Investment Aid (July 2014) Regulations, 2014

L.N. 391 of 2014

MALTA ENTERPRISE ACT

(CAP. 463)

Investment Aid (July 2014) Regulations, 2014

IN exercise of the powers conferred upon him by article 5 of the

Malta Enterprise Act, the Minister for the Economy, Investment and

Small Business, in consultation with the Malta Enterprise

Corporation, has made the following regulations:-

(1) The title of these regulations is the Investment Aid

(July 2014) Regulations, 2014.

(2) These regulations shall apply in respect of qualifying

activities for an initial investment or an initial investment in favour of

new economic activity incurred on the 1st July, 2014 or after this

date.

In these regulations, unless the context otherwise requires

"the Act" means the Malta Enterprise Act;

"company" shall have the same meaning as "undertaking";

"the Corporation" means the Malta Enterprise Corporation

established under the Act;

"guest house" means a guest house as defined and licensed to

operate as such in terms of the Malta Travel and Tourism Services

Act;

"Guidelines" means such guidelines as may be published by the

Corporation from time to time in terms of the Act;

"hotel" means a hotel as defined and licensed to operate as such

in terms of the Malta Travel and Tourism Services Act and includes a

resort hotel and an apartment hotel;

"initial investment" means

(a) an investment in tangible or intangible assets related

to the setting-up of a new establishment, the extension of the

capacity of an existing establishment, the diversification of the

output of an establishment into products not previously

produced in the establishment or a fundamental change in the

overall production process of an existing establishment; or

(b) an acquisition of assets belonging to an

establishment that has closed or would have closed had it not

been purchased, and is bought by an investor unrelated to the

seller and excludes sole acquisition of the shares of an

undertaking;

"initial investment in favour of a new economic activity" means

(a) an investment in tangible or intangible assets related

to the setting up of a new establishment, or to the diversification

of the activity of an establishment, under the condition that the

new activity is not the same or a similar activity to the activity

previously performed in the establishment; or

(b) the acquisition of assets belonging to an

establishment that has closed or would have closed had it not

been purchased, and is bought by an investor unrelated to the

seller, under the condition that the new activity to be performed

using the acquired assets is not the same or a similar activity to

the activity performed in the establishment prior to the

acquisition;

"intangible assets" means assets that do not have a physical or

financial embodiment, such as patents, licences, know-how or other

intellectual property

Provided that

(a)

they must be used exclusively in the establishment

receiving the aid;

(b)

they must be amortisable;

(c)

they must be purchased under market conditions

from third parties unrelated to the buyer; and

(d) they must be included in the assets of the

undertaking receiving the aid and must remain associated with

the project for which the aid is granted for at least five years or

three years in the case of small, medium-sized and micro-sized

undertakings;

"large undertaking", "medium-sized undertaking", "small

undertaking" and "micro undertaking" shall have the meaning

attributed to them by Annex I of Commission Regulation (EU) No

651/2014 of 17 June 2014 declaring certain categories of aid

compatible with the internal market in application of Articles 107 and

108 of the Treaty;

"large investment project" means an initial investment with

eligible costs exceeding fifty million Euro (€50,000,000) calculated

at prices and exchange rates on the date of granting the aid;

"start of works" means the earlier of either the start of

construction works relating to the investment, or the first legally

binding commitment to order equipment or any other commitment

that makes the investment irreversible

Provided that buying land and preparatory works such as

obtaining permits and conducting feasibility studies shall not be

considered as start of works

Provided further that for take-overs, "start of works"

means the moment of acquiring the assets directly linked to the

acquired establishment;

"tangible assets" means assets consisting of land, buildings and

plant, machinery and equipment;

"undertaking" means

(a)

a partnership constituted under the Companies Act,

being a partnership en nom collectif, en nom commandite, or a

limited liability company;

(b) a body of persons constituted, incorporated or

registered outside Malta, and of a nature similar to the aforesaid

partnerships and registered as an oversea company in

accordance with the Companies Act; or

(c)

a co-operative society duly registered as such under

the Co-operative Societies Act.

