Tax Accounts (Income Tax) Rules, 2008

L.N. 79 of 2008

INCOME TAX ACT

(CAP. 123)

Tax Accounts (Income Tax) Rules, 2008

IN exercise of the powers conferred by Articles 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>–

The title of these rules is the Tax Accounts (Income Tax) Rules, Citation and

commencement.

2008.

The provisions of these rules shall be deemed to have come

into force as from year of assessment 2008.

With effect from year of assessment 2008 and subsequent years Profits allocated to

the final tax

of assessment an amount of distributable profits resulting from the account.

following shall be allocated to the final tax account>

(a) profits after tax resulting from income which has been

charged to tax under the investment income provisions irrespective

of the fact that the company in receipt of the income is not the

recipient for the purposes of the investment income provisions<

(b) profits which have been exempt from tax under the

provisions of any Maltese law and where the distribution of such

profits by the company is exempt from tax in the hands of the

shareholders<

(c) the amount of chargeable income the tax chargeable on

which has been relieved from payment by any tax credits where

the distribution of such profits is exempt from tax in the hands of

the shareholders<

(d) dividends paid out of profits allocated to the final tax

account of another company<

(e) The profits after tax derived from the transfer of property

chargeable to tax under article 5A of the Act such profits to be

determined as prescribed in terms of subarticle 10(d) of the said

article 5A<

(f) any profits after tax which under the provisions of

Maltese law are not subject to tax when such profits are distributed

by a company to any person and where upon such a distribution

no person is entitled to claim any tax credit in respect of any tax

paid on such profits<

(g) the amount of chargeable income after tax of a company

which has exercised the option referred to in article 48(4A)(b)(i)(1)

of the Income Tax Management Act earned while it was not an

international trading company<

(h) the amount which should be allocated to the Maltese

Taxed Account computed in accordance with rule 13 of the Sale

of Agricultural Produce Rules, 2005<

(i) profits resulting from income or gains in respect of which

Article 12(1)(u) of the Act may and has been applied<

(j) profits resulting from any grant or subsidy where the

distribution of such profits is exempt from tax in the hands of the

shareholders<

(k) profits after tax resulting from rents to which article 31A

of the Act is applicable<

(l) the amount of the chargeable income the tax chargeable

on which has been relieved from payment by any tax credits under

any of the following rules or regulations>

(i) the Business Promotion Regulations, 2001<

(ii) the Reinvestment Tax Credit (Income Tax)

Regulations, 2003<

(iii) the Deductions and Tax Credits (Research and

Development) Rules, 2005<

(iv) the Tax Credit (Back Office Operations) Rules,

2005<

(v) the Tax Credits (Owners and Operators of

Warehouses Situated in Free Zones) Rules, 2005<

(vi) the Tax Credit (Electronic Business) Rules, 2005<

(vii) the Reinvestment Tax Credit (Income Tax) Rules,

2005<

(viii) the Deductions and Tax Credits (General and L.N. 335 of 2005.

Specific Qualifications) Rules 2005<

(ix) the Tax Credit (Audiovisual Infrastructure) L.N. 66 of 2006.

Regulations, 2006 made under the Malta Film Commission

Act.

(m) Profits referred to in any of the preceding paragraphs

which as at the end of the accounting period ending in the year

preceding year of assessment 2007 have not been distributed.

For the purpose of rule 3, the amount of profits the tax

chargeable on which has been relieved by any tax credits referred to in

the said rule 3 shall be calculated by dividing the amount of the tax

credit by the rate or rates of tax at which the company’s chargeable

income is chargeable, and where such chargeable income has been taxed

at different rates of tax the tax credit shall first be deemed to have relieved

that part of the chargeable income which has been taxed at the lowest

rate.

(1) With effect from year of assessment 2008 and in Immovable Property

Account.

subsequent years of assessment an amount of distributable profits arising

in any year immediately preceding any of such years of assessment

which have suffered tax and which do not stand to be allocated to the

final tax account shall be allocated to the immovable property account.

