make such examination of books and

documents, hold on-site inspections on premises and all other things

and matters of that person as may be necessary to ensure that the

benefit is being applied for the purpose for which it has been made<

and

ii. request such financial statements from the person as it

may require, to be submitted quarterly or at shorter intervals at the

discretion of the Corporation.

(b) Where the Corporation is not satisfied that an eligible

person is employing the benefit for the purpose it is intended for or has

failed to fulfill any condition under these regulations, such person shall

immediately forfeit the right for the benefit.

The following further conditions must also be fulfilled for Further conditions.

eligibility to the benefit under these regulations >

(a) the tax return together with audited financial statements

incorporating the TIFD codes as stipulated in the Tax Index of Financial

Data Rules, 2002, are to be submitted to the Commissioner by the relative L.N. 211 of 2002.

tax return date for each year of assessment starting from the base year

and all subsequent consecutive years during which a reinvestment tax

credit is available irrespective of whether it is utilised or not<

(b) no other benefits are being claimed or may subsequently

be claimed by a person on the same activity or project under any

other legislation granting fiscal incentive schemes<

(c) all tax liabilities including amounts due in respect of

FSS tax as well as Social Security contributions due up to the time

of the application, except for any tax still in dispute, must have

been settled or is being settled in accordance with a formal

agreement drawn up with the Commissioner.

Notwithstanding the other provisions of these regulations, the

Commissioner shall have the right not to allow any reinvestment tax credits

if any default is committed by the applicant in respect of any provision of

the Act or the Social Security Act.

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