A qualifying activity in terms of these regulations shall be

an economic activity consisting of a trade or business the profits or

gains from which are chargeable to tax pursuant to article 4(1)(a) of

the Income Tax Act, carried on or intended to be carried out by an

undertaking in Malta which consists solely of any one or more of the

following activities

(a)

(i) the production, manufacture, improvement,

assembly, preservation, processing of goods, materials,

commodities, equipment, plant and machinery

Provided that the resultant product or

products are clearly distinct from the materials and

components used in their production;

(ii) the rendering of industrial services analogous

to the activities referred to in sub-paragraph (i) as may be

prescribed in the Guidelines;

(iii) the

manufacture,

repair,

overhaul

or

maintenance of watercraft, aircraft and engines or

electromechanical equipment incorporated or used in terms

of sub-paragraphs (i) and (ii) as may be prescribed in the

Guidelines

Provided that where activities in this sub-

paragraph (iii) include the installation, commissioning or

assembly of goods on site, the goods must be

manufactured by the same undertaking.

(b) information and communication technology as may

prescribed

in

the

Guidelines

but

excluding

telecommunication services;

(c)

call centre activities as may be prescribed in the

Guidelines;

(d) research and development and innovation of

products and processes as may be prescribed in the Guidelines;

(e)

eco-innovation, waste treatment and environmental

solutions as may be prescribed in the Guidelines;

(f)

biotechnology as may be prescribed in the

Guidelines;

(g) the formulation, development, manufacturing,

preparation and packaging of pharmaceuticals and logistic

operations related thereto as may be prescribed in the

Guidelines;

(h) the development and provision of audiovisual

products, or the operation and provision of facilities directly

required for the development and production of audiovisual

products as may be prescribed in the Guidelines but excluding

programming and broadcasting activities;

(i)

the provision of tertiary education as may be

prescribed in the Guidelines;

(j)

the provision of private healthcare services as may

be prescribed in the Guidelines;

(k) freeport and logistics operations as may be

prescribed in the Guidelines;

(l)

the operation and management of licensed hotels as

may be prescribed in the Guidelines;

(m)

knowledge intensive business services as may be

prescribed in the Guidelines;

(n) the restoration of works of art and antiques as may

be prescribed in the Guidelines but excluding restoration of

buildings and other structures;

(o) facilities for large scale cultural, creative and trade

events as may be prescribed in the Guidelines;

(p) packaging on an industrial scale through automation

as may be prescribed in the Guidelines.

An undertaking shall not qualify for any of the benefits

provided by these regulations if

(a)

the undertaking sells by retail

Provided that an undertaking shall be deemed not to

sell by retail if

(i) the sales of goods or services are made to an

undertaking and the goods or services are either resold or

used by such undertaking; or

(ii) the sales of goods or services are made to an

undertaking using those services for the purpose of

carrying out an economic activity; or

(iii) the sales of goods or services are made to a

person or undertaking through e-commerce activities

resulting in online transaction effected by means of a

secure payment system; or

(iv) such undertaking is a micro sized undertaking

that sells solely goods manufactured by that same

undertaking; or

(v) such undertaking is engaged in the operation

and management of licensed hotels;

(b) the undertaking employs less than one hundred full-

time equivalent employees and its trade or business consists

mainly of dividing, sorting, mixing without changing the

character of the good, drying, labelling or other similar

processes or any combination of such processes to goods which

are acquired in bulk merely to prepare those goods for sale or

distribution unless such processes are carried out as an integral

part of a qualifying activity;

(c)

the undertaking’s activity consists in an assembly

operation of any goods where

(i) the final assembled good is not clearly

recognisable from the individual components or parts from

which it is assembled without regard being taken to any

exterior casing of the good; and

(ii) the components or parts from which the

goods is assembled are such that the good is nearly

complete;

(d) the trade or business of the undertaking include the

preparation or production of "food in the course of catering"

which is directly supplied to the final consumer

Provided that such processes are not carried out as

part of the business of a hotel as may be prescribed in the

Guidelines.

(1) To be considered as qualifying expenditure the Additional

assets acquired shall be new, except in the case of micro, small and rules.

medium-sized undertakings and in the acquisition of an

establishment.

(2) Costs related to the lease of tangible assets may be taken

into account under the following conditions

(a) for land and buildings, the lease must continue for at

least five years after the expected date of completion of the

investment project for large undertakings or three years in the

case of micro, small and medium-sized undertakings;

(b) for plant and machinery, the lease must take out the

form of financial leasing and must contain an obligation for the

undertaking to purchase the asset upon expiry of the term of the

lease.