Such amount of distributable profits shall consist of the aggregate of

the amounts referred to in sub-rules 2 and 3.

(2) Dividends paid out of profits allocated to the immovable

property account of another company<

(3) Any profits, gains or income derived, directly or

indirectly, from immovable property situated in Malta consisting of>

(a) the amount of chargeable income after tax resulting from

any profits or gains of whatever nature derived from the transfer

of such immovable property or of any rights whatsoever on such

property or in relation thereto<

(b) the amount of chargeable income after tax derived from

rents, premiums , provision of accommodation and any income or

gains however described and of whatever nature derived, directly

or indirectly, from such immovable property including>

(i) any gains or profits derived from any timeshare

operation or any other operation of a similar nature<

(ii) any gains or profits derived from the provision of

accommodation as defined in the Value Added Tax Act such

gains or profits being calculated by reference to the value of

sales which are subject to Value Added Tax at the rate of 5%

in terms of item ‘1.’ of the Eighth Schedule of the Value Added

Tax Act or which would have been so subject but for the fact

that the company is not required to charge Value Added Tax

by virtue of it being registered under article 11 of the Value

Added Tax Act (hereinafter in these rules such sales being

referred to as the “5% Vatable Sales”)< and where such gains

or profits are derived from the carrying on of a trade, business

or other activity which includes the provision of other services

or goods in addition to the provision of such accommodation,

such gains or profits shall be calculated by dividing the total

chargeable income of the said company derived from that

trade, business or other activity by the value of its total sales

of that trade, business or other activity and multiplying the

result by the value of its 5% Vatable Sales of that same trade,

business or other activity. For this purpose companies which

derive income from the provision of accommodation must

maintain accounting records such that the gains or profit

derived from the provision of accommodation may be readily

ascertained in the manner provided herein. Where a company

derives income from the provision of accommodation and

does not maintain such accounting records the whole of its

profit shall be deemed to be derived from the provision of

accommodation<

(c) the amount of chargeable income after tax, derived from

work carried out on or in relation to such immovable property

consisting of brokerage and professional services, construction

work, project management of construction work and work of

tradesmen<

(d) the amount of chargeable income after tax resulting from

profits derived from the provision of management services in

relation to any activity as a result of which income is derived from

the provision of accommodation referred to in paragraph b(ii), and

where as a result of that activity income is derived from the

provision of other services or goods in addition to the provision of

such accommodation, such profit shall be calculated by dividing

the income derived from the said management services by the value

of the total sales of that activity and multiplying the result by the

value of sales of that same activity which are 5% Vatable Sales<

(e) the following amounts which shall be determined gross

before any deductions whatsoever>

(i) the interest, fees or any other consideration

howsoever described derived, directly or indirectly, from the

granting of loans or from any form of credit to finance the

acquisition, development, construction, refurbishment,

renovation of such immovable property or any right thereon

including professional fees related thereto (including fees

related to the acquisition of finance) and any other matter

which increases or enhances the value of such immovable

property or any right thereon< and

(ii) insurance premiums related to the insurance of such

property>

Provided that where the allocation of profits in terms of

this paragraph cannot for any year be made because there are

no or insufficient profits which have suffered tax, the amount

required to be allocated to the immovable property account

in accordance with this paragraph, or part thereof, which for

such reason could not be allocated shall be added to the amount

to be allocated for the following year and deemed to be part

of that amount, or if there is no such amount in respect of that

year, be deemed to be the amount to be allocated for that year

and so on for subsequent years<

(f) Any other profits however described where the

Commissioner is of the opinion that the said profits are directly or

indirectly derived from such immovable property and in such case

the Commissioner may determine the manner in which such profits

are to be determined<

(g) Profits or gains after tax however described derived from

the disposal of shares or other interests in any entity which, directly

or indirectly, principally owns such immovable property<

(h) The amount of the annual market rent of such immovable

property owned and used by the company for the purpose of its

