Deductions and Tax Credits (Research and Development) Rules,

L.N. 330 of 2005

INCOME TAX ACT

(CAP. 123)

Deductions and Tax Credits (Research and Development) Rules,

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

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

and Minister of Finance has made the following rules>-

Part One

General Provisions

(1) The title of these rules is the Deductions and Tax Credits Title.

(Research and Development) Rules, 2005.

(2) These rules shall apply to expenditure incurred on or

after the 1 st January, 2005.

(3) The equivalent of the benefits under the scheme shall

be an amount specifically appropriated in Government’s financial

estimates for a particular financial year.

General definition.

In these rules, unless the context otherwise requires –

TABLE A

Rule 11(2)(a)

Tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme

Item of expenditure

Tax credit

Personnel (rule 5(2)(a))

35%

Instruments and equipment (rule 5(2)(b))

35%

Land and premises (rule 5(2)(c))

14%

External consultants and equivalent services (rule 5(2)(d))

35%

External consultants and equivalent services engaged in an

application for EU funds (rule 5(3))

17.5%

Additional overheads (rule 5(2)(e))

10.5%

Other operating expenses (rule 5(2)(f))

10.5%

TABLE B

Rule 11(3)(a)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme and that

is carried out by an SME

The tax credit not to exceed

the following percentage of

the total expenditure

incurred in the project

Type of R&D project (in terms of the definition of

"research and development" under rule 3)

Fundamental research

100%

Industrial research

70%

Pre-competitive research

45%

TABLE C

Rule 11(2)(b)

Tax credit in respect of allowable R&D expenditure

A project that is partly funded under an EU funding programme

Item of expenditure

Tax credit

Personnel (rule 5(2)(a))

35%

Instruments and equipment (rule 5(2)(b))

35%

Land and premises (rule 5(2)(c))

14%

External consultants and equivalent services (rule 5(2)(d))

35%

External consultants and equivalent services engaged in an

12.25%

application for EU funds (rule 5(3))

Additional overheads (rule 5(2)(e))

10.5%

Other operating expenses (rule 5(2)(f))

10.5%

TABLE D

Rule 11(3)(b)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme and that

is carried out by a company that is not an SME

The tax credit not to exceed

the following percentage of

the total expenditure

incurred in the project

Type of R&D project (in terms of the definition of

"research and development" under rule 3)

Fundamental research

100%

Industrial research

60%

Pre-competitive research

35%

TABLE E

Rule 11(4)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is partly funded under an EU funding programme

Type of R&D project (in terms of the definition of

Tax credit not to exceed the

"research and development" under rule 3)

following percentage of the

total expenditure

Fundamental research

100%

Industrial research

75%

Pre-competitive research

50%

TABLE F

Rule 20(2)

Tax credit in respect of allowable wages and tuition expenditure

Type of expenditure

Tax Credit

Allowable tuition and wages expenditure

17.5%

TABLE G

Rule 20(3)(a)

Threshold of tax credit in respect of allowable wages and tuition expenditure

incurred by an SME

Type of R&D relevant academic qualification

Value not to exceed the

following percentage of the

total expenditure

General academic qualification

80%

Specific academic qualification

45%

TABLE H

Rule 20(3)(b)

Threshold of tax credit in respect of allowable wages and tuition expenditure

incurred by a company that is not an SME

Type of R&D relevant academic qualification

Value not to exceed the

following percentage of the

total expenditure

General academic qualification

60%

Specific academic qualification

35%

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

“small enterprise” and “ medium-sized enterprise” have the

meaning assigned to them under the provisions of the Business

Promotion Regulations, 2001<

“SME” means a small or medium-sized enterprise<

“the Corporation” means the Malta Enterprise Corporation.

Part Two

Research and Development Projects

In this Part, unless the context otherwise requires -

Definitions under

this Part.

