DEDUCTIONS AND TAX CREDITS (RESEARCH AND DEVELOPMENT) RULES

SUBSIDIARY LEGISLATION 123.82

DEDUCTIONS AND TAX CREDITS (RESEARCH

AND DEVELOPMENT) RULES

1st January, 2005

LEGAL NOTICE 330 of 2005, as amended by Legal Notice 159 of 2006.

Part I

General Provisions

(1) The title of these rules is the Deductions and Tax

Credits (Research and Development) Rules.

(2) These rules shall apply to expenditure incurred on or after

the 1st January, 2005.

(3) The equivalent of the benefits under the scheme shall be an

amount specifically appropriated in Government’s financial

estimates for a particular financial year.

TABLE A

Rule 11(2)(a)

Tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme

Item of expenditure

Tax credit

Personnel (rule 5(2)(a))

35%

Instruments and equipment (rule 5(2)(b))

35%

Land and premises (rule 5(2)(c))

14%

External consultants and equivalent services (rule 5(2)(d))

35%

External consultants and equivalent services engaged in an

application for EU funds (rule 5(3))

17.5%

Additional overheads (rule 5(2)(e))

10.5%

Other operating expenses (rule 5(2)(f))

10.5%

TABLE B

Rule 11(3)(a)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme

and that is carried out by an SME

Type of R&D project (in terms of the definition of

The tax credit not to exceed

"research and development" under rule 3)

the following percentage of

the total expenditure incurred

in the project

Fundamental research

100%

Industrial research

70%

Pre-competitive research

45%

TABLE C

Rule 11(2)(b)

Tax credit in respect of allowable R&D expenditure

A project that is partly funded under an EU funding programme

Item of expenditure

Tax credit

Personnel (rule 5(2)(a))

35%

Instruments and equipment (rule 5(2)(b))

35%

Land and premises (rule 5(2)(c))

14%

External consultants and equivalent services (rule 5(2)(d))

35%

External consultants and equivalent services engaged in an

application for EU funds (rule 5(3))

12.25%

Additional overheads (rule 5(2)(e))

10.5%

Other operating expenses (rule 5(2)(f))

10.5%

DEDUCTIONS AND TAX CREDITS

(RESEARCH AND DEVELOPMENT)

TABLE D

Rule 11(3)(b)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is not funded, fully or partly, under an EU funding programme

and that is carried out by a company that is not an SME

Type of R&D project (in terms of the definition of

The tax credit not to exceed

"research and development" under rule 3)

the following percentage of

the total expenditure incurred

in the project

Fundamental research

100%

Industrial research

60%

Pre-competitive research

35%

TABLE E

Rule 11(4)

Threshold of tax credit in respect of allowable R&D expenditure

A project that is partly funded under an EU funding programme

Type of R&D project (in terms of the definition of

The tax credit not to exceed

"research and development" under rule 3)

the following percentage of

the total expenditure

Fundamental research

100%

Industrial research

75%

Pre-competitive research

50%

TABLE F

Rule 20(2)

Tax credit in respect of allowable wages and tuition expenditure

Type of expenditure

Tax Credit

Allowable tuition and wages expenditure

17.5%

TABLE G

Rule 20(3)(a)

Threshold of tax credit in respect of allowable wages and tuition expenditure

incurred by an SME

Type of R&D relevant academic qualification

Value not to exceed the

following percentage of the

total expenditure

General academic qualification

80%

Specific academic qualification

45%

DEDUCTIONS AND TAX CREDITS

(RESEARCH AND DEVELOPMENT)

TABLE H

Rule 20(3)(b)

Threshold of tax credit in respect of allowable wages and tuition expenditure

incurred by a company that is not an SME

Type of R&D relevant academic qualification

Value not to exceed the

following percentage of the

total expenditure

General academic qualification

60%

Specific academic qualification

35%

In these rules, unless the context otherwise requires -

"the Act" means the Income Tax Act;

"small enterprise" and "medium-sized enterprise" have the

meaning assigned to them under the provisions of the Business

Promotion Regulations;

"SME" means a small or medium-sized enterprise;

"the Corporation" means the Malta Enterprise Corporation.

