Tax Credit (Audiovisual Infrastructure) Regulations,2006

L.N. 66 of 2006

MALTA FILM COMMISSION ACT

(CAP. 478)

Tax Credit (Audiovisual Infrastructure) Regulations,2006

IN exercise of the powers conferred by articles 25 and 33 of the

Malta Film Commission Act, the Minister for Investment, Industry and

Information Technology, after consultation with the Prime Minister and

Minister of Finance, has made the following regulations>-

(1) The title of these regulations is the Tax Credit Title.

(Audiovisual Infrastructure) Regulations,2006.

(2) These regulations shall apply in respect of qualifying

expenditure incurred on or after the 1 st January, 2005.

(3) The equivalent of the benefits under these regulations

shall be an amount specifically appropriated in Government’s financial

estimates for a particular financial year.

In these regulations, unless the context otherwise requires –

Definitions.

“the Act” means the Malta Film Commission Act<

“additional employee” means an employee whose

employment is certified by the Commissioner as the employment

of an additional employee by means of a certificate issued under

regulation 13<

“allowable expenditure” has the meaning assigned to it in

regulation 11<

“approved project” means a project approved in accordance

with regulation 7, as subject to any conditions that may be

applicable in terms of regulation 7(2)<

“company” has the meaning assigned to it under the Income

Tax Act<

“eligible company” means a company established or having

a place of business in Malta whose business consists solely or

mainly of activities that form part of the film servicing industry<

“maximum qualifying expenditure” means the amount

determined in accordance with regulation 8<

“project period” means the period commencing on the date

indicated in the letter of approval as the earliest date by which the

project must commence and ending on the date indicated in the

said letter of approval as the latest date by which it must be

completed<

“qualifying company” means an eligible company which is

certified as a qualifying company and which is in possession of a

valid certificate issued under regulation 4<

“qualifying expenditure” means expenditure which has been

incurred on or after the 1 st January, 2005 for>

(a) the acquisition, construction, development or

improvement of any industrial building or structure, including

a warehouse, and including related labour costs which are

capitalised as part of the cost of any such acquisition,

construction, development or improvement<

(b) the acquisition of plant and machinery,

excluding –

(i) motor vehicles, except for such specialised

motor vehicles as may be approved by the

Commissioner<

(ii) works of art and antiques<

(iii) any assets whose use is wholly or mainly of

a decorative nature< and

(iv) any assets whose cost is related to their

intrinsic value rather than to their specific usefulness

for a qualifying investment<

(c) the acquisition of intellectual property rights from

third parties under open market conditions the cost of which

is amortisable<

“qualifying project” means a project in which qualifying

expenditure is incurred and which, in the opinion of the

Commissioner, contributes towards the development, improvement

or expansion of the audiovisual infrastructure in Malta<

“self-assessment”, “tax”, “tax return date” and “year of

assessment” have the meaning assigned to them under the Income

Tax Act or the Income Tax Management Act<

“small enterprise” and “medium sized enterprise” shall have

the meaning assigned to them under the Business Promotion

Regulations, 2001.

(1) When a qualifying company incurs allowable expenditure Tax credit in respect

in carrying out an approved project and where the employment condition of

expenditure.

referred to in regulation 12 and the other relevant conditions laid down

in these regulations are satisfied, it shall be entitled to a tax credit in

accordance with and subject to the provisions of these regulations.

(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 Income Tax Act.

(1) An eligible company may apply to the Commissioner to Certification of

qualifying

be certified as a qualifying company for the purpose of these regulations. company.

(2) An application under this regulation shall be made on

such form as may be acceptable to the Commissioner and shall contain

such particulars, and be accompanied by such documents and

certifications as the Commissioner may consider relevant.

(3) When the Commissioner is satisfied that a company that

has made an application under this regulation is an eligible company

and that its activities are conducive to the development or expansion of

the audio visual industry in Malta, he may certify it as a qualifying

company for the purposes of these regulations.

(4) The certificate shall indicate the date from which and

the period for which such certificate shall be valid>

Provided that the Commissioner may, in line with the criteria

set out in sub-regulation (3), by notice in writing cancel a certificate

issued under this regulation or extend or restrict the period of its validity.

(1) When a qualifying company carries out or intends to carry Application for the

approval of a

out a qualifying project it may apply to the Commissioner for the project.

approval of that project.

(2) An application under this regulation shall be made in

such form as may be acceptable to the Commissioner 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 and its purpose and state the expected

date of its commencement and its expected duration<

(c) provide details of the investment that the company plans

to make for the realisation of the project, including a description

of each item of qualifying expenditure that the applicant intends

to incur, distinguishing between expenditure on plant and

machinery, expenditure on industrial buildings and structures and

expenditure on intellectual property rights<

(d) state the number of additional employees that it plans

to employ during the project period<

(e)

grant the authorisation referred to in sub-regulation (3)<

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

and be accompanied by such documents and certifications as the

Commissioner may require<

(g) be made by not later than three months prior to the

company’s tax return date for the year of assessment that

immediately follows the first year in which the company incurs

the expenditure to which the application refers.