“allowable R&D expenditure” has the meaning assigned to it

in rule 10<

“approved R&D project” means a project approved by the

Corporation in accordance with rule 5<

“company” means a company, as defined in the Act, that

qualifies as a small or medium-sized enterprise>

Provided that with respect to qualifying expenditure incurred

as from such date as the Minister responsible for finance may

prescribe, “company” shall also include a company as defined in

the Act that does not qualify as a small or medium sized enterprise<

“maximum amount of qualifying R&D expenditure” has the

meaning assigned to it in rule 7<

“project period” means the period starting on the earliest date

of the commencement and ending on the latest date of the

termination of a project as determined under rule 8(1)(d)<

“qualifying R&D expenditure” means expenditure that is

treated as such in terms of rule 5(2) and (3)<

“research and development” means an activity falling within

any of the following descriptions>

(i) fundamental research, that is, an activity designed

to broaden scientific and technical knowledge not linked to

industrial or commercial objectives<

(ii) industrial research, that is, planned research aimed

at the acquisition of new knowledge, the objective being

that such knowledge may be useful in developing new

products, processes or services or in bringing about a

significant improvement in existing products, processes or

services<

(iii) pre-competitive research, that is, the shaping of

the results of industrial research into a plan, arrangement or

design for new, altered or improved products, including the

creation of a prototype which cannot be used commercially.

(1) When a company incurs allowable R&D expenditure in

carrying out an approved R&D project, it shall be entitled to a deduction

and, where applicable, to tax credit in accordance with and subject to

the provisions of this Part.

(2) No deduction or tax credit shall be allowable under the

Act or under any other law in respect of qualifying R&D expenditure

incurred on or after the 1 st January, 2005 except as and to the extent

provided for in this Part and in paragraph (f) and (j) of article 14 of the

Act.

(3) The provisions of paragraph (h) of sub-article (1) of

article 14 of the Act shall not apply with respect to expenditure incurred

on or after the 1 st January, 2005.

Application to the

Corporation.

(1) When a company engaged in a trade, business, profession

or vocation incurs or intends to incur qualifying R&D expenditure in

carrying out a research and development project it may submit to the

Corporation an application for the approval of that project.

(2) Expenditure is to be treated as qualifying R&D

expenditure if it falls within any of the following descriptions>

(a) personnel costs of staff employed solely on research and

development to the extent that they have been correctly reported

in the Payee Statement of Earnings and the Payer’s Annual

reconciliation Statement prepared in terms of the Final Settlement

System (FSS) Rules, 1998<

(b) costs of instruments and equipment used solely and on

a continual basis for research and development<

(c) cost of land and premises used solely and on a continual

basis for research and development<

(d) cost of external consulting and equivalent services

related directly to research and development, other than costs to

which sub-rule (3) refers<

(e) additional overheads incurred directly as a result of

research and development<

(f) other operating expenses incurred directly as a result of

research and development.

(3) When the research and development project in question

is a project that is, or that would be if selected, fully or partly financed

by the Commission of the European Union under a framework

programme, the costs of external consulting and equivalent services

related directly to the preparation and submission of an application for

the selection and funding of that project under the relative programme

shall also be treated as qualifying R&D expenditure incurred in the

carrying out of an R&D project.

(4) An application under this rule shall be made on such

form as may be acceptable to the Corporation and shall>

(a) provide such particulars of the applicant as are necessary

to determine whether it qualifies or not as a small or medium sized

enterprise<

(b) describe the project, its purpose and the expected date

of its commencement and its duration<

(c) contain a description of each item of qualifying

expenditure that the applicant has incurred or intends to incur in

the carrying out of the project, which items shall be grouped

according to the descriptions listed in the definition of research

and development given in rule 3 and to the categories of qualifying

R&D expenditure listed in sub-rules (2) and (3)<

(d) grant the authorisation referred to in sub-rule (5)<

(e) contain such other information, breakdowns and details,

and be accompanied by such documents and certifications as the

Corporation may require<

(f) be made not later than three months before the company’s

tax return date for the year of assessment that immediately follows

the year in which the company incurs the expenditure to which the

application refers.

(5) The authorisation referred to in sub-rule (4)(d) shall -

(a) grant to the Corporation and its officers access to any

premises or works as the Corporation may consider necessary in

order to ascertain any matter relevant to the approval of an

application and the right to a deduction or tax credit under this

Part<

(b) authorise the Corporation to disclose to the

Commissioner any information and to pass on to the Commissioner

originals or copies of any documents and records that the

Corporation may have obtained in connection with the application.