Part II

Research and Development Projects

In this Part, unless the context otherwise requires -

"allowable R&D expenditure" has the meaning assigned to it in

rule 10;

"approved R&D project" means a project approved by the

Corporation in accordance with rule 5;

"com pany" means a com pany, as defined in the Act, th at

qualifies as a small or medium-sized enterprise

Provided that with respect to qualifying expenditure

incurred as from such date as the Minister responsible for finance

may prescribe, "company" shall also include a company as defined

in the Act that does not qualify as a small or medium sized

enterprise;

"maximum amount of qualifying R&D expenditure" has the

meaning assigned to it in rule 7;

"project period" means the period starting on the earliest date of

the commencement and ending on the latest date of the termination

of a project as determined under rule 8(1)(d);

"qualifying R&D expenditure" means expenditure that is treated

as such in terms of rule 5(2) and (3);

"research and development" means an activity falling within any

of the following descriptions

(i)

fundamental research, that is, an activity designed to

broaden scientific and technical knowledge not linked

to industrial or commercial objectives;

(ii) industrial research, that is, planned research aimed at

the acquisition of new knowledge, the objective being

that such knowledge may be useful in developing new

products, processes or services or in bringing about a

significant improvement in existing products,

processes or services;

(iii)

pre-competitive research, that is, the shaping of the

results of industrial research into a plan, arrangement

or design for new, altered or improved products,

including the creation of a prototype which cannot be

used commercially.

(1) When a company incurs allowable R&D expenditure in

carrying out an approved R&D project, it shall be entitled to a

deduction and, where applicable, to tax credit in accordance with

and subject to the provisions of this Part.

(2) No deduction or tax credit shall be allowable under the Act

or under any other law in respect of qualifying R&D expenditure

incurred by a company on or after the 1st January, 2005 except as

and to the extent provided for in this Part and in article 14(1)(f) and

(j) of the Act.

(3) The provisions of article 14(1)(h) of the Act shall not apply

with respect to expenditure incurred by a company on or after the

1st January, 2005.

(1) When a company engaged in a trade, business,

profession or vocation incurs or intends to incur qualifying R&D

expenditure in carrying out a research and development project it

may submit to the Corporation an application for the approval of

that project.

(2) Expenditure is to be treated as qualifying R&D expenditure

if it falls within any of the following descriptions

(a) personnel costs of staff employed solely on research

and development to the extent that they have been

correctly reported in the Payee Statement of Earnings

and the Payer’s Annual reconciliation Statement

prepared in terms of the Final Settlement System

(FSS) Rules;

(b) costs of instruments and equipment used solely and on

a continual basis for research and development;

(c) cost of land and premises used solely and on a

continual basis for research and development;

(d) cost of external consulting and equivalent services

related directly to research and development, other

than costs to which sub-rule (3) refers;

(e) additional overheads incurred directly as a result of

research and development;

(f)

other operating expenses incurred directly as a result

of research and development.

(3) When the research and development project in question is a

project that is, or that would be if selected, fully or partly financed

by the Commission of the European Union under a framework

programme, the costs of external consulting and equivalent services

related directly to the preparation and submission of an application

for the selection and funding of that project under the relative

programme shall also be treated as qualifying R&D expenditure

incurred in the carrying out of an R&D project.

(4) An application under this rule shall be made on such form

as may be acceptable to the Corporation and shall -

(a) provide such particulars of the applicant as are

necessary to determine whether it qualifies or not as a

small or medium sized enterprise;

(b) describe the project, its purpose and the expected date

of its commencement and its duration;

(c) contain a description of each item of qualifying

expenditure that the applicant has incurred or intends

to incur in the carrying out of the project, which items

shall be grouped according to the descriptions listed in

the definition of research and development given in

rule 3 and to the categories of qualifying R&D

expenditure listed in sub-rules (2) and (3);

(d) grant the authorisation referred to in sub-rule (5);

(e) contain such other information, breakdowns and

details, and be accompanied by such documents and

certifications as the Corporation may require;

(f)

be made not later than three months before the

company’s tax return date for the year of assessment

that immediately follows the year in which the

company incurs the expenditure to which the

application refers.

