TAX CREDITS (OWNERS AND OPERATORS OF WAREHOUSES SITUATED IN FREE ZONES) RULES

SUBSIDIARY LEGISLATION 123.84

TAX CREDITS (OWNERS AND OPERATORS OF

WAREHOUSES SITUATED IN FREE ZONES)

RULES

1st January, 2005

LEGAL NOTICE 332 of 2005.

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

Operators of Warehouses Situated in Free Zones) Rules.

(2) These rules shall apply in respect of qualifying 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.

In these rules, unless the context otherwise requires -

"the Act" means the Income Tax Act;

"additional employee" means an employee whose employment is

certified by the Corporation as the employment of an additional

employee by means of a certificate issued under rule 11;

"allowable expenditure" has the meaning assigned to it in rule 9;

"approved project" means a project approved in accordance with

rule 5, as subject to any conditions that may be applicable in terms

of rule 5(2);

"the Corporation" means the Malta Enterprise Corporation;

"eligible operator" means a company, whose business consists

solely of the operation of any warehouse or such related activities

as may be approved by the Corporation;

"eligible owner" m eans a company, including an eligible

operator, that -

(i)

owns, or

(ii)

holds under any title valid at law, including a title of

lease, or

(iii)

as a result of an approved project, will own or hold

under any such title a warehouse situated within a free

zone

Provided that the title holder of any property mentioned in

paragraphs (ii) and (iii) shall not be in any way related to the

eligible owner;

"free zone" means a site or an area in Malta that is recognised by

the Comptroller of Customs as a free zone for the purposes of

customs legislation;

"maximum qualifying expenditure" has the meaning assigned to

it in rule 6;

"project period" means the period commencing on the earliest

date of commencement and ending on the latest date of completion

of the project in question as determined in terms of rule 7(1)(d);

"qualifying company" means an eligible owner or an eligible

operator;

"qualifying expenditure" means expenditure incurred in the

carrying out of a qualifying project for -

(i)

the construction, development or improvement of a

warehouse within a free zone, including related labour

costs which are capitalised as part of the cost of such

construction, development or improvement;

(ii)

the acquisition of plant and machinery that is required

for the provision of warehousing facilities within a

free zone or for the operation of a warehouse within a

free zone, excluding office furniture, non-commercial

motor vehicles, works of art, antiques and any assets

whose use is wholly or mainly of a decorative nature

or whose cost is related to their intrinsic value rather

than to their specific usefulness for a qualifying

project;

"qualifying project" means -

(i)

a project of an eligible owner that involves qualifying

expenditure; or

(ii)

a project of an eligible operator that involves

qualifying expenditure referred to in paragraph (ii) of

the definition of "qualifying expenditure";

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

meaning assigned to them under the Business Promotion

Regulations.

(1) When a qualifying company incurs allowable

expenditure in carrying out an approved project and where the

employment condition referred to in rule 10 and the other relevant

conditions laid down in these rules are satisfied, it shall be entitled

to a tax credit in accordance with and subject to the provisions of

these rules.

(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.

(1) When a qualifying company incurs or intends to incur

qualifying expenditure in carrying out a qualifying project it may

apply to the Corporation for the approval of that project.

(2) 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 in accordance the

provisions of the Business Promotion Regulations;

(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 categories of

expenditure listed in rule 2 in the definition of

"qualifying expenditure";

(d) if the applicant is an eligible operator, state the number

of additional employees that it plans to employ during

the project period;

(e) grant the authorisation referred to in sub-rule (3);

(f)

contain such other information, breakdowns and

details, and be accompanied by such documents and

certifications as the Corporation may require;

(g) be made by not later than three months prior to the

company’s tax return date for the year of assessment

that immediately follows the first year in which the

company incurs the expenditure to which the

application refers.

(3)

The authorisation referred to in sub-rule (2)(e) 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 tax

credit under these rules;

(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;

(c) in the case of an application filed by an eligible

operator, and where an application that refers to the

same warehouse has also been filed by an eligible

owner, authorise the Corporation to disclose to that

owner information about the employment of

individuals by the operator where that information is

necessary in connection with the right of the owner to

a tax credit under these rules.