(3) The authorisation referred to in sub-regulation (2)(e)

shall -

(a) grant to the Commissioner and his officers access to any

premises or works as the Commissioner may consider necessary

in order to ascertain any matter relevant to the approval of the

application<

(b) authorise the Commissioner to disclose to the

Commissioner of Inland Revenue any information and to pass on

to him originals or copies of any documents and records that may

have been obtained in connection with the application.

(1) When the Commissioner is satisfied that an application

complying with the requirements of these regulations has been filed by

an eligible company, and that a project to which the application refers

is a bona fide qualifying project, he may recommend to the Commission

that the project be approved.

(2) In his recommendation the Commissioner shall state the

extent to which, in his opinion, the investment that the applicant plans

to make towards the project represents qualifying expenditure and is

necessary and reasonable in the light of the purpose for which it is

planned to be incurred.

(3) The Commissioner shall not recommend the approval

of a project –

(a) that requires for its realisation a period of more than

five years<

(b) if the application for its approval is made after the 31 st

December, 2008.

(1) When the Commission receives a recommendation from Approval of project.

the Commissioner under regulation 6 it may, if it considers it appropriate

so to do, approve the project and proceed to make a determination and

issue a letter of approval as provided in regulations 8 and 9.

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

subject to such conditions as it may consider appropriate.

(1) When the Commission approves a project it shall Determination of

maximum

determine the maximum qualifying expenditure for each item of qualifying

expenditure.

expenditure.

(2) The total amount determined in accordance with sub-

regulation (1) shall not exceed the amount recommended by the

Commissioner in terms of regulation 6(2).

(1) In respect of every approved project the Commissioner Letter of approval.

shall issue a letter of approval showing>

(a)

particulars of the applicant<

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

have been considered appropriate pursuant to regulation 7(2)<

(c) the maximum qualifying expenditure for each item of

expenditure<

(d) the maximum aggregate State aid intensity to which the

applicant is entitled<

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

and the latest date by which it must be completed<

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

retained in terms of regulation 11<

(g) such other particulars as the Commissioner may consider

appropriate.

(2) The Commissioner shall deliver the letter of approval

to the applicant and a copy thereof to the Commissioner of Inland

Revenue.

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

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

(1) Upon the completion of the approved project and not

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

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

the Commissioner as competent for this purpose, showing>

(a)

the date of completion of the project<

(b) the amount of allowable expenditure actually incurred,

distinguishing between expenditure on plant and machinery,

expenditure on industrial buildings and structures and expenditure

on intellectual property rights.

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

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

Inland Revenue.

(3) The Commissioner of Inland Revenue may, after

receiving a copy of the certificate, request an independent opinion from

the Commissioner or any other competent technical person regarding

the contents thereof.

(1) Expenditure shall constitute allowable expenditure if

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

(a) it is qualifying expenditure actually incurred by a

qualifying company in carrying out an approved project 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 regulation 9 refers, which does not exceed the

maximum qualifying expenditure for that item, and in respect of

which any conditions that may have been made applicable in terms

of regulation 7(2) have been satisfied<

(c) it was incurred during the project period and for the

purpose for which the project was approved<

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

records of the company and supported by documentary evidence<

(e) if it represents the cost of construction works, the

documentary evidence referred to in paragraph (d) includes a

statement 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.

(2) The investment represented by allowable expenditure

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

termination of the project period.

(3) If an investment or part thereof is not retained within

the company for the period referred to in sub-regulation (2), the amount

of expenditure corresponding to that investment or part thereof, as the

case may be, that is not so retained shall be deemed to have never

constituted allowable expenditure and the provisions of regulation 15

shall apply.

(1) Subject to the other provisions of this regulation, the Employment

condition.

employment condition referred to in regulation 3(1) shall be satisfied

if, during the project period or within three years from the termination

thereof, the qualifying company in question employs at least four

additional employees.

(2) Subject to sub-regulation (3), an individual shall be

deemed to be an additional employee if all the following conditions are

(a) he is employed under an indefinite contract or for a

period of not less than three years<

(b) his duties are solely and directly related to the activities

carried out by the qualifying company in the film servicing industry<

(c) his employment represents a net increase in the number

of full time employees of the qualifying company<

(d) he was not, at any time during the period of two years

prior to his employment with that company, employed with a person

related through direct or indirect ownership or shareholding with

that company<

(e) his employment is certified by the Commissioner in

accordance with regulation 13 as an employment of an additional

employee for the purpose of these regulations<

(f) he remains in the employment of the said qualifying

company for at least three years.

(3) When the employment of an individual has been certified

in accordance sub-regulation (2)(e) and that individual does not remain

in the employment of the qualifying company in question, for any reason

whatsoever, for a period of at least three years and is not validly replaced

as provided in sub-regulation (4), he shall be deemed to have never

been an additional employee.