activities (excluding property which is rented by the said company

to other parties) calculated by multiplying the aggregate surface

area in square metres of all floors of such premises so owned and

used by sixty Euros (Euro 60) per annum> provided that the

allocation of profits to the immovable property account in

accordance with this paragraph shall be made after all allocations

have been made in accordance with rule 5(2) and the other

paragraphs of this sub-rule, and where the allocation of profits in

terms of this paragraph cannot for any year be made because there

are no or insufficient profits which have suffered tax, the amount

required to be allocated to the immovable property account in

accordance with this paragraph, or part thereof, which for such

reason could not be allocated shall be added to the amount to be

allocated for the following year and deemed to be part of that

amount, or if there is no such amount in respect of that year, be

deemed to be the amount to be allocated for that year and so on for

subsequent years.

(4) For the purpose of allocating profits to the immovable

property account in accordance with paragraphs (e) and (h) of sub-rule

(3) the allocation of profits to the tax accounts shall first be made ignoring

the provisions of the said two paragraphs and thereafter the amounts

which are to be allocated to the immovable property account in

accordance with the said two paragraphs shall (so far as not already

transferred to the immovable property account in terms of this sub-

rule) be transferred from the amount of distributable profits derived in

the accounting period ending in the year preceding year of assessment

2008 and subsequent years of assessment which would have, ignoring

the provisions of the said two paragraphs, been allocated to the Maltese

Taxed Account and the Foreign Income Account< and for this purpose

such amount shall first be transferred from amounts which would have

been allocated to the Maltese Taxed Account and then from amounts

which would have been allocated to the Foreign Income Account.

(5) The amount which cannot be allocated to the immovable

property account in terms of paragraphs (e) and (h) of sub-rule (3)

because there are no or insufficient profits which have suffered tax shall

be the amount which cannot be allocated to the immovable property

account in accordance with the procedure set out in sub-rule (4) above.

(6) The provisions of this rule shall be without prejudice to

the fourth proviso to the definition of “Foreign Income Account” in

Article 2 of the Act and paragraphs (e) and (h) of sub-rule 3 shall, up to

year of assessment 2011, not apply to companies to which the said

proviso was applicable for all years of assessment from year of

assessment 2008 to year of assessment 2011.

(1) Work of tradesmen shall include but shall not be limited

to, work consisting of or related to electrical works, plumbing, tile laying,

pointing and rendering, plastering, painting, excavation and clearing of

site, demolition works, dry wall gypsum works and any other work

carried on or in relation to such immovable property.

(2) For the purpose of paragraph (h) of rule 5(3)>

(a) Property held by a company under title of emphyteusis

shall be deemed to be owned by the said company< and

(b) where a company uses any immovable property for the

purpose of its activities owned by a related person for no

consideration or for a consideration which in the opinion of the

Commissioner is less than the market rental value of that property

and the said consideration is less than sixty Euros (Euro60) per

square metre per annum, the said immovable property shall be

deemed to be owned by the said company and the amount which

shall be allocated to the immovable property account in accordance

with rule 4(3)(h) shall be reduced by the amount of consideration

paid by the said company to the related person for the use of the

said immovable property< and for this purpose a person shall be

deemed to be related to a company if>

(i) that person and the company are, directly or

indirectly, controlled or beneficially owned to the extent of

more than 25% by the same persons< or

(ii) that person owns, directly or indirectly, more than

25% of the ordinary share capital or voting rights of the

company< or

(iii) that person, in any capacity whatsoever including

that of a trustee, holds the said property or receives the said

consideration for and on behalf of or for the benefit of a related

person.

Where in a tax return the allocation of profits to be made in Materially incorrect

tax accounting.

accordance with these rules and the Act is materially incorrect, the

Commissioner may regard that tax return as not being complete in all

material respects for the purposes of Article 10(5) of the Income Tax

Management Act.

Notwithstanding the other provisions of these rules, these rules Collective

shall with regard to a collective investment scheme apply with effect investment

schemes.

from year of assessment 2009 and subsequent years of assessment and

for this purpose the words “year of assessment 2007” in rule 3(m) of

these rules shall be substituted by the words “year of assessment 2008”.

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

€0.75 (Lm0.32)