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

which an application made under rule 4 refers is a bona fide

qualifying 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 6 and 7

TAX CREDITS (OWNERS AND OPERATORS

OF WAREHOUSES SITUATED IN FREE ZONES)

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

application constitutes qualifying 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 expenditure.

(1) In respect of every approved 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 5(2);

(c) the maximum qualifying expenditure for each item of

expenditure, indicating the category under rule 2 in the

definition of "qualifying expenditure" to which each

such item belongs;

(d) the maximum aggregate State aid intensity to which

the applicant is entitled;

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

and the latest date by which it must be completed;

(f)

the shortest period for which the investment must be

retained in terms of rule 9;

(g) 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 by

not later than the company’s relative tax return date.

(1) Upon the completion of the approved 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 completion of the project;

(b) the amount of allowable expenditure.

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

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

(3) 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 expenditure if

and to the extent that it meets all the following conditions

(a) it is qualifying expenditure actually incurred by a

company in carrying out an approved project 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 7 refers, which does not

exceed the maximum qualifying expenditure for that

item, and in respect of which any conditions that may

have been made applicable in terms of rule 5(2) have

been satisfied;

(c) it was incurred during the project period and for the

purpose for which the project was approved;

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

records of the company and supported by documentary

evidence;

(e) if it represents the cost of construction works, the

documentary evidence referred to in paragraph (d)

includes a statement 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.

(2) The investment represented by allowable expenditure shall

be retained within the company for at least five years after the

termination of the project period.

(3) If an investment or part thereof is not retained within the

company for the period referred to in sub-rule (2), the amount of

expenditure corresponding to that investment or part thereof, as the

case may be, that is not so retained shall be deemed to have never

constituted allowable expenditure and the provisions of rule 13

shall apply.

(1) Subject to the other provisions of this rule, the

employment condition referred to in rule 3(1) shall be satisfied -

(a) in the case of an eligible owner which is not also the

operator of the warehouse to which the approved

project refers, if that warehouse is, during the project

period or within three years from the termination

thereof, operated by an eligible operator which also

carries out an approved project, and that operator

employs, during his project period, at least one

additional employee;

(b) in the case of a qualifying company which is the

operator of the warehouse to which the approved

project refers, if, during the project period or within

three years from the termination thereof, it employs at

least one additional employee.

(2) Subject to sub-rule (3), an individual shall be deemed to be

an additional employee if all the following conditions are met

(a) he is employed under an indefinite contract or for a

period of not less than three years;

(b) his duties are solely

and

directly

related

to

warehousing operations;

(c) his employment represents a net increase in the

number of full time employees of the employer;

(d) he was not, at any time during the period of two years

prior to his employment with that employer, employed

with a person related through direct or indirect

ownership or shareholding with the employer;

(e) his employment is certified by the Corporation in

accordance with rule 11 as an employment of an

additional employee for the purpose of these rules.

(3) When an employee of an eligible operator who has been

taken into account in calculating the tax credit due to that operator

or to an eligible owner does not remain in the employment of that

company, for any reason whatsoever, for a period of at least thirty-

six months, and is not validly replaced as provided in sub-rule (4),

he shall be deemed to have never been an additional employee and

the provisions of rule 12 shall apply.

(4)

An employee shall be deemed to have been validly replaced

if

(a) within three months from the date of the termination of

his employment the employer employs another

individual in his place; and

(b) the employment of the replacement employee satisfies

the conditions of sub-rule (2), except that the fact that

it is a replacement shall not, of itself, be deemed to be

a breach of the condition of paragraph (d) thereof; and

(c) the aggregate of the periods of employment of the

original employee and of his replacement or

replacements is not less than thirty-six months.

(5) A replacement employee may be validly replaced in the

same manner, and the period of his employment shall also be taken

into account for the purpose of sub-rule (4)(c).

(6) In calculating the number of additional employees, an

employee and his replacement or replacements shall count as one

additional employee.