(1) When the Corporation is satisfied that a project to which Approval of project.

an application made under rule 5 refers is a bona fide research and

development project and that the application complies with the

requirements of these rules, it may approve the project and proceed to

make a determination and issue a letter of approval as provided in rules

7 and 8>

Provided that –

(a) the Corporation shall not approve any project after the

st

31 December, 2008 or after such earlier date as the Corporation

may specify by means of a notice in the Gazette<

(b) the Corporation shall not approve a project whose

expected duration is more than thirty-six months.

(2) The Corporation may make the approval of a project

subject to such conditions as it may consider appropriate.

When the Corporation approves a project it shall determine Determination of

maximum

the extent to which, in its opinion, the expenditure referred to in the qualifying R&D

application constitutes qualifying R&D expenditure and is necessary expenditure.

and reasonable in the light of the purpose for which it is or was intended

to be incurred, and the amount so determined shall constitute the

maximum qualifying R&D expenditure.

(1) In respect of every approved R&D project the Letter of approval.

Corporation shall issue a letter of approval showing>

(a)

particulars of the applicant<

(b) a description of the project, with such conditions as the

Corporation may have considered appropriate pursuant to rule 6(2)<

(c) the amount of the maximum qualifying R&D

expenditure for each item of expenditure, indicating the category

under rule 5(2) and (3) to which each such item belongs<

(d) the earliest date by which the project must commence

and the latest date by which it must be completed<

(e) the shortest period for which the investment must be

retained in terms of rule 10(2)<

(f) such other particulars as the Corporation may consider

appropriate.

(2) The Corporation shall deliver the letter of approval to

the applicant and a copy thereof to the Commissioner.

(3) The Corporation shall issue the said letter of approval

before the company’s relative tax return date.

(1) On the completion of the approved R&D project and not

later than sixty days therefrom, the company shall deliver to the

Corporation a certificate drawn up by a person who is recognised by

the Corporation as competent for this purpose, showing>

(a)

the date of the completion of the project<

(b) the amount of allowable R&D expenditure, indicating

the applicable description under the definition of research and

development given in rule 3 and the category of qualifying R&D

expenditure listed in sub-rules 5(2) and 5(3) to which each item

belongs<

(c) whether, where applicable, the conditions that may have

been made applicable to the project in terms of rule 6(2) have

been observed.

(2) Where the approved project includes qualifying R&D

expenditure listed under paragraph 5(2)(c), the certificate referred to in

sub-rule (1) shall be accompanied by a statement written by the architect

under whose direction or supervision the works were carried out,

confirming that the expenditure was incurred in the carrying out of the

project as approved.

(3) The company shall, within the time limit set out in sub-

rule (1), deliver a copy of the certificate and, where applicable, of the

accompanying statement, to the Commissioner.

(4) The Commissioner may, after receiving a copy of the

certificate, request an independent opinion from the Corporation or any

other competent technical person regarding the contents thereof.

(1) Expenditure shall constitute allowable R&D

expenditure if and to the extent that it meets all the following conditions>

(a) it is qualifying R&D expenditure actually incurred by a

company and is not reimbursed to or otherwise recoverable by it<

(b) it is an item of expenditure to which the letter of approval

issued under rule 8 refers and in respect of which any condition

that may have been made applicable to the project in terms of rule

6(2) are satisfied<

(c)

it was incurred during the project period<

(d) it is correctly, clearly and separately recorded in the

records of the company and supported by documentary evidence.

(2) The investment represented by allowable R&D

expenditure that falls within the descriptions of rule 5(2)(b) and (c)

shall be retained within the company for at least three years after the

termination of the project period or for such shorter period as the

Corporation may specify in the letter of approval in terms of rule 8(1)(e),

and the assets to which such expenditure refers shall be, for the said

period, used solely and on a continual basis for research and

development.

(3) If an investment or any part thereof represented by

expenditure referred to in sub-rule (2) is not retained within the company

for the period referred to in that sub-rule, or is not, during the said

period, used solely and on a continual basis for research and

development, the amount of expenditure corresponding to that

investment or part thereof, as the case may be, that is not so retained

shall, for the purpose only of determining the right to the tax credit as

provided in rule 11(2), be deemed to have never constituted allowable

R&D expenditure and the provisions of rule 12 shall apply.