(3) In the case of the assets of an establishment in an initial

investment or in an initial investment in favour of a new economic

activity, only the costs of buying the assets from third parties

unrelated to the buyer shall be taken into consideration. The

transaction shall take place under market conditions. If the aid has

already been granted for the acquisition of assets prior to the

purchase, the costs of those assets shall be deducted from the eligible

costs related to the acquisition of an establishment

Provided that where a member of the family of the original

owner, or an employee, takes over a small undertaking, the condition

that the assets be bought from third parties unrelated to the buyer

shall be waived. The acquisition of shares does not constitute initial

investment.

(4) The investment shall be maintained in Malta for at least

five years, or at least three years in the case of micro, small and

medium-sized undertakings, after completion of the investment

Provided that plant or equipment that has become outdated

or broken within this period may be replaced as long as the economic

activity is retained in Malta for the relevant minimum period.

(5) In the case of aid granted for a fundamental change in the

production process, the eligible costs shall exceed the depreciation

value of the assets linked to the activity to be modernised in the

course of the preceding three fiscal years.

(6) In the case of aid granted for a diversification of an

existing establishment, the eligible costs shall exceed by at least two

hundred per cent (200%) the book value of the assets that are reused,

as registered in the fiscal year preceding the start of works.

(7) An undertaking wishing to avail itself from the benefits of

these regulations must provide a financial contribution of at least

twenty-five per cent (25%) either through its own resources or by

external financing, in a form which is free from any public support.

(1) An undertaking carrying on or intending to carry out

a qualifying activity in terms of regulation 3 that may contribute to

the economic development of Malta shall, subject to the terms and

conditions of the Guidelines, be entitled to an investment tax credit,

which tax credit shall, with respect to an initial investment or an

initial investment in favour of new economic activity be calculated

either -

(a)

as a percentage of the qualifying expenditure in

tangible or intangible assets incurred by such undertaking in the

year preceding the year of assessment in question; or

(b) as a percentage of wage costs for jobs directly

created by the initial investment or for an initial investment in

favour of a new economic activity in accordance with the

provisions of regulation 8.

(2) In the case of an investment project that may make a

substantial contribution to the economic development of Malta, the

Corporation may approve a cash grant instead of the investment tax

credit referred to in sub-regulation (1) as may be prescribed in the

Guidelines

Provided that any such cash grant may only be awarded if

an official application form is submitted and approved by the

Corporation prior to the start of works.

(3) (a)

A micro, small and medium-sized undertaking

which qualifies for the benefit provided by this regulation shall be

entitled to an investment tax credit with respect to an initial

investment.

(b) A large undertaking which qualifies for the benefit

provided by this regulation shall be entitled to an investment tax

credit with respect to an initial investment in favour of new economic

activity.

(1) Where the start of works of an initial investment or Aid intensities.

for an initial investment in favour of a new economic activity falls on

the 1st July 2014 and before the 31st December 2017, the total

amount of investment tax credits that may be granted in terms of this

regulation for a specific investment project shall not exceed

(a) thirty-five per cent of the qualifying expenditure in

the case of an undertaking which qualifies as a micro or small

undertaking;

(b) twenty-five per cent of the qualifying expenditure in

the case of an undertaking which qualifies as a medium-sized

undertaking;

(c)

fifteen per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a large undertaking;

(d) fifteen per cent of the qualifying expenditure in the

case of a licensed hotel.

(2) Where the start of works of an initial investment or for an

initial investment in favour of a new economic activity falls on the 1st

January 2018 and before the 31st December 2020, the total amount of

investment tax credits that may be granted in terms of this regulation

for a specific investment project shall not exceed

(a) thirty per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a micro or small

undertaking;

(b) twenty per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a medium-sized

undertaking;

(c)

ten per cent of the qualifying expenditure in the case

of an undertaking which qualifies as a large undertaking;

(d) fifteen per cent of the qualifying expenditure in the

case of a licensed hotel qualifying as micro, small and medium-

sized undertakings.

(3) The costs of intangible assets for large undertakings are

eligible only up to a limit of fifty per cent (50%) of the total eligible

investment costs for the initial investment.

(4) The maximum aid amount for a large investment project

shall be calculated according to the following formula

Maximum aid amount = R x (A + 0,50 x B + 0 x C),

where R is the maximum aid intensity applicable for a large

undertaking carrying out an initial investment in favour of new

economic activity, A is the initial fifty million Euro of eligible costs,

B is the part of eligible costs between fifty million Euro and one

hundred million Euro and C is the part of eligible costs above one

hundred million Euro.

