Seed Investment Scheme (Income Tax) Rules, 2024

L.N. 45 of 2024

INCOME TAX ACT

(CAP. 123)

Seed Investment Scheme (Income Tax) Rules, 2024

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 Citation, scope

and

Scheme (Income Tax) Rules, 2024.

commencement.

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

persons resident o r o p e r a t i n g 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 2024 in respect of investments made as from basis year

2024 and thereafter, and shall have effect until the 31st December,

2026.

In these rules, unless the context otherwise requires

Interpretation.

"Act" means the Income Tax Act;

"Commissioner" means the Commissioner for Tax and

Customs;

"competent entity" means

the

Malta

Investment

Management Company Limited;

"connected to the qualifying company" means

(a) the investor’s spouse, descendants and

ascendants in the direct line and their relative spouses, his

siblings, 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 so however 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

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;

"independent private investor" means any investor who is

private and independent. Private investors mean investors who,

irrespective of their ownership structure, pursue a purely

commercial interest, use their own resources and bear the full

risk in respect of their investment, and means for the purposes of

this scheme, natural persons who do not conduct an economic

activity. Independent investor means an investor that is not a

shareholder of the eligible undertaking in which it invests. Upon

the creation of a new company, any private investors, including

the founders of such new company, are considered to be

independent from that company;

"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 in accordance with 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

administered 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. Where this

eligibility period has been applied to a particular

undertaking, only that period may be applied also to any

subsequent risk finance aid to the same undertaking. For

undertakings that have acquired another undertaking or

were formed through a merger, the eligibility period applied

shall also encompass the operations of the acquired

undertaking or the merged undertakings, respectively. With

the exception of such acquired or merged undertakings

whose turnover accounts for less than ten percent (10%) of

the turnover of the acquiring undertaking in the financial

year preceding the acquisition or, in case of undertakings

formed through a merger, less than ten percent (10%) of the

combined turnover that the merging undertakings had in the

financial year preceding the merger;

(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, following a previous European Commission decision

declaring an aid granted by Malta illegal and incompatible

with the internal market, 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 independent private

investor who is a natural person who is resident in Malta or

who falls within the scope of sub-paragraphs (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 following a previous European Commission decision

declaring an aid granted by Malta illegal and incompatible

with the internal market. Other undertakings expressly

excluded from receiving such aid in terms of the

Regulation are also 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;"small and, or medium

sized enterprises" and "SME" shall have the same meaning as is

assigned to it in Annex I of the Regulation;

"undertakings in difficulty” shall have the same meaning

as is assigned to it in the Regulation.

(1) These rules shall apply to qualifying investors who Applicability

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

company on their own behalf.

(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 and 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 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 in order to qualify as being eligible for

benefits in accordance with these rules, and until to the satisfaction of

the competent entity in this respect, a qualifying investor shall

(a) continue to hold this 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; and

(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 these rules shall not 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 case, the qualifying investor

shall avail of the tax benefits under these rules as soon 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 an amount 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

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

Any loss incurred in any year of assessment by the

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 in accordance with articles 4 and, or 5 of the Act.

(1) Where the investment in a qualifying company is

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 Recovery of tax

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

application process submitted by the qualifying company, 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 in accordance with 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 in accordance with Anti-abuse.

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 Cap. 372.

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

nullify or modify the benefits claimed by such person together with the

consequent advantage obtained thereby.

(1) Any application for a formal determination, or Applications.

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

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)

This scheme shall remain valid until the threshold of five

million euro (€5,000,000) of investments in qualifying companies is

reached, 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. Personal data shall be processed in

accordance with Regulation (EU) 2016/679/ of the European

Parliament and of the Council of 27 April 2016 on the protection of

natural persons with regard to the processing of personal data and on

the free movement of such data, and repealing Directive 95/46/EC, and

repealing Directive 95/46/EC (General Data Protection Regulation),

the Data Protection Act and any other European Union and national

law in relation thereto.

The Seed Investment Scheme (Income Tax) Rules are

hereby repealed, without prejudice to anything done or omitted to be

done thereunder.

€0.72