(4)

An employee shall be deemed to have been validly

replaced if>

(a) within three months from the date of the termination of

his employment with a qualifying company, that company employs

another individual in his place< and

(b) the employment of the replacement employee satisfies

the conditions of sub-regulation (2), except that the fact that it is a

replacement shall not, of itself, be deemed to be a breach of the

condition of paragraph (c) thereof< and

(c) the aggregate of the periods of employment of the

original employee and of his replacement or replacements is not

less than three years.

(5) A replacement employee may be validly replaced in the

same manner, and the period of his employment shall also be taken into

account for the purpose of sub-regulation (4)(c).

(6) In calculating the number of additional employees, an

employee and his replacement or replacements shall count as one

additional employee.

(7) If a qualifying company that has availed itself of the

benefit of the tax credit under these regulations does not satisfy the

employment condition it shall forfeit the right to that benefit and the

provisions of regulation 15 shall apply.

(1) A qualifying company whose project is approved under

these regulations shall prepare and deliver to the Commissioner such

information about its employees as is necessary to enable the

Commissioner to determine the number of additional employees and

their replacements, including -

(a) the number of individuals who were in the employment

of the company before the commencement of its project and the

number and particulars and date of employment of individuals who

are employed by it as full time employees during the project period

and during the following three years<

(b) such further information and details as the Commissioner

may consider relevant.

(2) The statement shall be prepared at such intervals as the

Commissioner may require.

(3) When the Commissioner is satisfied that a qualifying

company has employed an individual that qualifies as an additional

employee in accordance with the provisions of regulation 12, and that

it has obtained all the information that it has considered relevant about

the employees of that company, it shall issue a certificate to that effect>

Provided that such certificate shall be without prejudice to

regulation 12(3).

(1) The tax credit due to a qualifying company in respect Calculation of the

tax credit.

of allowable expenditure shall be allowable for the year of assessment

immediately following that in which the expenditure is incurred or in

which the employment condition is first satisfied, whichever is the later,

and shall be equal to>

(a) 25% of expenditure to which paragraph (a) of the

definition “qualifying expenditure” applies<

(b) 40% of any other allowable expenditure

(2) Notwithstanding the provisions of sub-regulation (1) the

tax credit due to a qualifying company in respect of an approved project

shall not exceed, in the aggregate, –

(a) in the case of a small or medium sized enterprise, fifty

percent of the total cost of the project in question< and

(b) in the case of any other qualifying company, forty

percent net grant equivalent of the total cost of the project in

question>

Provided that 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 these regulations,

the threshold referred to in paragraph (a) or (b), as the case may

be, shall be reduced by the value of that aid>

Provided further that the correct calculation of the said

reduction, where applicable, shall be the sole responsibility of the

company.

(4) The tax credit shall be availed of by way of a deduction

from the tax chargeable on gains or profits derived from the activities

in respect of which the investment to which the approved project refers

is made, and shall not be allowable as a deduction from tax chargeable

on gains or profits from any other source< and any amount of tax credit

due for a year of assessment that is not so absorbed in that year may be

carried forward and deducted from the tax chargeable in subsequent

years on income from the said activities>

Provided that any part of the tax credit that is not availed of

up to the year of assessment 2013 shall not be carried forward and the

right to a credit in respect thereof will lapse.

(5) Where, for a year of assessment, a company qualifies

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

provisions of these regulations, 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 these regulations.

(6) A tax credit due in accordance with these regulations

shall not give rise to a right for any refund.

(1) In the circumstances mentioned in regulations 11(3) and

12(7) the tax credit in question shall be reversed or recalculated, as the

case may be.

(2) The reversal or recalculation of a tax credit shall give

rise to an obligation of the company to pay an amount of tax, in addition

to any other tax liability, equivalent to the amount represented by the

reversal or recalculation, and such amount shall be deemed to be tax

chargeable under the Act for the year of assessment immediately

following that in which the cause for the reversal or recalculation takes

place, and shall be reported and paid by the company in question

accordingly.

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

of tax return to the

terms of regulation 9 shall submit to the Commissioner, by not later Commissioner.

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

return for the year of assessment for which the relative benefit may be

claimed in terms of under these regulations and for each subsequent

year of assessment for which the said benefit remains available to it,

irrespective of whether the benefit is utilised or not.

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

Commissioner.

company in terms of regulation 9, he 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 he may

consider necessary for the purposes of these regulations and for any

matter relevant to an approved application.

(2) The Commissioner shall keep a database of all assistance

provided to, or claimed by, a company under these regulations 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 regulations have

been complied with<

(b) provide the State Aid Monitoring Board with such

information as it may require< and

(c) inform the Commissioner of Inland Revenue whether

the credits claimed in terms of these regulations have been properly

calculated.

Notwithstanding the other provisions of these regulations, Powers of the

Commissioner of

the Commissioner of Inland Revenue may make such enquiries and Inland Revenue.

verification as he deems fit in accordance with the provisions of the

Income Tax Act and the Income Tax Management Act, and shall, after

consulting the Commissioner, have the right not to allow a benefit under

these regulations if any default is committed by the applicant in respect

of any provision of those Acts or the Social Security Act or any

subsidiary legislation issued thereunder.

No tax credit shall be due to a company under these Electronic tax

return.

regulations 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.

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.

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