(5)

The authorisation referred to in sub-rule (4)(d) shall -

(a) grant to the Corporation and its officers access to any

premises or works as the Corporation may consider

necessary in order to ascertain any matter relevant to

the approval of an application and the right to a

deduction or tax credit under this Part;

(b) authorise the Corporation to disclose to the

Commissioner any information and to pass on to the

Commissioner originals or copies of any documents

and records that the Corporation may have obtained in

connection with the application.

(1) When the Corporation is satisfied that a project to

which an application made under rule 5 refers is a bona fide

research and development project and that the application complies

with the requirements of these rules, it may approve the project and

proceed to make a determination and issue a letter of approval as

provided in rules 7 and 8

Provided that -

(a) the Corporation shall not approve any project after the

31st December, 2008 or after such earlier date as the

Corporation may specify by means of a notice in the

Gazette;

(b) the Corporation shall not approve a project whose

expected duration is more than thirty-six months.

(2) The Corporation may make the approval of a project subject

to such conditions as it may consider appropriate.

When the Corporation approves a project it shall determine

the extent to which, in its opinion, the expenditure referred to in the

ap pli cati on const itu tes q uali fy ing R& D expen dit ure and i s

necessary and reasonable in the light of the purpose for which it is

or was intended to be incurred, and the amount so determined shall

constitute the maximum qualifying R&D expenditure.

(1) In respect of every approved R&D project the

Corporation shall issue a letter of approval showing

(a) particulars of the applicant;

(b) a description of the project, with such conditions as the

Corporation may have considered appropriate pursuant

to rule 6(2);

(c) the amount of the maximum qualifying R&D

expenditure for each item of expenditure, indicating

the category under rule 5(2) and (3) to which each

such item belongs;

(d) the earliest date by which the project must commence

and the latest date by which it must be completed;

(e) the shortest period for which the investment must be

retained in terms of rule 10(2);

(f)

such other particulars as the Corporation may consider

appropriate.

(2) The Corporation shall deliver the letter of approval to the

applicant and a copy thereof to the Commissioner.

(3) The Corporation shall issue the said letter of approval

before the company’s relative tax return date.

(1) On the completion of the approved R&D project and

not later than sixty days therefrom, the company shall deliver to the

Corporation a certificate drawn up by a person who is recognised

by the Corporation as competent for this purpose, showing

(a) the date of the completion of the project;

(b) the amount of allowable R&D expenditure, indicating

the applicable description under the definition of

research and development given in rule 3 and the

category of qualifying R&D expenditure listed in rule

5(2) and (3) to which each item belongs;

(c) whether, where applicable, the conditions that may

have been made applicable to the project in terms of

rule 6(2) have been observed.

(2) Where the approved project includes qualifying R&D

expenditure listed under rule 5(2)(c), the certificate referred to in

sub-rule (1) shall be accompanied by a statement written by the

architect under whose direction or supervision the works were

carried out, confirming that the expenditure was incurred in the

carrying out of the project as approved.

(3) The company shall, within the time limit set out in sub-rule

(1), deliver a copy of the certificate and, where applicable, of the

accompanying statement, to the Commissioner.

(4) The Commissioner may, after receiving a copy of the

certificate, request an independent opinion from the Corporation or

any other competent technical person regarding the contents

thereof.

(1) Expenditure shall constitute allowable R&D

expenditure if and to the extent that it meets all the following

conditions

(a) it is qualifying R&D expenditure actually incurred by

a company and is not reimbursed to or otherwise

recoverable by it;

(b) it is an item of expenditure to which the letter of

approval issued under rule 8 refers and in respect of

which any condition that may have been made

applicable to the project in terms of rule 6(2) are

satisfied;

(c) it was incurred during the project period;

(d) it is correctly, clearly and separately recorded in the

records of the company and supported by documentary

evidence.

(2) The investment represented by allowable R&D expenditure

that falls within the descriptions of rule 5(2)(b) and (c) shall be

retained within the company for at least three years after the

termination of the project period or for such shorter period as the

Corporation may specify in the letter of approval in terms of rule

8(1)(e), and the assets to which such expenditure refers shall be, for

the said period, used solely and on a continual basis for research

and development.

