REINVESTMENT TAX CREDIT (INCOME TAX) REGULATIONS

SUBSIDIARY LEGISLATION 123.71

REINVESTMENT TAX CREDIT (INCOME TAX)

REGULATIONS

22nd July, 2003

LEGAL NOTICE 187 of 2003, as amended by Legal Notice 409 of 2007.

The title of these regulations is the Reinvestment Tax

Credit (Income Tax) Regulations.

In these regulations, unless the context otherwise requires -

''base year'' means the year during which the profit eligible to be

reinvested has been earned and subsequently declared in the tax

return for the relative year of assessment;

''Commissioner'' means the Commissioner of Inland Revenue;

''Corporation'' means the Institute for the Promotion of Small

Enterprise Limited;

''eligible person'' means a person resident in Malta deriving

eligible profits that are reinvested in an eligible reinvestment

project approved by the Corporation and conforming with the

requirements of regulation 3;

''eligible profits'' means income deriving from any activity

carried out in Malta chargeable under the provisions of article

4(1)(a) of the Income Tax Act, hereinafter referred to as ''the Act''

and computed in accordance with the provisions of the Act, and set-

aside for the exclusive purpose of financing an approved

reinvestment project;

''eligible reinvestment project'' means a project approved by the

Corporation under these regulations, in respect of which qualifying

expenditure has been incurred and is retained within the business

for at least two years or such other shorter period as the

Corporation may deem appropriate in view of the nature of the

project;

''qualifying expenditure'' shall mean expenditure of a capital

nature exclusively financed by eligible profits, incurred as part of

an eligible reinvestment project as approved by the Corporation in

acquiring brand new plant and machinery, but excluding motor

vehicles unless these are specialised commercial vehicles that are

essential to the implementation of the project

Provided that the Corporation may, in its absolute

discretion, approve expenditure within an eligible reinvestment

project, incurred in acquiring

(a) second-hand, refurbished or reconditioned plant and

machinery;

(b) any extension to an existing industrial building or

structure, including the cost of land forming an

integral part of such extension

Provided further that such expenditure is incurred on

assets -

(a) which are first used in Malta; and

(b) in respect of which no income tax benefit or incentive

has previously been obtained under any other

legislation;

''qualifying profits'' means income deriving from the same

activity in which eligible profits have been earned, computed in

accordance with the provisions of the Act, that is relieved by a

reinvestment tax credit.

(1) These regulations shall apply to eligible persons

deriving eligible profits in any of the years of assessment 2003 to

2005 and reinvested in an eligible reinvestment project within three

years from the end of the base year.

(2) In order to qualify for the benefits under these regulations,

a person shall have in the base year

(i) had a turnover of not more than €585,000, and

(ii) had a minimum of two but not more than five

employees of whom at least two were full time

employees, and

(iii) was registered as an FSS payor under the Final

Settlement System (FSS) Rules

Provided that in the case of a company which prepares its

financial statements in a currency other than in Euros, the turnover

shall be changed into Euros by reference to the middle rate of

exchange as determined by the Central Bank of Malta.

(3) A person intending to benefit from the incentive provided

by these regulations, shall, by not later than one month after the

relative tax return date, notify the Corporation of such intention for

each base year by means of a letter of application specifying such

intention and providing the following details

(i)

the person’s name, address, income tax

registration number and employer number;

(ii) the profit declared for the base year;

(iii) the amount of eligible profits to be set-aside for

reinvestment;

(iv) the turnover for the base year;

(v) the number of employees engaged during the

year, distinguishing between part-time and full-

time;

(vi) the period during which the reinvestment is to be

made,

(vii)

the details of the reinvestment project, with a

breakdown of the major expense headings;

(viii) a certificate issued by a certified public

accountant and auditor confirming that the

reinvestment project is viable, that the expenses

involved are reasonable and fair according to

market values, and that the reinvestment has the

capacity to expand the business

Provided that any person who fails to notify the

Corporation in writing about the intention to apply for the incentive

provided by this regulation, shall forfeit the right to be eligible for

the benefit

Provided further that for the year of assessment 2003, such

notification shall reach the Corporation by not later than the 31st of

October 2003.

(4) The Corporation, on being satisfied with the application

referred to in this regulation, shall issue a certificate indicating the

amount of the eligible profits approved for reinvestment.

(1) Where it appears to the Corporation that eligible profits

derived by an eligible person have been set aside for the exclusive

purpose of financing an eligible reinvestment project as shall have

been approved by the Corporation, and that the eligible profits or

part thereof have in fact been used for such purpose, the

Corporation shall issue a certificate showing compliance and

th ereu po n the pe rso n sh all b e e nti tl ed to t he ben efi t un der

subregulation (2).

(2) The benefit available under these regulations shall be in the

form of a reinvestment tax credit equivalent to the tax chargeable

on that part of the eligible profits that is reinvested in an approved

project on the basis of the following formula

tax on total income for the base year

less

tax on total income after excluding that part of the

eligible profits for the same base year that is being

reinvested, calculated at the rates applicable for the

base year.