(1) In determining the total income of a company that incurs Calculation of

allowable R&D expenditure there shall be allowed a deduction deduction

credit.

equivalent to that expenditure>

Provided that no deduction shall be allowed under the provisions

of this rule in the case of any such expenditure on plant or machinery or

premises, in respect of which any deduction is allowed under paragraphs

(f) and (j) of article 14 of the Act.

(2) where the R&D expenditure is incurred in the carrying

and of an activity in the applicant’s main place of business in addition

to the deduction referred to in sub-rule (1) the company shall be

entitled –

(a) in respect of allowable R&D expenditure other than

expenditure to which paragraph (b) refers, to a tax credit equivalent

to a percentage of the said expenditure as shown in Table A of the

Schedule, but not exceeding the threshold referred to in sub-rules

(3) and (5)<

(b) in respect of allowable R&D expenditure incurred in

carrying out an approved R&D project that is financed partly by

the Commission of the European Union under a framework

programme, to a tax credit equivalent to a percentage of that

expenditure as shown in Table C of the Schedule, but not exceeding

the threshold referred to in sub-rules (4) and (5).

(3) Subject to sub-rule (5), the tax credit allowable under

sub-rule (2)(a) in respect of a project shall not exceed –

(a) the threshold set out in Table B of the Schedule, if the

project is carried out by a small or medium-sized enterprise< or

(b) the threshold set out in Table D of the Schedule in any

other case.

(4) Subject to sub-rule (5), the total value of the tax credit

allowable under sub-rule (2)(b) in respect of a project shall not exceed

the threshold set out in Table E of the Schedule.

(5) Where the company in question has benefited from any

State aid in respect of expenditure incurred in the carrying out of the

project, other than as provided for in this Part, the threshold referred to

in sub-rule (3) or (4), as the case may be, shall be reduced by the value

of that other benefit.

(6) The correct calculation of the reduction mentioned in

sub-rule (5), where applicable, shall be the sole responsibility of the

applicant company.

(7) When the tax credit referred to in sub-rule (2)(a) or the

tax credit referred to in sub-rule (2)(b), computed before taking into

account the thresholds referred to in sub-rules (3), (4) and (5), exceeds

the respective threshold, the said tax credit allowable in respect of each

item of expenditure shall be reduced pro rata.

(8) The amount of the total tax credits allowable under this

rule shall be subject to the applicable State Aid intensity limitations, in

particular those established in article 5a of Commission Regulation (EC)

No 70#2001 on the application of Articles 87 and 88 of the EC Treaty to

State Aid to small and medium-sized enterprises (OJ L 10#33,

Jekk kumpannija tie[u kreditu ta’ taxxa ta[t ir-regola 11(2) Meta l-kreditu ta’

taxxa jitre;;a’ lura.

dwar infieq li mbag[ad jitqies li qatt ma kien tnaqqis ta’ riçerka u ]vilupp

permissibbli g[all-g[an ta’ dik ir-regola fiç-çirkostanzi msemmija fir-

regola 10(3), ammont daqs dak il-kreditu g[andu jitqies li jkun taxxa

dovuta mill-kumpannija, b’]ieda ma’ kull debitu ie[or ta’ taxxa, g[as-

sena ta’ stima li tkun ta[bat minnufih wara s-sena li fiha jissussistu

dawk iç-çirkostanzi, u d-disposizzjonijiet ta’ l-Att g[andhom ikunu hekk

japplikaw.

1.2001), as subsequently amended.

(9) The deduction and tax credit referred to in this rule shall

be due for the year of assessment immediately following the year in

which the relative expenditure is incurred>

Provided that>

(a) to the extent that a deduction or tax credit cannot be

availed of in a year of assessment, it shall be carried forward to be

availed of in subsequent years of assessment<

(b) a tax credit due under this Part shall not give rise to a

right to a refund of tax<

(c) where, for a year of assessment, a company qualifies

for a tax credit under the Business Promotion Act and also under

the provisions of this Part, it shall avail itself of the tax credit under

the Business Promotion Act before any set-off is made in respect

of the tax credit due under this Part.

12. If a company avails itself of a tax credit under rule 11(2) in Reversal of tax

respect of expenditure that is subsequently deemed to have never credit.

constituted allowable R&D expenditure for the purpose of that rule in

the circumstances mentioned in rule 10(3), an amount equal to that credit

shall be deemed to be tax due by the company, in addition to any other

tax liability, for the year of assessment that immediately follows the

year in which those circumstances subsist, and the provisions of the

Act shall apply accordingly.