(3) If an investment or any part thereof represented by

expenditure referred to in sub-rule (2) is not retained within the

company for the period referred to in that sub-rule, or is not, during

the said period, used solely and on a continual basis for research

and development, the amount of expenditure corresponding to that

investment or part thereof, as the case may be, that is not so

retained shall, for the purpose only of determining the right to the

tax credit as provided in rule 11(2), be deemed to have never

constituted allowable R&D expenditure and the provisions of rule

12 shall apply.

(1) In determining the total income of a company that

incurs allowable R&D expenditure there shall be allowed a

deduction equivalent to that expenditure

Provided that no deduction shall be allowed under the

provisions of this rule in the case of any such expenditure on plant

or machinery or premises, in respect of which any deduction is

allowed under article 14(1)(f) and (j) of the Act.

(2) Where the R&D expenditure is incurred in the carrying and

of an activity in the applicant’s main place of business in addition

to the deduction referred to in sub-rule (1) the company shall be

entitled -

(a) in respect of allowable R&D expenditure other than

expenditure to which paragraph (b) refers, to a tax

credit equivalent to a percentage of the said

expenditure as shown in Table A of the Schedule, but

not exceeding the threshold referred to in sub-rules (3)

and (5);

(b) in respect of allowable R&D expenditure incurred in

carrying out an approved R&D project that is financed

partly by the Commission of the European Union

under a framework programme, to a tax credit

equivalent to a percentage of that expenditure as

shown in Table C of the Schedule, but not exceeding

the threshold referred to in sub-rules (4) and (5).

(3) Subject to sub-rule (5), the tax credit allowable under sub-

rule (2)(a) in respect of a project shall not exceed -

(a) the threshold set out in Table B of the Schedule, if the

project is carried out by a small or medium-sized

enterprise; or

(b) the threshold set out in Table D of the Schedule in any

other case.

(4) Subject to sub-rule (5), the total value of the tax credit

allowable under sub-rule (2)(b) in respect of a project shall not

exceed the threshold set out in Table E of the Schedule.

(5) Where the company in question has benefited from any

State aid in respect of expenditure incurred in the carrying out of

the project, other than as provided for in this Part, the threshold

referred to in sub-rule (3) or (4), as the case may be, shall be

reduced by the value of that other benefit.

(6) The correct calculation of the reduction mentioned in sub-

rule (5), where applicable, shall be the sole responsibility of the

applicant company.

(7)

When the tax credit referred to in sub-rule (2)(a) or the tax

credit referred to in sub-rule (2)(b), computed before taking into

account the thresholds referred to in sub-rules (3), (4) and (5),

exceeds the respective threshold, the said tax credit allowable in

respect of each item of expenditure shall be reduced pro rata.

(8) The amount of the total tax credits allowable under this rule

shall be subject to the applicable State aid intensity limitations, in

particular those established in article 5a of Commission Regulation

(EC) No 70/2001 on the application of Articles 87 and 88 of the EC

Treaty to State Aid to small and medium-sized enterprises (OJ L

10/33, 13.1.2001), as subsequently amended.

(9) The deduction and tax credit referred to in this rule shall be

due for the year of assessment immediately following the year in

which the relative expenditure is incurred

Provided that

(a) to the extent that a deduction or tax credit cannot be

availed of in a year of assessment, it shall be carried

forward to be availed of in subsequent years of

assessment;

(b) a tax credit due under this Part shall not give rise to a

right to a refund of tax;

(c) where, for a year of assessment, a company qualifies

for a tax credit under the Business Promotion Act and

also under the provisions of this Part, it shall avail

itself of the tax credit under the Business Promotion

Act before any set-off is made in respect of the tax

credit due under this Part.

If a company avails itself of a tax credit under rule 11(2) in

respect of expenditure that is subsequently deemed to have never

constituted allowable R&D expenditure for the purpose of that rule

in the circumstances mentioned in rule 10(3), an amount equal to

that credit shall be deemed to be tax due by the company, in

addition to any other tax liability, for the year of assessment that

immediately follows the year in which those circumstances subsist,

and the provisions of the Act shall apply accordingly.

Insofar as it provides for and regulates benefits for small

and medium-sized enterprises this Part is prescribed and shall be

applied in accordance with Commissioner Regulation (EC) No 70/

2001 on the application of Articles 87 and 88 of the EC Treaty to

State Aid to small and medium-sized enterprises (OJ L 10/33,

13.1.2001), as subsequently amended.

