REINVESTMENT TAX CREDIT (INCOME TAX) RULES

SUBSIDIARY LEGISLATION 123.86

REINVESTMENT TAX CREDIT (INCOME TAX)

RULES

11th October, 2005

LEGAL NOTICE 334 of 2005. as anended by Legal Notice 409 of 2007.

(1) The title of these rules is the Reinvestment Tax Credit

(Income Tax) Rules.

(2) 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;

"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;

"the Commissioner" means the Commissioner of Inland

Revenue;

"the Corporation" means the Malta Enterprise Corporation;

"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 rule 3;

"eligible profits" means income deriving from any activity

carried out in Malta chargeable under the provisions of article

4(1)(a) of 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 rules, in respect of which qualifying

expenditure has been incurred and which 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

Provided that a project shall not be treated as an eligible

reinvestment project if it is linked to -

(i)

the production, processing or marketing of agricultural

and fisheries products;

(ii) export-related activities;

(iii) activities contingent upon the use of domestic over

imported goods;

"qualifying expenditure" means expenditure of a capital nature

exclusively financed by eligible profits, incurred as part of an

eligible reinvestment project as approved by the Corporation in

(a) acquiring an industrial building or structure;

(b) carrying out any extension or improvement to an

existing industrial building or structure, including the

cost of land forming an integral part of such extension;

(c) acquiring brand new or second-hand plant and

machinery excluding

(i)

motor vehicles unless these are, to the

satisfaction of the Corporation, specialised

commercial vehicles that are essential to the

implementation of the project; and

(ii) works of art, antiques, any assets whose use is

wholly or mainly of a decorative nature and any

assets whose cost is related to their intrinsic

value rather than to their specific usefulness for

a qualifying project;

(d) acquiring intellectual property rights that are essential

to the implementation of the project;

(e) labour costs which may be capitalized as part of the

cost of any of the assets, extensions or improvements

referred to above

Provided 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 rules shall apply to eligible persons deriving

eligible profits in the year immediately preceding any of the years

of assessment 2006 to 2010 and reinvested in an eligible

reinvestment project by not later than three years from the

beginning of the respective base year.

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

person shall, in the base year

(i)

have had a turnover of not more than €585,000, and

(ii) have had a minimum of three but not more than ten

employees of whom at least three were full time

employees

Provided that persons engaged as apprentices and

students shall not be treated as employees for the

purpose of this item; and

(iii) have been 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 converted 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 rules, shall, by not later than three months before 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 that year,

distinguishing between part-time and full-time

employees as well as the number of apprentices and

students, if any, engaged by that person;

(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 rule, shall forfeit the right to be eligible for the

benefit.

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

r e f e r r e d t o i n t h i s r u l e , s h a l l i s s u e a l e t t e r, c o p i e d t o t h e

Commissioner, indicating the amount of the eligible profits

approved for reinvestment and setting out therein any conditions

that it may deem fit to impose.

(1) Where 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 the eligible profits or part thereof have in fact

been used for such purpose, that person shall be entitled to the

benefit under sub-rule (2).

(2) The benefit available under these rules 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 sub-rule (2)

Provided that the amount of reinvestment tax credit

allowable in terms of this sub-rule shall not exceed one hundred

and sixteen thousand and five hundred euros (116,500) for any

particular year of assessment

Provided further that the tax credit due to a company in

respect of an approved reinvestment project shall not exceed, in the

aggregate, fifty percent of the total cost of the project in question,

in conformity with Article 4 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,

(1) Persuna li tkun trid titlob kreditu ta’ taxxa dwar

investiment mill-[did g]al xi sena ta’ stima, g]andha tippre\enta

lill-Korporazzjoni, sa mhux i\jed tard minn tliet xhur qabel id-data

ta’ meta g]andu jintbag]at il-prospett tat-taxxa, applikazzjoni bil-

miktub sostnuta b’dikjarazzjonijiet finanzjarji verifikati u b’kull

prova o]ra dokumentarja li tista’ ti[i hekk mitluba mill-

Korporazzjoni.

