SEED INVESTMENT SCHEME (INCOME TAX) RULES

SUBSIDIARY LEGISLATION 123.213

SEED INVESTMENT SCHEME (INCOME TAX)

RULES

1st January, 2024

LEGAL NOTICE 45 of 2024, as amended by Legal Notice 43 of 2026.

(1)

The title of these rules is the Seed Investment

Scheme (Income Tax) Rules.

(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

"Act" means the Income Tax Act;

"Commissioner" means the Commissioner for Tax and

Customs;

"competent entity" means the Malta Government Venture

Capital Limited registered under the laws of Malta with

registration number "C 108058"

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

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

receipt of information that, had it been available during the

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

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 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

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.

SEED INVESTMENT SCHEME (INCOME TAX)