Part III

R & D Relevant Qualifications

In this Part, unless the context otherwise requires -

"allowable wages and tuition expenditure" has the meaning

assigned to it in rule 19;

"company" has the meaning assigned to it in the Act;

"general qualification" means a masters degree or a doctoral

degree that is largely transferable to other firms or fields of work in

information technology, sciences or engineering awarded on the

successful completion of a full-time course in a university or

equivalent educational institution recognised by the Corporation;

"maximum qualifying wages and tuition expenditure" means the

amount determined in accordance with rule 17(1);

"qualifying wages and tuition expenditure" means expenditure

that is treated as such in terms of rule 16(2)

Provided that expenditure that forms part of allowable

R&D expenditure under Part I shall not be treated as qualifying

wages and tuition expenditure under this Part;

"R&D relevant qualification" means a general or a specific

qualification which, in the opinion of the Corporation, is relevant

to research and development;

"specific qualification" means an internationally recognised

certificate in information technology, sciences or engineering

awarded by a university or other institution recognised by the

Corporation to an employee of a company on the successful

completion of a full-time course which, in the opinion of the

Corporation, directly contributes to high level specialisation in

areas directly and principally applicable to that employee’s present

and future position in the company as the Corporation may

approve.

(1) When a company incurs allowable wages and tuition

expenditure it shall be entitled, for the purpose of ascertaining its

total income, to a deduction and, where applicable, to a tax credit in

respect of that expenditure in accordance with and subject to the

provisions of this Part.

(2) No deduction or tax credit shall be allowable under the Act

or under any other law in respect of qualifying wages and tuition

expenditure incurred on or after the 1st January, 2005 except as and

to the extent provided for in this Part.

(1) When a company engaged in a trade, business,

profession or vocation incurs or intends to incur qualifying wages

and tuition expenditure it may apply to the Corporation for a

determination under rule 17.

(2) Expenditure is to be treated as qualifying wages and tuition

expenditure if it is expenditure that falls within any of the

following descriptions and that is incurred by a company in

connection with a course of studies leading to an R&D relevant

qualifying qualification undertaken by one or more full-time

employees

(a) wages and the employer’s share of social security

contributions paid in respect of the respective

employee while he was a full-time employee pursuing

the course in question;

(b) fees paid to the university or institution in question for

the admission of the respective employee to the course

and the attendance of that employee for that course;

(c) the cost of course materials directly related to the

training programme, as may be approved by the

Corporation.

(3) An application under this rule shall be made on such form

as may be acceptable to the Corporation and shall

(a) provide such particulars on the applicant as are

necessary to determine whether it qualifies or not as a

small or medium-sized enterprise;

(b) describe in detail each course of studies to which it

refers, including the date of the commencement and of

the completion of the course, the relative academic

qualification and the particulars of the respective

employee;

(c) contain a description of each item of qualifying wages

and tuition expenditure that the applicant has incurred

or intends to incur, which items shall be grouped

according to the categories of expenditure listed in

sub-rule (2);

(d) grant the authorisation referred to in sub-rule (4);

(e) contain such other information, breakdowns and

details, and be accompanied by such documents and

certifications as the Corporation may require;

(f)

be made not later than three months before the

company’s tax return date for the year of assessment

that immediately follows the year in which the

company incurs the expenditure to which the

application refers.

(4)

The authorisation referred to in sub-rule (3)(d) shall -

(a) grant to the Corporation and its officers access to any

premises or works as the Corporation may consider

necessary in order to ascertain any matter relevant to

the approval of an application and the right to a

deduction or tax credit under this Part;

(b) authorise the Corporation to disclose to the

Commissioner any information and to pass on to the

Commissioner originals or copies of any documents

and records that the Corporation may have obtained in

connection with the application.