13. Insofar as it provides for and regulates benefits for small and Council Regulation

medium-sized enterprises this Part is prescribed and shall be applied in (EC) No 70#2001.

accordance with Commissioner Regulation (EC) No 70#2001 on the

application of Articles 87 and 88 of the EC Treaty to State Aid to small

and medium-sized enterprises (OJ L 10#33, 13.1.2001), as subsequently

amended.

Part Three

R & D Relevant Qualifications

Definitions under

In this Part, unless the context otherwise requires –

this Part.

“allowable wages and tuition expenditure” has the meaning

assigned to it in rule 19<

“company” has the meaning assigned to it in the Act<

“general qualification” means a masters degree or a doctoral

degree that is largely transferable to other firms or fields of work

in information technology, sciences or engineering awarded on

the successful completion of a full-time course in a university or

equivalent educational institution recognised by the Corporation<

“maximum qualifying wages and tuition expenditure” means

the amount determined in accordance with rule 17(1)<

“qualifying wages and tuition expenditure” means expenditure

that is treated as such in terms of rule 16(2)>

Provided that expenditure that forms part of allowable R&D

expenditure under Part One shall not be treated as qualifying wages

and tuition expenditure under this Part<

“R&D relevant qualification” means a general or a specific

qualification which, in the opinion of the Corporation, is relevant

to research and development<

“specific qualification” means an internationally recognised

certificate in information technology, sciences or engineering

awarded by a university or other institution recognised by the

Corporation to an employee of a company on the successful

completion of a full-time course which, in the opinion of the

Corporation, directly contributes to high level specialisation in areas

directly and principally applicable to that employee’s present and

future position in the company as the Corporation may approve.

(1) When a company incurs allowable wages and tuition

expenditure it shall be entitled, for the purpose of ascertaining its total

income, to a deduction and, where applicable, to a tax credit in respect

of that expenditure in accordance with and subject to the provisions of

this Part.

(2) No deduction or tax credit shall be allowable under the

Act or under any other law in respect of qualifying wages and tuition

expenditure incurred on or after the 1 st January, 2005 except as and to

the extent provided for in this Part.

(1) When a company engaged in a trade, business,

profession or vocation incurs or intends to incur qualifying wages and

tuition expenditure it may apply to the Corporation for a determination

under rule 17.

(2) Expenditure is to be treated as qualifying wages and

tuition expenditure if it is expenditure that falls within any of the

following descriptions and that is incurred by a company in connection

with a course of studies leading to an R&D relevant qualifying

qualification undertaken by one or more full-time employees>

(a) wages and the employer’s share of social security

contributions paid in respect of the respective employee while he

was a full-time employee pursuing the course in question<

(b) fees paid to the university or institution in question for

the admission of the respective employee to the course and the

attendance of that employee for that course<

(c) the cost of course materials directly related to the training

programme, as may be approved by the Corporation.

(3) An application under this rule shall be made on such

form as may be acceptable to the Corporation and shall>

(a) provide such particulars on the applicant as are necessary

to determine whether it qualifies or not as a small or medium-

sized enterprise<

(b) describe in detail each course of studies to which it refers,

including the date of the commencement and of the completion of

the course, the relative academic qualification and the particulars

of the respective employee<

(c) contain a description of each item of qualifying wages

and tuition expenditure that the applicant has incurred or intends

to incur, which items shall be grouped according to the categories

of expenditure listed in sub-rule (2)<

(d) grant the authorisation referred to in sub-rule (4)<

(e) contain such other information, breakdowns and details,

and be accompanied by such documents and certifications as the

Corporation may require<

(f) be made not later than three months before the company’s

tax return date for the year of assessment that immediately follows

the year in which the company incurs the expenditure to which the

application refers.

(4) The authorisation referred to in sub-rule (3)(d) shall -

(a) grant to the Corporation and its officers access to any

premises or works as the Corporation may consider necessary in

order to ascertain any matter relevant to the approval of an

application and the right to a deduction or tax credit under this

Part<

(b) authorise the Corporation to disclose to the

Commissioner any information and to pass on to the Commissioner

originals or copies of any documents and records that the

Corporation may have obtained in connection with the application.

