Qualifications) Rules, 2005

L.N. 335 of 2005

INCOME TAX ACT

(CAP. 123)

Deductions and Tax Credits (General and Specific

Qualifications) Rules, 2005

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

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

(General and Specific Qualifications) Rules 2005

(2) These rules shall apply to qualifying 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.

TABLE A

Rule 8(2)

Tax credit in respect of allowable wages and tuition expenditure

Type of expenditure

Tax credit

Allowable tuition and wages expenditure

17.5%

TABLE B

Rule 8(3)(a)

Threshold of tax credit in respect of allowable wages and tuition expenditure incurred by an

SME

Type of relevant academic qualification

Tax credit not to exceed the

following percentage of the total

expenditure

General qualification

80%

Specific qualification

45%

TABLE C

Rule 8(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 relevant academic qualification

Tax credit not to exceed the

following percentage of the total

expenditure

General qualification

60%

Specific qualification

35%

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

In these rules unless the context otherwise requires –

Definitions.

“allowable wages and tuition expenditure” has the meaning

assigned to it in rule 6<

“the Corporation” means the Malta Enterprise Corporation<

“general qualification” means a masters degree or a doctoral

degree in an area 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 5(1)<

“qualifying wages and tuition expenditure” means expenditure

that is treated as such in terms of rule 4(2)<

“relevant qualification” means a general or a specific

qualification, other than a qualification which falls within the

meaning of “R&D relevant qualification” as defined in the

Deductions and Tax Credits (Research and Development) Rules,

2005>

Provided that any question that may arise in general or in any

particular case as to whether a qualification falls or not within the

meaning of “R&D relevant qualification” shall be decided by the

Corporation in its absolute discretion<

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

meaning assigned to them under the provisions of the Business

Promotion Regulations, 2001<

“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.

Part Two

Deduction and Tax Credit for Wages and Tuition Expenditure

(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.

(3) Sub-rule (2) is without prejudice to the deduction

allowable in respect of wages and tuition expenditure incurred in

connection with academic qualifications to which the Deductions and

Tax Credits (Research and Development) Rules, 2005 apply.

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

Corporation.

or vocation incurs, or intends to incur, qualifying wages and tuition

expenditure, it may apply to the Corporation for a letter of approval

under rule 5.

(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 if it is incurred by a company in connection

with a course of studies leading to a relevant 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 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 4, 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 a 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 that 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

4(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.

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

by not later than the company’s relative tax return date.

(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 5(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 sub-rule (1) and a copy of the statement referred to in sub-rule (2).

Expenditure shall constitute allowable wages and tuition

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

(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 5 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 5(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 4 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 A 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 6(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 5(3)(e) as

the latest date by which the course was 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 B of the Schedule, if the

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

(b) the threshold set out in Table C 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 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 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, as subsequently amended.

This Part is prescribed and shall be applied in accordance with

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

87 and 88 of the EC Treaty to training aid, as subsequently amended.

Part Three

Tax Credit for Social Security Contributions

Tax credit for social

(1) Subject to the other provisions of this Part, 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,

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

if –

(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

a 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 a 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 letter of approval 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, as

may be subsequently amended.

Part Four

Further provisions applicable to Parts Two and Three

Notwithstanding the provisions of Parts Two and Three

except no tax credit shall be due to a company under the said Parts 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 copy

of tax return to the

terms of rule 5 or 10(4) 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 Part Two or Three, irrespective of whether the benefit is utilised

or not.

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

company in terms of rule 5 or 10(4), it may, from time to time, make Corporation.

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 the provisions of Parts Two and

Three 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

Parts Two and Three 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.

Commissioner may make such enquiries and verification as he deems

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 Two or

Three 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.

Part Five

Tax credit for individuals

(1) Subject to the other provisions of this rule, when an

individual in respect

individual is a student following a course of studies that leads to a specific

qualification and successfully completes that course, he becomes entitled

to the tax credit referred to in this rule.

(2) The tax credit referred to in this rule is an amount

equivalent to the study costs as defined in rule 20 paid by the individual

for the period commencing on the date of the commencement of the

course or the 1 st January, 2005, whichever is the later, and ending on

the date of the conclusion of the course or thirty six months from the

commencement of the course, whichever is the earlier.

(3) The tax credit shall be spread over three years and,

accordingly, one third of the amount determined in accordance with

sub-rule (2) shall be due as a deduction from the tax payable by the

individual on his chargeable income for the year of assessment

commencing on the 1 st January of the year immediately following that

in which the relevant qualification is obtained and for each of the

subsequent two years of assessment, and any amount not absorbed by

the tax payable for a year of assessment may be carried forward to be

allowed as a tax credit for subsequent years.

(4) The tax credit referred to in this rule shall not be due

unless the individual is in possession of receipts of the study costs to

which the credit refers and submits to the Commissioner, together with

the tax return for the first year of assessment for which the tax credit is

claimed -

(a) an itemised statement of the study costs incurred and a

declaration that he is not and has not been entitled from any source

whatsoever to any reimbursement of or compensation for the costs

claimed as a tax credit or any part of those costs< and

(b) a certified copy of the certificate or equivalent document

issued by the university or educational establishment in question

confirming the successful completion of the course by that

individual< and

(c) a letter of approval issued by the Corporation confirming

that the qualification obtained is a specific qualification.

(1) The letter of approval referred to in rule 18(4)(c) shall Letter of approval

by the Corporation.

be issued by the Corporation, on the application of an individual, if,

after it has obtained all such information and made such ascertainment

as it has considered necessary, it considers it appropriate to determine

that the course in question is a course leading to a specific qualification>

Provided that the Corporation shall not issue a letter of approval 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.

The study costs to which this Part applies are>

Study costs.

(a) fees paid to the university or educational establishment

in question for the admission of the individual to the course and

his attendance for that course<

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

programme, as may be approved by the Corporation.