(1) When the Corporation is satisfied that the application

is a bona fide application that complies with the provisions of rule

16, and when, after it has obtained all such information and made

such ascertainment as it has considered necessary, it considers it

appropriate so to do, it may determine that the course in question is

a course leading to an R&D relevant qualification and determine

the extent to which, in its opinion, the expenditure referred to in the

application constitutes qualifying wages and tuition expenditure

and is necessary and reasonable in the light of the purpose for

which it is or was intended to be incurred, and the amount so

determined shall constitute the maximum qualifying wages and

DEDUCTIONS AND TAX CREDITS

(RESEARCH AND DEVELOPMENT)

tuition expenditure

Provided that the Corporation shall not make such a

determination in respect of a course of studies that -

(a) commences after the 31st December, 2008 or after

such earlier date as the Corporation may specify by

means of a notice in the Gazette;

(b) is longer than thirty-six months.

(2) The Corporation may make the determination under this

rule subject to such conditions as it may consider appropriate.

(3) When the Corporation makes a determination under this

rule, it shall issue a letter of approval in respect of each course of

studies to which that determination refers showing -

(a) the particulars of the applicant and of the employee in

question, including the date of the commencement of

the employee’s employment with the applicant;

(b) a description of the course and the relative

qualification, specifying whether it is to be treated as a

general or a specific qualification;

(c) any conditions as the Corporation may

have

considered appropriate pursuant to sub-rule (2);

(d) the maximum qualifying wages and tuition

expenditure for each item of expenditure, indicating

the category under rule 16(2) to which each such item

belongs;

(e) the earliest date by which the course is to commence

or the date on which it has commenced and the latest

date by which it is to be successfully concluded;

(f)

such other particulars as the Corporation may consider

appropriate.

(4) The Corporation shall deliver the letter of approval to the

applicant and a copy thereof to the Commissioner.

(1) On the successful completion of a course in respect of

which a letter of approval has been issued and not later than sixty

days from the date of such completion, the company shall deliver to

the Corporation a certificate showing

(a) the date of the successful completion of the course;

(b) the amount

of

allowable

wages

and

tuition

expenditure;

(c) whether, where applicable, the conditions that may

have been made applicable to the project in terms of

rule 17(2) have been observed.

(2) The said certificate shall be accompanied by a statement

issued by the relevant university or other institution showing the

date on which the employee successfully completed the course in

question.

(3)

The company shall, within the time limit set out in sub-rule

(1), deliver to the Commissioner a copy of the certificate referred

to in the said sub-rule (1) and a copy of the statement referred to in

sub-rule (2).

Expenditure shall constitute allowable wages and tuition

expenditure if and to the extent that it meets all the following

conditions

(a) it is qualifying wages and tuition expenditure actually

incurred by a company and is not reimbursed to or

otherwise recoverable by it;

(b) it is an item of expenditure to which a letter of

approval issued under rule 17 refers, which does not

exceed the maximum qualifying wages and tuition

expenditure for that item, and in respect of which any

conditions that may have been made applicable in

terms of rule 17(2) have been satisfied;

(c) it was incurred in the manner and for the purpose

stated in the application made by the company under

rule 16 or otherwise declared to the Corporation;

(d) it is correctly, clearly and separately recorded in the

records of the company and supported by documentary

evidence.

(1) In determining the total income of a company, there

shall be allowed a deduction equivalent to the relative allowable

wages and tuition expenditure.

(2) When the employee in respect of whom the allowable

wages and tuition expenditure was incurred obtains the

qualification in question, the company shall, in addition to the

deduction referred to in sub-rule (1), be entitled to a tax credit

equivalent to a percentage of the said allowable wages and tuition

expenditure as shown in Table F of the Schedule, but not exceeding

the thresholds laid down in sub-rules (3) and (4)

Provided that the tax credit under this sub-rule shall not be

due unless -

(a) the company has obtained and delivered to the

Corporation the statement referred to in rule 18(2); and

(b) the employee was still a full-time employee of the

company on the date of the successful completion of

the course in question; and

(c) that date is not later than the date specified in the letter

of approval issued by the Corporation in terms of rule

17(3)(e) as the latest date by which the course is to be

successfully completed.

(3) Subject to sub-rule (4), the tax credit allowable under sub-

rule (2) shall not exceed -

(a) the threshold set out in Table G of the Schedule, if the

expenditure is incurred by a small or medium-sized

enterprise;

(b) the threshold set out in Table H of the Schedule in any

other case.