(1) When the Corporation is satisfied that the application

is a bona fide application that complies with the provisions of rule 16,

and when, after it has obtained all such information and made such

ascertainment as it has considered necessary, it considers it appropriate

so to do, it may determine that the course in question is a course leading

to an R&D relevant qualification and determine the extent to which, in

its opinion, the expenditure referred to in the application constitutes

qualifying wages and tuition expenditure and is necessary and reasonable

in the light of the purpose for which it is or was intended to be incurred,

and the amount so determined shall constitute the maximum qualifying

wages and tuition expenditure>

Provided that the Corporation shall not make such a determination

in respect of a course of studies that –

(a) commences after the 31 st December, 2008 or after such

earlier date as the Corporation may specify by means of a notice

in the Gazette<

(b) is longer than thirty-six months.

(2) The Corporation may make the determination under this

rule subject to such conditions as it may consider appropriate.

(3) When the Corporation makes a determination under this

rule, it shall issue a letter of approval in respect of each course of studies

to which that determination refers showing -

(a) the particulars of the applicant and of the employee in

question, including the date of the commencement of the

employee’s employment with the applicant<

(b) a description of the course and the relative qualification,

specifying whether it is to be treated as a general or a specific

qualification<

(c) any conditions as the Corporation may have considered

appropriate pursuant to sub-rule (2)<

(d) the maximum qualifying wages and tuition expenditure

for each item of expenditure, indicating the category under rule

16(2) to which each such item belongs<

(e) the earliest date by which the course is to commence or

the date on which it has commenced and the latest date by which it

is to be successfully concluded<

(f) such other particulars as the Corporation may consider

appropriate.

(4) The Corporation shall deliver the letter of approval to

the applicant and a copy thereof to the Commissioner.

(1) On the successful completion of a course in respect of Certification of

completion of the

which a letter of approval has been issued and not later than sixty days course.

from the date of such completion, the company shall deliver to the

Corporation a certificate showing>

(a)

the date of the successful completion of the course<

(b) the amount of allowable wages and tuition expenditure<

(c) whether, where applicable, the conditions that may have

been made applicable to the project in terms of rule 17(2) have

been observed.

(2) The said certificate shall be accompanied by a statement

issued by the relevant university or other institution showing the date

on which the employee successfully completed the course in question.

(3) The company shall, within the time limit set out in sub-

rule (1), deliver to the Commissioner a copy of the certificate referred

to in the said sub-rule (1) and a copy of the statement referred to in sub-

(1) Expenditure shall constitute allowable wages and tuition Allowable wages

and tuition

expenditure if and to the extent that it meets all the following conditions> expenditure.

(a) it is qualifying wages and tuition expenditure actually

incurred by a company and is not reimbursed to or otherwise

recoverable by it<

(b) it is an item of expenditure to which a letter of approval

issued under rule 17 refers, which does not exceed the maximum

qualifying wages and tuition expenditure for that item, and in

respect of which any conditions that may have been made

applicable in terms of rule 17(2) have been satisfied<

(c) it was incurred in the manner and for the purpose stated

in the application made by the company under rule 16 or otherwise

declared to the Corporation<

(d) it is correctly, clearly and separately recorded in the

records of the company and supported by documentary evidence.

(1) In determining the total income of a company, there

shall be allowed a deduction equivalent to the relative allowable wages

and tuition expenditure.

(2) When the employee in respect of whom the allowable

wages and tuition expenditure was incurred obtains the qualification in

question, the company shall, in addition to the deduction referred to in

sub-rule (1), be entitled to a tax credit equivalent to a percentage of the

said allowable wages and tuition expenditure as shown in Table F of

the Schedule, but not exceeding the thresholds laid down in sub-rules

(3) and (4)>

Provided that the tax credit under this sub-rule shall not be due

unless –

(a) the company has obtained and delivered to the

Corporation the statement referred to in rule 18(2) and –

(b) the employee was still a full-time employee of the

company on the date of the successful completion of the course in

question< and

(c) that date is not later than the date specified in the letter

of approval issued by the Corporation in terms of rule 17(3)(e) as

the latest date by which the course is to be successfully completed.

