Seed Investment Scheme (Income Tax) Rules, 2022

L.N. 356 of 2022

INCOME TAX ACT

(CAP. 123)

Seed Investment Scheme (Income Tax) Rules, 2022

IN EXERCISE of the powers conferred by articles 14(2)(b) and

96 of the Income Tax Act, the Minister responsible for Finance has

made the following rules:-

(1) The title of these rules is the Seed Investment

Scheme (Income Tax) Rules, 2022.

(2) The scope of these rules is to grant tax relief to natural

persons resident in or operating in Malta investing in start-up

businesses, as further regulated herein.

(3) These rules shall be deemed to have come into force on the

1st January, 2022 in respect of investments made as from basis year

2022 and thereafter, and shall have effect until the 31st December,

2023 or upon such later date as may be determined by the Minister

responsible for finance by order published in the Gazette.

In these rules, unless the context otherwise requires

"Act" means the Income Tax Act;

"Commissioner" means the Commissioner for Revenue;

"competent entity" means the Malta Investment Management

Company Limited;

"connected to the qualifying company" means being

(a) the investor’s spouse, descendants and

ascendants in the direct line and their relative spouses, his

brothers or sisters, and their descendants;

(b) a partner in a commercial or civil partnership

of the qualifying investor;

(c) a shareholder of the qualifying company in

which it invests, including business angels and financial

institutions, irrespective of their ownership;

(d) an investor, or any of the persons mentioned in

paragraph (a), who is an employee of the qualifying

company;

(e) an investor who, prior to the qualifying

investment, already holds shares, whether directly or

indirectly, in the qualifying company;

(f) an investor who is, upon winding up of the

qualifying company, entitled to any of its assets, where

such right existed in favour of the said investor prior to the

company being granted the status of qualifying company in

terms of these rules;

(g) an investor who has advanced to the qualifying

company, funds by way of loan the terms of which

establish the right of conversion into shares or other

similar equity rights in the qualifying company;

"equity shares" shall have the same meaning as assigned to

it in the Act sohowever that any such shares shall in all cases

not be redeemable;

"excluded activities" means any one of the following

activities

(a) dealing in immovable property,

shares,

securities and, or other financial instruments;

(b) dealing in goods other than in the normal

course of business;

(c) carrying on banking, insurance or any other

activity covered by the Investment Services Act, the Cap.

370. Banking Act, and the Financial Institutions Act;

(d) providing

legal,

accounting

or

other

professional services;

(e) activities relating to the development of

immovable property;

(f)

receiving royalties or licence fees;

(g) operating or managing hotels, hostels, guest

houses or residential care homes;

(h) carrying on activities in connection with the

generation of electricity and other energy sources;

(i) the holding of shares, whether directly or

indirectly, in any company which carries out any of the

activities listed in any one or more of paragraphs (a) to (h);

"first commercial sale" shall have the same meaning as is

assigned to it in the Regulation, as amended and as may be

amended from time to time;

"investment" means the subscription to a fresh issue of

fully paid up, non-redeemable equity shares in a qualifying

company by a qualifying investor and the term "invest" shall be

construed accordingly;

"natural person" means a person, other than a legal entity,

who is not an undertaking for the purposes of Article 107(1) of

the Treaty on the Functioning of the European Union;

"qualifying activities" means any activity the income

derived from which is chargeable under the provisions of article

4(1)(a) of the Act, other than the carrying out of any one of

the excluded activities;

"qualifying company" means an SME that satisfies the

following cumulative conditions

(a) is incorporated in Malta or controlled and

managed from Malta or has a place of business in Malta;

(b) has been in existence and engaged in carrying

out qualifying activities for a period not exceeding three

(3) years following its first commercial sale;

(c)

is not listed on any recognised stock exchange;

(d)

has a maximum of ten (10) employees;

(e) has gross assets of not more than two hundred

and fifty thousand euro (€250,000) immediately preceding

the issue of equity shares to the qualifying investor,

and that has been duly issued with the relative compliance

certificate by the competent entity in terms of these rules

Provided

that

undertakings

in

difficulty,

undertakings which are subject to an outstanding recovery

order, other undertakings which are expressly excluded from

receiving such aid in terms of the Regulation, as well as

undertakings which, directly or indirectly, hold shares in any

company which carries out any excluded activities, do not fall

within the scope of this definition;

"qualifying investor" means any natural person who is

resident in Malta or who falls within the scope of s u b -

p a r a g r a p h s (i) and (ii) to article 56(1)(c) of the Act to the

extent that he bears the full risk in respect of his investment,

and who has been duly issued with the relative compliance

certificate by the competent entity in relation to an investment

in a qualifying company in terms of these rules

Provided

that

undertakings

in

difficulty,

undertakings which are subject to an outstanding recovery

order as well as other undertakings expressly excluded from

receiving such aid in terms of the Regulation are excluded from

this definition;

"Regulation" means 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 as amended and as may be amended

from time to time;

"small and, or medium sized enterprise/s" and its

abbreviation "SME" shall have the same meaning as is assigned

to it in Annex I of the Regulation, as amended and as may be

amended from time to time;

"undertakings in difficulty” shall have the same meaning

as is assigned to it in the Regulation, as amended and as may

be amended from time to time.

(1) These rules shall apply to qualifying investors who Application and

subscribe to fully paid up equity shares at par in a qualifying eligibility.

company on their own behalf

Provided that this investment shall leverage other

investment in the qualifying company involving the sharing of risks

and rewards in proportion to the investment.