(4) Where the company in question has benefited from any

State aid in respect of expenditure to which the tax credit refers,

other than as provided for in this Part, the said threshold shall be

reduced by the value of that aid.

(5) The correct calculation of the reduction mentioned in sub-

rule (4), where applicable, shall be the sole responsibility of the

company.

(6) The deduction referred to sub-rule (1) shall be due for the

year of assessment immediately following the year in which the

relative expenditure is incurred, and the tax credit referred to in

sub-rule (2) shall be due for the year of assessment immediately

following the year in which the course of studies in question is

successfully completed

Provided that -

(a) to the extent that a tax credit cannot be availed of in a

year of assessment, it shall be carried forward to be

availed of in subsequent years of assessment;

(b) a tax credit due under this Part shall not give rise to a

right to a refund of tax;

(c) where a company qualifies for a tax credit under the

Business Promotion Act and also under the provisions

of this Part, it shall avail itself of the tax credit under

the Business Promotion Act before any set-off is made

in respect of the tax credit due under this Part.

(7) The amount of the total tax credit allowable under this Part

shall be subject to the applicable State aid intensity limitations, in

particular those established in Article 4 of Commission Regulation

(EC) No 68/2001 on the application of Articles 87 and 88 of the EC

Treaty to training aid (OJ L 10]20, 13.1.2001), as subsequently

amended.

This Part is prescribed and shall be applied in accordance

with Commission Regulation (EC) No 68/2001 on the application

of Articles 87 and 88 of the EC Treaty to training aid (OJ L 10/20,

13.1.2001), as subsequently amended.

Part IV

Tax Credit for Social Security Contributions

In this Part, unless the context otherwise requires -

"company" m eans a company, as defined in t he Act, that

qualifies as a small or medium-sized enterprise

Provided that as from such date as the minister responsible

f o r f i n a n c e m a y p r e s c r i b e , " c om p a n y" s h a l l a ls o i n c lu d e a

company, as defined in the Act, that does not qualify as a small or

medium sized enterprise;

the terms "general qualification", "R&D relevant qualification"

and "specific qualification" have the meaning assigned to them in

rule 14.

(1) Subject to the other provisions of these rules, when a

company engaged in a trade, business profession or vocation incurs

expenditure consisting of the employer’s share of social security

contributions that meets all the conditions of sub-rule (3), it shall

be entitled to a tax credit equivalent to that expenditure.

(2) The said tax credit shall be in addition to and without

prejudice to the right of that company to a deduction, if any, that

may be allowable in respect of the said expenditure in accordance

with the provisions of article 14 of the Act

Provided that -

(a) no tax credit shall be allowed under this rule in respect

of expenditure in respect of which a deduction or tax

credit is availed of under Part I;

(b) the tax credit due to a company under this Part shall

not exceed, in the aggregate, the ceiling laid down in

Article 4 of Commission Regulation (EC) No 2204/

2202 on the application of Articles 87 and 88 of the

EC Treaty to State Aid for employment (OJ L 337/3,

13.12.2002) as may be subsequently amended;

(c) where the company in question has benefited from any

State aid in respect of expenditure to which the tax

credit refers, other than as provided in this Part, the

said ceiling shall be reduced by the value of that other

benefit;

(d) the correct calculation of the said ceiling and, where

applicable, reduction, shall be the sole responsibility

of the company.

(3)

The tax credit referred to in this rule shall be allowable if -

(a) the relative expenditure represents the employer’s

share of social security contributions actually paid by

the employer company in accordance with the relevant

provisions of the Social Security Act in respect of each

individual who, at the time that he was employed as a

full-time employee by that company and for the period

that the expenditure was incurred, was in possession of

an R&D relevant qualification;

(b) the employer company is in possession of a letter of

approval issued by the Corporation in terms of sub-

rule (4) confirming that the qualification of each of the

employees in question is an R&D relevant

qualification; and

(c) each employee in respect of whom the tax credit is

claimed is an individual -

(i)

whose employment with the said company

represented a net increase in the number of full-

time employees both in the company concerned

and in the establishment of which that company

forms part; and

(ii) who either had no previous full-time

employment in Malta or had not resigned

voluntarily from his last full-time employment

that he had prior to his employment with the said

company; and

(iii) who is first employed by the company claiming

the tax credit on or after 1st January, 2005 and

who remains in the full-time employment of that

company for at least three consecutive years.