(2) Kull applikazzjoni li tkun me]tie[a li ti[i pre\entata lill-

Korporazzjoni sabiex jinkiseb benefi``ju minn dawn ir-regoli

g]andha tkun f’dik l-g]amla u jkun fiha dawk il-partikolaritajiet li

l-istess Korporazzjoni tista’ te]tie[.

(3) Meta l-Korporazzjoni tkun sodisfatta li saru l-pre\entati

msemmija f ’din ir-regola u fi \mien sittin [urnata minn meta

taslilha kull informazzjoni rilevanti li setg]et tkun talbet, hija

g]andha to]ro[ `ertifikat ta’ konformità fejn ji[i konfermat li d-

disposizzjonijiet kollha ta’ dawn ir-regoli jkunu [ew im]arsa.

(4) Meta l-Korporazzjoni tag]ti l-approvazzjoni tag]ha g]al xi

skop ta]t dawn ir-regoli, hija g]andha tikkonferma l-approvazzjoni

tag]ha bil-miktub hekk li tistipula l-kondizzjonijiet li g]andhom

ji[u sodisfatti mill-persuna, u l-jedd tal-persuna g]all-benefi``ju

provdut b’dawn ir-regoli g]andu jkollu b]ala kundizzjoni l-

produzzjoni ta’ dik l-approvazzjoni bil-miktub.

(5) Il-Korporazzjoni g]andha tg]addi lill-Kummissarju kopji

ta’ `ertifikati u approvazzjonijiet ma]ru[in ta]t id-disposizzjonijiet

ta’ dawn ir-regoli.

(1) Meta jitlesta kull pro[ett eli[ibbli approvat ta’

investiment mill-[did u mhux iktar tard minn disg]in jum minn

m eta ji tl esta l -p ro [et t, i l-ku mp anni ja g] andh a t ib g]at l ill -

Korporazzjoni, u tikkopja lill-Kummissarju, `ertifikat miktub minn

persuna teknika li jkun juri

(a) id-data li fiha jkun tlesta l-pro[ett;

(b) l-ammont ta’ nfieq kwalifikanti li jkun intefaq u

intalab g]al kull sena ta’ stima, sostnut b’lista li

taqsam l-ispi\a skond il-kapi ta’ l-ispejje\ prin`ipali;

(`) jekk, meta dan ikun japplika, il-kondizzjonijiet li

jkunu setg]u [ew mag]mulin japplikaw g]all-pro[ett

skond ir-regola 3(4) ikunux [ew osservati.

(2) Meta l-pro[ett approvat ikun jinkludi nefqa kwalifikanti

mni\\la ta]t il-paragrafi ( a ) jew ( b ) tat-tifsira ta’ "nefqa

kwalifikanti", ma`-`ertifikat imsemmi fis-subregola (1) g]andu

jkun hemm kuntratt ta’ xiri, fil-ka\ ta’ akkwist ta’ bini jew struttura

industrjali, jew dikjarazzjoni miktuba mill-arkitett li ta]t id-

direzzjoni jew supervi\joni tieg]u ikunu saru x-xog]lijiet ta]t il-

paragrafu (b), li tikkonferma li nnefqa tkun saret fit-twettiq tal-

pro[ett kif approvat.

(1) Meta l-Korporazzjoni to]ro[ ittra ta’ approvazzjoni

skond ir-regola 3, din tista’, minn \mien g]al \mien, tag]mel dawk

ir-revi\jonijiet ta’ kotba u dokumenti, dawk l-ispezzjonijiet fuq il-

post tal-fondi ta’ dak l-applikant, u dik is-sorveljanza skond kif

tista’ tqis li jkunu me]tie[ g]all-g]anijiet ta’ dawn ir-regoli u g]al

kull ]a[a li tkun rilevanti g]al applikazzjoni approvata.