(3) A person entitled to a reinvestment tax credit in respect of a

year of assessment shall be entitled to deduct from the amount of

tax which is due on qualifying profits for that year of assessment

the amount of the reinvestment tax credit, calculated as a

proportion of the qualifying expenditure to the eligible profits that

are deemed reinvested and multiplied by the maximum tax credit

entitlement derived by applying the formula in subregulation (2).

(4)

(a) Where the reinvestment tax credit for any year of

assessment exceeds the tax payable by such person for

that year, the excess shall be added to the reinvestment

tax credit, if any, for the following year

Provided that so much of the reinvestment tax

credit which is not so utilised at the end of any year is

carried forward up to the year of assessment 2010 and

may not be set off against the tax due on any other

source of income or to generate a refund of tax.

(b) The reinvestment tax credit shall only be deducted

from the tax due on qualifying profits from the same

source of the eligible profits and for the purpose of this

subregulation qualifying profits are deemed to be the

last part of the total income.

(c) The reinvestment tax credit granted under these

regulations shall not be allowed if the eligible profits

have not been reinvested, even if such profits had been

set aside for reinvestment under an eligible

reinvestment project.

(5) Where a person has benefited from the provisions of this

regulation, the reinvestment tax credit for any year of assessment

shall be deemed to have relieved from tax so much of the

qualifying profits for the year which when multiplied by the rate or

rates of tax at which it was chargeable in that year, is equal to the

reinvestment tax credit.

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

relieved from tax in accordance with subregulation (4), shall, for

the purposes of the Act, be retained in the business for at least until

the end of the year of assessment 2009, and

(a) in the case of an individual it shall be included in the

capital account and the movements in such account

shall be disclosed by way of a note to the audited

financial statements;

(b) in the case of a limited liability company it shall be

disclosed separately in the audited financial statements

in a reserve entitled ''Reinvestment Reserve''.

(7)

(a) In the case of a limited liability company the

qualifying income which is deemed to have been

relieved from tax is allocated to the Maltese Taxed

Account and, upon distribution, shall be exempt from

tax in the hands of the shareholders up to the ultimate

shareholder.

(b) The company shall state in the dividend warrant

pertaining to any such distribution that such income

has been relieved by a reinvestment tax credit in

accordance with these regulations, and the tax which

has so been relieved shall not be available for refund

for any purpose of the Act.

(8) Where the benefit provided by these regulations is due to a

partnership, any such benefit shall be due to the partners of any

such partnership

Provided that the reinvestment tax credit is calculated

separately for each partner on the share of qualifying profit

attributable to such partner in the manner set out in subregulation

(4).

(1) A person wishing to claim a reinvestment tax credit for

any year of assessment, shall submit to the Corporation, by not

later than three months before the relative tax return date, a written

application supported by audited financial statements and any other

documentary evidence requested by the Corporation.

(2)

Any application required to be submitted to the Corporation

in order to benefit from these regulations shall be in such form and

contain such particulars as the Corporation may require.

(3) The Corporation, on being satisfied with the submissions

referred to in this regulation and within sixty days from the receipt

of all relevant information it may request, shall issue a certificate

of compliance confirming that all the provisions of these

regulations have been complied with.

(4) On granting its approval for any purpose under these

regulations, the Corporation shall confirm its approval in writing

setting out the conditions to be satisfied by the person, and the

person’s entitlement to the benefit provided by these regulations

shall be conditional on the production of such written approval.

(5) The Corporation shall forward to the Department of Inland

Revenue copies of certificates and approvals issued under the

provisions of these regulations.

(a) Where a benefit has been provided in terms of these

regulations, the Corporation may -

(i)

from time to time make such examination of

books and documents, hold on-site inspections

on premises and all other things and matters of

that person as may be necessary to ensure that

the benefit is being applied for the purpose for

which it has been made; and

(ii) request such financial statements from the

person as it may require, to be submitted

quarterly or at shorter intervals at the discretion

of the Corporation.

(b) Where the Corporation is not satisfied that an eligible

person is employing the benefit for the purpose it is

intended for or has failed to fulfill any condition under

these regulations, such person shall immediately

forfeit the right for the benefit.

The following further conditions must also be fulfilled for

eligibility to the benefit under these regulations

(a) the tax return together with audited financial

statements incorporating the TIFD codes as stipulated

in the Tax Index of Financial Data Rules, are to be

submitted to the Commissioner by the relative tax

return date for each year of assessment starting from

the base year and all subsequent consecutive years

during which a reinvestment tax credit is available

irrespective of whether it is utilised or not;

(b) no other benefits are being claimed or may

subsequently be claimed by a person on the same

activity or project under any other legislation granting

fiscal incentive schemes;

(c) all tax liabilities including amounts due in respect of

FSS tax as well as social security contributions due up

to the time of the application, except for any tax still in

dispute, must have been settled or is being settled in

accordance with a formal agreement drawn up with the

Commissioner.

Notwithstanding the other provisions of these regulations,

the Commissioner shall have the right not to allow any

reinvestment tax credits if any default is committed by the

applicant in respect of any provision of the Act or the Social

Security Act.