(4) The letter of approval referred to in sub-rule (3)(b) may be

issued by the Corporation upon a bona fide application that is made

by not later than three months prior to the company’s tax return

date for the year of assessment for which the relative tax credit is

first claimed, and after the Corporation has obtained all such

information and made such ascertainment as it has considered

necessary. The Corporation shall deliver the certificate to the

applicant and a copy thereof to the Commissioner.

(5) The tax credit allowable under this rule shall be due for

each year of assessment that immediately follows a year in which

expenditure giving rise to the right to the tax credit is incurred

Provided that -

(a) to the extent that the tax credit cannot be availed of in

a year of assessment, it may be carried forward to be

availed of in subsequent years of assessment;

(b) a tax credit shall not give rise to a right to a refund of

tax;

(c) the tax credit is allowable for not more than three

consecutive years of assessment in respect of any one

employee, and the first of any such year of assessment

shall not be later than the year of assessment 2009;

(d) if an employee in respect of whom a tax credit has

been claimed does not remain in employment for the

period specified in sub-rule (3)(c)(iii), that tax credit

shall be deemed to have never been due;

(e) if a company avails itself of a tax credit which

subsequently, in the circumstance mentioned in

paragraph (d), is deemed to have never been due, an

amount equivalent to credit shall be deemed to be tax

due by that company, in addition to any other tax

liability, for the year of assessment immediately

following that in which that circumstance subsists, and

the provisions of the Act shall apply accordingly.

This Part is prescribed and shall be applied in accordance

with Commission Regulation (EC) No 2204/2202 on the

application of Articles 87 and 88 of the EC Treaty to State Aid for

employment (OJ L 337/3, 13.12.2002), as may be subsequently

amended.

Part V

Further Provisions

Notwithstanding the other provisions of these rules, except

where the Commissioner otherwise approves, no tax credit shall be

due to a company under these rules 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.

A company to whom a letter of approval has been issued in

terms of rule 8, 17 or 23 shall submit to the Corporation, by not

later than two months after the relative tax return date, a copy of

the tax return for the earliest year of assessment for which the

relative tax credit may first be claimed in terms of the said approval

and for each subsequent year of assessment for which the said tax

credit remains available to it under these rules, irrespective of

whether the benefit is utilised or not.

(1) When the Corporation issues a letter of approval to a

company in terms of rule 8, 17 or 23, it may, from time to time,

make such reviews of books and documents, hold on-site

inspections on premises of that company and make such other

monitoring as it may consider necessary for the purposes of these

rules and for any matter relevant to an approved application.

(2) In addition to the database kept under the provisions of the

Business Promotion Regulations, the Corporation shall also keep a

database of all assistance provided to, or claimed by, a company

under these rules for ten years from the date on which the last

individual assistance was granted, in order to enable it to -

(a) verify whether the provisions of these rules have been

complied with;

(b) provide the State Aid Monitoring Board with such

information as it may require; and

(c) inform the Commissioner whether the credits claimed

in terms of these rules have been properly calculated.

Notwithstanding the other provisions of these rules, the

Commissioner may make such enquiries and verification as he

deems fit in accordance with the provisions of the Income Tax Act,

and shall, after consulting the Corporation, have the right not to

allow any tax credit if any default is committed by the applicant in

respect of any provision of the Income Tax Act or the Social

Security Act or any subsidiary legislation issued thereunder.

The following further conditions must also be fulfilled for

eligibility to the benefit under these regulations

(a) 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;

(b) 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.

If a company avails itself of a tax credit under Part III or

Four in respect of expenditure that is subsequently deemed to have

never constituted allowable expenditure for the purpose of the said

Parts in the circumstances mentioned therein, an amount equal to

that credit shall be deemed to be tax due by the company, in

addition to any other tax liability, for the year of assessment that

immediately follows the year in which those circumstances subsist,

and the provisions of the Act shall apply accordingly.

DEDUCTIONS AND TAX CREDITS

(RESEARCH AND DEVELOPMENT)