(2) Any company wishing to obtain the status of a "qualifying

company" shall submit an application to the competent entity for a

formal determination and for issue of the relative compliance

certificate in terms of these rules, which application shall be made on

such form or in such manner as the competent entity may require and

shall contain the information and documents therein requested

Provided that investments made in a qualifying company

and qualifying in terms of these rules shall, in aggregate, not exceed

seven hundred and fifty thousand euro (€750,000) per qualifying

company.

(3) Any natural person wishing to obtain the status of a

"qualifying investor" in relation to an investment in a qualifying

company shall lodge an application to the competent entity for a

formal determination and for issue of the relative compliance

certificate in terms of these rules, which application shall be made on

such form or in such manner as the competent entity may require and

shall contain the information and documents therein requested

Provided that in order to qualify as being eligible for

benefits under these rules, and subject to the satisfaction of the

competent entity in this respect, a qualifying investor shall

(a) continue to hold the investment in the qualifying

company for a period of not less than three (3) years subsequent

to the subscription by the qualifying investor to such equity

shares;

(b) not be connected to the qualifying company prior to

the subscription to the equity shares.

(4) A qualifying investor shall invest in the qualifying

company within a period of two (2) years from when the qualifying

company is first issued with a compliance certificate for the status of a

‘qualifying company’ by the competent entity. Any subscription of

shares made in a qualifying company subsequent to this date shall not

entitle the investor for benefits in terms of these rules

Provided that nothing in these rules shall prohibit an

investment in a qualifying company from being made in instalments

over a period of more than one ( 1 ) year, as long as the commitment

to invest, subject to the achievement of defined targets or criteria,

is made within the two (2) year period referred to above. In such

instance, the qualifying investor shall avail of the tax benefits under

these rules as the investment, or part thereof, is made.

(1) Any qualifying investor to whom rule 3 applies shall

benefit from a tax credit equivalent to a sum amounting to thirty-five

per cent (35%) of the aggregate value of the investments made by

such investor in one or more qualifying companies, so however that

the total tax credit applicable to any such investor shall not exceed

two hundred and fifty thousand euro (€250,000) per annum. Such tax

credit shall be set off against the tax due by the qualifying investor in

respect of any income or gains brought to charge to tax in the year of

assessment immediately following the basis year during which the

investment is made.

(2) Any part of the tax credit that is not absorbed in the year of

assessment referred to in sub-rule (1) may be carried forward by the

qualifying investor and set off against tax due for any subsequent year

of assessment until it is fully absorbed.

(3) Without prejudice to the provisions of article 48 of the

Income Tax Management Act, any tax credit available in terms of Cap. 372.

these Rules shall not give rise to a right for any tax refund.

Any loss incurred in any year of assessment by the Losses.

qualifying investor from the disposal of an investment made by him

in a qualifying company or from the liquidation of such qualifying

company shall not be allowed as a deduction in respect of income or

gains chargeable under articles 4 and, or 5 of the Act.

(1) Where the investment in a qualifying company is Capital gains.

disposed of within three ( 3 ) years from the date of subscription to

the equity shares by the qualifying investor, and where the

qualifying investor qualified for benefits in terms of these rules

relative to such investment, the tax due in respect of the income

derived from such disposal shall be calculated on the basis of the

higher of the market value of such investment and the consideration

received by the qualifying investor and shall be charged to tax at the

applicable rates as set out in article 56 of the Act. For the avoidance

of doubt, the amount on which tax is chargeable in terms of this sub-

rule shall not be reduced in any manner by the cost of acquisition of

the investment, nor by any deduction or credit whatsoever.

(2) Where the investment in a qualifying company is disposed

of after the lapse of three (3) years from the date of subscription to

the equity shares by the qualifying investor, any gains or profits

derived from such disposal shall be exempt from any tax otherwise

due in terms of the Act.

Where the competent entity or the Commissioner is in Claw back of

receipt of information that, had it been available during the tax credit.

application process lodged, would have resulted in the status of a

qualifying company being refused or alternatively in the status of a

qualifying investor being refused, then all amounts invested by

qualifying investors in the said qualifying company or by that

particular qualifying investor, as the case may be, and which would

have benefited from a tax credit as outlined in rule 3 hereof shall be

brought to charge under articles 4 and 5 of the Act, together with

interest at the rate of one per cent ( 1 % ) for every calendar month

of the amount availed of as a tax credit by the qualifying investor.

(1) If any person obtains benefits under these rules

where that person was not so entitled, or so benefits in a manner

which the Commissioner deems to be contrary to the purpose of these

rules, the qualification status granted in terms of these rules may be

withdrawn.

(2) The Commissioner may issue an assessment in terms of

article 31 of the Income Tax Management Act in such manner and in

such amount as may be necessary in the circumstances of the case, to

nullify or modify the benefits claimed by such person and the

consequent advantage obtained thereby.

(1) Any application for a formal determination, or

otherwise for any benefit, in terms of these rules shall be made on

such form and in such manner as the competent entity, after due

consultation with the Commissioner, may require and shall contain

the information and documentation therein requested.

(2) These rules shall cease to apply and have effect upon the

application of these rules to five million euro (€5,000,000) of

investments in qualifying companies, or to such other amount of

investments in qualifying companies as may be established by the

Minister responsible for finance by order published in the Gazette.

(3) These rules shall apply for qualifying investments made

during an initial period of up to two (2) calendar years, so however

that the Minister responsible for finance may extend the application

thereof for such period or periods as he may deem fit by order

published in the Gazette.

Records shall be maintained by the competent entity for a

period of ten (10) years from the date on which the last benefit was

granted in terms of these rules.

The Seed Investment Scheme (Income Tax) Rules are

hereby repealed.

€0.63