(3) Subject to sub-rule (4), the tax credit allowable under

sub-rule (2) shall not exceed –

(a) the threshold set out in Table G of the Schedule, if the

expenditure is incurred by a small or medium-sized enterprise<

(b) the threshold set out in Table H of the Schedule in any

other case.

(4) Where the company in question has benefited from any

State aid in respect of expenditure to which the tax credit refers, other

than as provided for in this Part, the said threshold shall be reduced by

the value of that aid.

(5) The correct calculation of the reduction mentioned in

sub-rule (4), where applicable, shall be the sole responsibility of the

company.

(6) The deduction referred to sub-rule (1) shall be due for

the year of assessment immediately following the year in which the

relative expenditure is incurred, and the tax credit referred to in sub-

rule (2) shall be due for the year of assessment immediately following

the year in which the course of studies in question is successfully

completed>

Provided that –

(a) to the extent that a tax credit cannot be availed of in a

year of assessment, it shall be carried forward to be availed of in

subsequent years of assessment<

(b) a tax credit due under this Part shall not give rise to a

right to a refund of tax<

(c) where a company qualifies for a tax credit under the

Business Promotion Act and also under the provisions of this Part,

it shall avail itself of the tax credit under the Business Promotion

Act before any set-off is made in respect of the tax credit due under

this Part.

(7) The amount of the total tax credit allowable under this

Part shall be subject to the applicable State aid intensity limitations, in

particular those established in Article 4 of Commission Regulation (EC)

No 68#2001 on the application of Articles 87 and 88 of the EC Treaty to

training aid (OJ L 10#20, 13.1.2001), as subsequently amended.

This Part is prescribed and shall be applied in accordance Council Regulation

(EC) No 68#2001.

with Commission Regulation (EC) No 68#2001 on the application of

Articles 87 and 88 of the EC Treaty to training aid (OJ L 10#20,

13.1.2001), as subsequently amended.

Part Four

Tax Credit for Social Security Contributions

In this Part, unless the context otherwise requires –

“company” means a company, as defined in the Act, that

qualifies as a small or medium-sized enterprise>

Provided that as from such date as the minister responsible for

finance may prescribe, “company” shall also include a company, as

defined in the Act, that does not qualify as a small or medium sized

enterprise<

the terms “general qualification”, “R&D relevant

qualification” and “specific qualification” have the meaning

assigned to them in rule 14.

(1) Subject to the other provisions of these rules, when a

company engaged in a trade, business profession or vocation incurs

expenditure consisting of the employer’s share of social security

contributions that meets all the conditions of sub-rule (3), it shall be

entitled to a tax credit equivalent to that expenditure.

(2) The said tax credit shall be in addition to and without

prejudice to the right of that company to a deduction, if any, that may

be allowable in respect of the said expenditure in accordance with the

provisions of article 14 of the Act>

Provided that –

(a) no tax credit shall be allowed under this rule in respect

of expenditure in respect of which a deduction or tax credit is

availed of under Part One<

(b) the tax credit due to a company under this Part shall not

exceed, in the aggregate, the ceiling laid down in Article 4 of

Commission Regulation (EC) No 2204#2202 on the application of

Articles 87 and 88 of the EC Treaty to State Aid for employment

(OJ L 337#3, 13.12.2002) as may be subsequently amended<

(c) where the company in question has benefited from any

State aid in respect of expenditure to which the tax credit refers,

other than as provided in this Part, the said ceiling shall be reduced

by the value of that other benefit<

(d) the correct calculation of the said ceiling and, where

applicable, reduction, shall be the sole responsibility of the

company.

(3) The tax credit referred to in this rule shall be allowable

(a) the relative expenditure represents the employer’s share

of social security contributions actually paid by the employer

company in accordance with the relevant provisions of the Social

Security Act in respect of each individual who, at the time that he

was employed as a full-time employee by that company and for

the period that the expenditure was incurred, was in possession of

an R&D relevant qualification<

(b) the employer company is in possession of a letter of

approval issued by the Corporation in terms of sub-rule (4)

confirming that the qualification of each of the employees in

question is an R&D relevant qualification< and

(c) each employee in respect of whom the tax credit is

claimed is an individual –

(i) whose employment with the said company

represented a net increase in the number of full-time

employees both in the company concerned and in the

establishment of which that company forms part< and

(ii) who either had no previous full-time employment

in Malta or had not resigned voluntarily from his last full-

time employment that he had prior to his employment with

the said company< and

(iii) who is first employed by the company claiming

the tax credit on or after 1 st January, 2005 and who remains in

the full-time employment of that company for at least three

consecutive years.