(1) An eligible operator whose project is approved under

these rules shall prepare and deliver to the Corporation such

information about its employees as is necessary to enable the

Corporation to determine the number of additional employees and

their replacements, including -

(a) the

number

of

individuals

who

were

in

the

employment

of

the

company

before

the

commencement of its project and the number and

particulars and date of employment of individuals who

are employed by it as full time employees during the

project period;

(b) such further information and details as the Corporation

may consider relevant.

(2) The statement shall be prepared in respect at such intervals

as the Corporation may require.

(3) When the Corporation is satisfied that an eligible operator

has employed an individual that qualifies as an additional employee

in accordance with the provisions of rule 10, and that it has

obtained all the information that it has considered relevant about

the employees of that company, it shall issue a certificate to that

effect: provided that such certificate shall be without prejudice to

rule 10(3).

(4) Where the approved project of the operator in question

refers to a warehouse in respect of which the Corporation has

a p p r o v e d a p r o j e c t c a r r i e d o u t b y a n e l i g i b l e o w n e r, t h e

Corporation shall deliver a copy of the certificate to the owner.

(1) The tax credit due to an eligible owner in respect of

allowable expenditure defined in rule paragraph (i) of the definition

of "qualifying expenditure" in rule 2 (the construction,

development or improvement of a warehouse) shall be allowable

for the year of assessment immediately following that in which the

employment condition is first satisfied and shall be the equivalent

of

A x B x 2.5%

where -

A = the amount of the said expenditure incurred by the

eligible owner on the whole approved project;

B = the number of additional employees employed during

the first year in which the employment condition is

satisfied.

(2) The tax credit due to a qualifying company in respect of

expenditure defined in paragraph (ii) of the definition of

"qualifying expenditure" in rule 2 (the acquisition of plant and

machine ry) shall be allowable for each year of assessment

immediately following a year in which that expenditure is incurred

and shall be equivalent to -

A x B x 10%

where -

A = the amount of the said expenditure incurred by the

qualifying company in the respective year

B = the number of additional employees employed during

the year in which that expenditure is incurred.

(3) Notwithstanding the provisions of sub-rules (1) and (2) the

tax credit due to a qualifying company in respect of an approved

project shall not exceed, in the aggregate -

(a) in the case of a small or medium sized enterprise, fifty

percent of the total cost of the project in question; and

(b) in the case of any other qualifying company, forty

percent net grant equivalent of the total cost of the

project in question

Provided that 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 these rules,

the threshold referred to in paragraph (a) or (b), as the case may be,

shall be reduced by the value of that aid

Provided further that the correct calculation of the said

reduction, where applicable, shall be the sole responsibility of the

company.

(4) The tax credit shall be availed of by way of a deduction

from the tax chargeable on gains or profits derived from the

activities for which the investment to which the approved project

refers is made, and shall not be allowable as a deduction from tax

chargeable on gains or profits from any other source; and any

amount of tax credit due for a year of assessment that is not so

absorbed in that year may be carried forward and deducted from the

tax chargeable in subsequent years on income from the said

activities

Provided that any part of the tax credit that is not availed of

up to the year of assessment 2013 shall not be carried forward and

the right to a credit in respect thereof will lapse.

(5) Where, for a year of assessment, a company qualifies for a

tax credit under the Business Promotion Act and also under the

provisions of these rules, 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 these rules.

(6) A tax credit due in accordance with these rules shall not

give rise to a right for any refund.

(1) In the circumstances mentioned in rules 9(3) and 10(3)

the tax credit in question shall be reversed or recalculated, as the

case may be.

(2) The reversal or recalculation of a tax credit shall give rise

to an obligation of the company to pay an amount of tax, in

addition to any other tax liability, equivalent to the amount

represented by the reversal or recalculation, and such amount shall

be deemed to be tax chargeable under the Act for the year of

assessment immediately following that in which the cause for the

reversal or recalculation takes place, and shall be reported and paid

by the company in question accordingly.

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

terms of rule 7 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 7, 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.

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.

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.