(2) B’\ieda mad-database li tin\amm ta]t id-disposizzjonijiet

tar-Regolamenti dwar il-Promozzjoni tan-Negozju, il-

Korporazzjoni g]andha \\omm ukoll database ta’ kull g]ajnuna

mog]tija lil, jew mitluba minn, kumpanniji applikanti ta]t dawn ir-

regoli g]al g]axar snin mid-data li fiha tkun ing]atat g]ajnuna

individwali g]all-a]]ar darba ta]t l-imsemmija regoli, sabiex hija

tkun tista’ -

(a) tag]ti lill-Bord ta’ Sorveljanza fuq G]ajnuna Mog]tija

mill-Istat dik l-informazzjoni li dan ikun jista’ je]tie[;

u

(b) tinforma lill-Kummissarju jekk il-krediti mitluba

skond dawn ir-regoli jkunux [ew kalkolati sewwa.

(3) Persuni applikanti li jkunu r`evew ittra ta’ approvazzjoni

skond ir-regola 3 g]andhom jag]tu lill-Korporazzjoni, mhux aktar

tard minn xahrejn wara d-data tal-prospett tat-taxxa relattiv, kopja

tal-prospett tat-taxxa g]al kull sena ta’ stima, b’se]] mis-sena ba\i

u g]as-snin konsekuttivi kollha sussegwenti li fihom ikun jista’

jing]ata tnaqqis u kreditu ta’ taxxa ta]t dawn ir-regoli,

irrispettivament minn jekk jintu\ax jew le.

(4) Meta l-Korporazzjoni ma tkunx sodisfatta li persuna

eli[ibbli tkun qeg]da tu\a l-benefi``ju g]all-iskop inti\ jew tkun

naqset milli twettaq xi kondizzjoni ta]t dawn ir-regoli, dik il-

persuna g]andha minnufih titlef il-jedd g]all-benefi``ju.

G]andhom ukoll jitwettqu dawn il-kondizzjonijiet ulterjuri

li [ejjin biex ikun hemm eli[ibilità g]all-benefi``ju ta]t dawn ir-

regoli

(a) il-prospett ta’ taxxa flimkien mad-dikjarazzjonijiet

verifikati li jinkorporaw il-kodi`ijiet TIFD kif stipulati

fir-Regoli dwar Indi`i tat-Taxxa dwar Informazzjoni

Finanzjarja,

g]andhom

ji[u

pre\entati

lill-

Kummissarju sad-data tal-prospett tat-taxxa relattiv

g]al kull sena ta’ stima li tibda mis-sena ba\i u g]al

kull sena konsekuttiva sussegwenti li matulha kreditu

ta’ taxxa dwar investiment mill-[did ikun disponibbli

irrispettivament minn jekk ji[ix u\at jew le;

(b) ebda benefi``ju ie]or ma jkun qed ji[i mitlub jew ji[i

mitlub sussegwentement minn persuna dwar l-istess

attività jew pro[ett ta]t xi le[islazzjoni o]ra li tkun

qed tag]ti skemi ta’ in`entiva fiskali;

(`) kull passiv ta’ taxxa, inklu\i ammonti dovuti g]ar-

rigward ta’ taxxa FSS kif ukoll g]al kontribuzzjonijiet

tas-sigurtà sojali, dovuti sa meta ssir l-applikazzjoni,

]lief g]al xi taxxa li jista’ jkun g]ad hemm tilwima

fuqha, g]andu jkun [ie m]allas jew ikun qed ji[i

m]allas skond ftehim formali li ji[i abbozzat mill-

Kummissarju.

Dawn ir-regoli qeg]din ji[u mag]mulin u g]andhom ji[u

applikati skond ir-Regolament tal-Kunsill (KE) Nru 70/2001 dwar

l-applikazzjoni ta’ l-Artikoli 87 u 88 tat-Trattat tal-Komunità

Ewropea g]al G]ajnuna mog]tija mill-Istat lil intrapri\i \g]ar jew

ta’ daqs medju (OJ L10/33, 13.1.2001), kif sussegwentement

emendat.