An undertaking which is entitled to an investment tax

credit in respect of a year of assessment shall be entitled to deduct

from the amount of income tax which is due on its chargeable income

derived from its trade or business for that year of assessment the

amount of investment tax credit and, where the investment tax credit,

for any year of assessment, exceeds the income tax payable by such

an undertaking for that year, the excess shall be added to the

investment tax credit for the following year and deemed to be part of

that investment tax credit, or if there is no such investment tax credit

for that year, be deemed to be the investment tax credit for that year

and so on for subsequent years

Provided that so much of the investment tax credit which is

not so utilised at the end of any year and which is therefore carried

forward to be added to the investment tax credit of the following year

of assessment and deemed to be the investment tax credit for that

year, shall be increased by such rate as may be prescribed in the

Guidelines; and where any part of the investment tax credit as so

increased is again not utilised, so much of it as is not utilised shall be

further increased by the said percentage and carried forward to the

following year, and so on for subsequent years

Provided further a tax credit shall not give rise to a right to

a refund of tax.

(1) The amount of investment tax credits based on job Investment tax

creation which an undertaking may claim in a year of assessment in credits

calculated for

terms of regulation 6(1)(b) shall be based on the wage cost incurred jobs

created for an

by the undertaking in the accounting period ending in the year initial

investment or an

preceding that year of assessment.

initial

investment in

(2) An undertaking shall, subject to the terms and conditions favour

economic

of the Guidelines, be considered to have created a job as a result of an activity.

investment project for those individuals who are employed by the

undertaking, if the job is directly connected with the activity to which

the investment project relates and is created within three years from

completion of the investment project and as long as the employment

of any such individual is not in replacement of another individual and

provided that such employment is not terminated before the lapse of

five years from the date of employment in the case of large

undertakings and not before the lapse of three years from the date of

employment in the case of micro, small and medium-sized

undertakings

Provided that for the purpose of determining whether jobs

have been created, individuals who are employed by the undertaking

on a part-time basis shall be deemed to be a number of full-time

employees as is produced by dividing the number of hours worked by

such part-time employees by one thousand and seven hundred and

sixty

Provided further that where the accounting period ending

in the year preceding a year of assessment is more or less than twelve

months, the number of hours worked by part-time employees shall be

divided by an amount which shall be arrived at by dividing the

amount of one thousand and seven hundred and sixty, by three

hundred and sixty five, and then multiplying the result by the number

of days comprised in that accounting period.

(1) Where an undertaking has benefited from the Distribution and

provisions of regulations 6 and 7, the investment tax credit shall be dividends.

deemed to have relieved from tax so much of that undertaking’s

chargeable income which, when multiplied by the rates of tax at

which it was chargeable in that year, is equal to the investment tax

credit; and where the undertaking or any subsequent undertaking

distributes the income which is so deemed to have been relieved from

tax, such undertaking or undertakings shall state in the dividend

warrant pertaining to any such distribution that such income has been

relieved from tax by an investment tax credit in accordance with

regulations 6 and 7; and that tax which has so been relieved shall not

be available for refund for any purpose of the Income Tax Act.

(2) The chargeable income which is deemed to have been

relieved from tax in accordance with sub-regulation (1) shall, for the

purposes of the Income Tax Act, be allocated to the Final Taxed

Account of the company in question and any dividends (or part

thereof) distributed from such income shall be exempted from income

tax in the hands of the members of the company on receipt of such

distribution.

(3) Where a dividend referred to in sub-regulation (1) is

distributed to a member which is also a company (in this sub-

regulation referred to as "the second company"), the said dividend

shall likewise be distributed by the second company to its members in

the form of dividends exempt from income tax in the hands of

recipients, and where a member of the second company is again a

company, the preceding provisions shall apply mutatis mutandis as

though references to the first company were references to the second

company, and as though references therein to the second company

were references to that member, and the principle set out in this sub-

regulation shall continue to be applied for as long as such income or

part thereof to which this regulation applies are distributed by way of

dividends.

No tax credit shall be due to an undertaking under these

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.

(1) Where for a year of assessment, an undertaking

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 due under the Business Promotion Act before any set-off is

made in respect of the tax credit due under these regulations.

(2) Where for a year of assessment, an undertaking qualifies

for a tax credit under the Investment Aid Regulations, and also under

the provisions of these regulations, it shall avail itself of the tax credit

due under the Investment Aid Regulations before any set-off is made

in respect of the tax credit due under these regulations.

€0.99