(4) The letter of approval referred to in sub-rule 3(b) may

be issued by the Corporation upon a bona fide application that is made

by not later than three months prior to the company’s tax return date for

the year of assessment for which the relative tax credit is first claimed,

and after the Corporation has obtained all such information and made

such ascertainment as it has considered necessary. The Corporation shall

deliver the certificate to the applicant and a copy thereof to the

Commissioner.

(5) The tax credit allowable under this rule shall be due for

each year of assessment that immediately follows a year in which

expenditure giving rise to the right to the tax credit is incurred>

Provided that –

(a) to the extent that the tax credit cannot be availed of in a

year of assessment, it may be carried forward to be availed of in

subsequent years of assessment<

(b) a tax credit shall not give rise to a right to a refund of

tax<

(c) the tax credit is allowable for not more than three

consecutive years of assessment in respect of any one employee,

and the first of any such year of assessment shall not be later than

the year of assessment 2009<

(d) if an employee in respect of whom a tax credit has been

claimed does not remain in employment for the period specified

in sub-rule (3)(c)(iii), that tax credit shall be deemed to have never

been due<

(e) if a company avails itself of a tax credit which

subsequently, in the circumstance mentioned in paragraph (d), is

deemed to have never been due, an amount equivalent to credit

shall be deemed to be tax due by that company, in addition to any

other tax liability, for the year of assessment immediately following

that in which that circumstance subsists, and the provisions of the

Act shall apply accordingly.

This Part is prescribed and shall be applied in accordance

with Commission Regulation (EC) No 2204#2202 on the application of

Articles 87 and 88 of the EC Treaty to State Aid for employment (OJ L

337#3, 13.12.2002), as may be subsequently amended.

Part Five

Further Provisions

Notwithstanding the other provisions of these rules, except

where the Commissioner otherwise approves, no tax credit shall be due

to a company under these rules for a year of assessment unless it is

claimed in the appropriate section of a tax return submitted by electronic

means by not later than the relative tax return date.

A company to whom a letter of approval has been issued in Submission

of tax return to the

terms of rule 8, 17 or 23 shall submit to the Corporation, by not later Corporation.

than two months after the relative tax return date, a copy of the tax

return for the earliest year of assessment for which the relative tax credit

may first be claimed in terms of the said approval and for each subsequent

year of assessment for which the said tax credit remains available to it

under these rules, irrespective of whether the benefit is utilised or not.

(1) When the Corporation issues a letter of approval to a Monitoring by the

Corporation.

company in terms of rule 8, 17 or 23, it may, from time to time, make

such reviews of books and documents, hold on-site inspections on

premises of that company and make such other monitoring as it may

consider necessary for the purposes of these rules and for any matter

relevant to an approved application.

(2) In addition to the database kept under the provisions of

the Business Promotion Rules, 2001, the Corporation shall also keep a

database of all assistance provided to, or claimed by, a company under

these rules for ten years from the date on which the last individual

assistance was granted, in order to enable it to –

(a) verify whether the provisions of these rules have been

complied with<

(b) provide the State Aid Monitoring Board with such

information as it may require< and

(c) inform the Commissioner whether the credits claimed

in terms of these rules have been properly calculated.

Notwithstanding the other provisions of these rules, the Powers of the

Commissioner may make such enquiries and verification as he deems Commissioner.

fit in accordance with the provisions of the Income Tax Act, and shall,

after consulting the Corporation, have the right not to allow any tax

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

provision of the Income Tax Act or the Social Security Act or any

subsidiary legislation issued thereunder.

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

eligibility to the benefit under these regulations>

(a) 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<

(b) 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.

If a company avails itself of a tax credit under Part Three or

Four in respect of expenditure that is subsequently deemed to have never

constituted allowable expenditure for the purpose of the said Parts in

the circumstances mentioned therein, an amount equal to that credit

shall be deemed to be tax due by the company, in addition to any other

tax liability, for the year of assessment that immediately follows the

year in which those circumstances subsist, and the provisions of the

Act shall apply accordingly.