Finance Leasing Rules, 2005

L.N. 369 of 2005

INCOME TAX ACT

(CAP 123)

Finance Leasing Rules, 2005

IN exercise of the powers conferred by subarticle (2) of

article 14, article 52A and article 96 of the Income Tax Act, hereinafter

referred to as “the Act”, the Prime Minister and Minister of Finance has

made the following rules>-

The title of these rules is the Finance Leasing Rules, 2005,

and they shall come into force as from the year of assessment 2006.

In these rules, unless the context otherwise requires>-

(Rule 4)

Notification to the Commissioner of Inland Revenue

of a Finance Lease Contract

Name and Address of lessor> _____________________________________

Income Tax Reg. Number>

Name and Address of lessee> _____________________________________

Income Tax Reg. Number>

Description of asset leased>

Country where asset will be used>__________________________________

Annual lease payments>

Date and period of lease>

Tax residence of lessee>

PURSUANT to the provisions of Rule 4 of the Finance Leases Rules, 2005, notice

is hereby given that a finance lease has been contracted between the above named

parties. Details of the lease appear in the attached authenticated copy of the relevant

instrument.

Finance Leasing Company # Lessee

Date

“asset” means any asset in respect of which a deduction is

due under paragraph (f) of sub-article (1) of article 14 of the Act

but excluding any industrial building or structure<

“financial institution” means an institution licensed under the

Financial Institutions Act, 1994<

“finance lease” means a lease of assets referred to in rule 3 of

these rules>

Provided that the Commissioner may, at his absolute

discretion, not recognise a lease of assets as a finance lease if he is of

the opinion that the leasing company and the lessee are in any way

“finance leasing company” means -

(a) a company as defined in the Act, being a duly

licensed financial institution which has its objects expressly

limited to that of being engaged solely in the business of

granting finance leases and in such other acts and activities

as are necessary for the conduct of the said business<

(b) a company incorporated outside Malta and of a

nature similar to that mentioned in paragraph (a) hereof<

“qualifying finance lease” means a finance lease qualifying

in accordance with the provisions of rule 4 of these rules.

(1) A finance lease is constituted by the lease of an asset Finance leases.

on or after the 1 st January, 2005 involving the payment by the lessee to

the lessor over a number of years of the full, or nearly the full cost of

the asset together with a return on the finance provided by the lessor

and such other remuneration as may be reasonable in the circumstances

of the case. The lessee shall substantially assume all the risks and

rewards normally associated with the ownership of an asset, other than

the legal title thereto.

(2) A contract of hire purchase, a lease purchase agreement,

an operating lease and similar arrangements, as well as sale and leaseback

transactions shall not constitute a finance lease.

A contract of lease shall qualify as a finance lease under these Qualifying finance

leases.

rules where>

(a)

the lessor is a finance leasing company< and

(b) the period of the lease is for four years or more and is

not shorter than the period of the asset’s depreciation as established

in the Schedule to the Deduction (Wear and Tear of Plant and

Machinery) Rules, 2001< and

(c) notification of the lease contract is made to the

Commissioner by the finance leasing company, or, if the finance

leasing company falls under paragraph (b) of rule 2 hereof, by the

lessee, within three months of the signing of the lease contract, on

the prescribed form in the Schedule to these rules together with an

authenticated copy of the relative lease contract.

For the purpose of determining the income chargeable to tax Determination of

chargeable income.

under the Act of a lessor and of a lessee the following arrangements

shall apply in the case of a qualifying finance lease>

(a) without prejudice to the right for any deduction properly

attributable there against, the lessor shall be chargeable to tax on

the full amount of the annual lease payments<

(b) the lessor shall be entitled to a deduction in respect of

the wear and tear of the leased asset in accordance with the

provisions of paragraph (f) of sub-article (1) of article 14 of the

Act<

(c) the lessee shall be entitled to a deduction in respect of

the full amount of the lease payments made by him in respect of

the leased asset as well as all other deductions properly due under

article 14 of the Act> provided that no deduction under paragraph

(f) of sub-article (1) of the said article shall be granted.

Where on the occasion of the transfer of the title of

ownership over a leased asset the lessee makes a payment to the lessor

in excess of the total agreed annual payments such payment shall be

chargeable to tax in the hands of the lessor. The lessee shall thereafter

be entitled to deductions under paragraph (f) of sub-article (1) of article

14 of the Act in respect of any such payment and the provisions of

article 24 of the Act shall also apply.

(1) For the purposes of these rules, where a finance lease

is terminated prior to the expiration of the lease term, the following

provisions shall apply>

(a) where a lessor obtains repossession of a leased asset and

enters into a second or subsequent lease agreement or agreements

in respect of the same asset, the total of the deduction for wear and

tear to which the lessor is entitled in respect of the asset shall be

equal to the total of the deduction for wear and tear not availed of

under the previous agreement or agreements<

(b) article 24 of the Act shall apply where>

(i) a lessor disposes of an asset after having obtained

repossession of the said asset as mentioned in paragraph (a)

of this sub-rule< or

(ii) the lessee takes over the asset against a

consideration.

(2) Where a finance lease has been terminated before the

due date, the finance leasing company and the lessee shall both be under

obligation to give notice in writing to the Commissioner of the said

termination and notice shall be given within thirty days of the happening

thereof.

(1) A finance leasing company shall be deemed not to Restriction

relief and

constitute part of a group of companies for the purposes of articles 16 entitlement to

succession of losses.

to 22 of the Act.

(2) No successor in title shall be entitled to any set off, or

other benefit or relief, in respect of any losses incurred by a finance

leasing company, nor shall a finance leasing company be entitled, as a

successor in title, to any set off, or other benefit or relief, in respect of

any losses incurred by any other company.

(3) Any losses incurred by a finance leasing company can

only be set-off against profits from the same acivity.

(1) These rules shall only apply where no other benefits are Further conditions.

being claimed on the same asset under any other legislation granting

fiscal incentive schemes.

(2) The provisions of these rules shall not have effect where

any transaction purporting to be a finance lease is an artificial or fictitious

scheme to reduce, whether directly or indirectly, the amount of tax

payable on the transaction.

(3) If a finance lease does not qualify as such under these

rules for any reason whatsoever, the Commissioner may, at his absolute

discretion, determine the manner of its treatment for tax purposes.