Minkejja d-disposizzjonijiet l-o]ra ta’ dawn ir-regoli, il-

Kummissarju jkollu l-jedd li ma jippermetti ebda kreditu ta’ taxxa

dwar investimenti mill-[did jekk isir xi nuqqas mill-applikant g]ar-

rigward ta’ xi disposizzjoni ta’ l-Att jew ta’ l-Att dwar is-Sigurtà

So`jali.

Sakemm il-Kummissarju ma japprovax xort’o]ra, ebda

kreditu ta’ taxxa ma jkun dovut lil kumpannija ta]t dawn ir-regoli

g]al xi sena ta’ stima jekk dan ma jintalabx fil-parti adatta ta’

prospett tat-taxxa mibg]ut b’mezzi elettroni`i sa mhux iktar tard

mid-data tal-prospett tat-taxxa relattiv.

1.2001), as subsequently amended.

(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 2015 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

sub-rule qualifying profits are deemed to be the last

part of the total income.

(c) The reinvestment tax credit granted under these rules

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

rule, 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 sub-rule (4) hereof, shall, for

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

the end of year of assessment 2014, 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 rules, 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 rules 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 sub-rule (4).

5. (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 rules 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 rule 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 rules have

been complied with.

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

the Corporation shall confirm its approval in writing setting out the

c o n d i t i o n s t o b e s a t i s f i e d b y t h e p e r s o n , a n d t h e p e r s o n ’s

e n t it l e m e n t t o t h e b e n e fi t p r ov i d e d by t he s e r u l e s s h a ll b e

conditional on the production of such written approval.

(5) The Corporation shall forward to the Commissioner copies

of certificates and approvals issued under the provisions of these

rules.

6. (1) On completion of each approved eligible reinvestment

project the company shall deliver, within ninety days of completion

of the project, a written certificate by a competent technical person

to the Corporation, copied to the Commissioner, showing

(a) the date of completion of the project;

(b) the amount of qualifying expenditure incurred and

claimed for each year of assessment, supported by a

breakdown of the major expense headings;

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

have been made applicable to the project in terms of

rule 3(4) have been observed.

(2) Where the approved project includes qualifying expenditure

listed under paragraphs (a) or (b) to the definition of "qualifying

expenditure", the certificate referred to in sub-rule (1) shall be

accompanied by a deed of purchase in the case of acquisition of an

industrial building or structure or a statement written by the

architect under whose direction or supervision the works under

paragraph (b) were carried out, confirming that the expenditure was

incurred in the carrying out of the project as approved.

7. (1) Where, in terms of rule 3, the Corporation issues a

letter of approval to an applicant, it may, from time to time, make

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

premises of that applicant 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, applicant

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

the last individual aid was granted under the aforementioned rules,

in order to enable it to -

(a) provide the State Aid Monitoring Board with such

information as it may require; and

(b) inform the Commissioner whether the credits claimed

in terms of these rules have been properly calculated.

(3) Applicant persons that have received a letter of approval in

terms of rule 3 shall submit to the Corporation, by not later than

two months after the relative tax return date a copy of the tax return

for each year of assessment starting from the base year and all

subsequent consecutive years of assessment during which a

deduction and tax credit is available under these rules, irrespective

of whether it is utilised or not.

(4) 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 fulfil any condition under these rules, such person

shall immediately forfeit the right for the benefit.

8. The following further conditions must also be fulfilled for

eligibility to the benefit under these rules

(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.

9. These rules are established and shall be applied in

accordance with 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 L10/33, 13.1.2001), as

subsequently amended.

10. Notwithstanding the other provisions of these rules, 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 of the Social Security Act.

11. 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.