DEDUCTIONS AND TAX CREDITS (GENERAL AND SPECIFIC QUALIFICATIONS)

SUBSIDIARY LEGISLATION 123.87

DEDUCTIONS AND TAX CREDITS

(GENERAL AND SPECIFIC QUALIFICATIONS)

1st January, 2005

LEGAL NOTICE 335 of 2005, as amended by Legal Notices 139 of 2006,

174 of 2007 and 182 of 2014.

Part I

General

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

Credits (General and Specific Qualifications) Rules.

(2) These rules shall apply to 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.

TABLE A

Rule 8(2)

Tax credit in respect of allowable wages and tuition expenditure

Type of expenditure

Tax credit

Allowable tuition and wages expenditure

17.5%

TABLE B

Rule 8(3)(a)

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

incurred by an SME

Type of relevant academic qualification

Tax credit not to exceed the

following percentage of the total

expenditure

General qualification

80%

Specific qualification

45%

TABLE C

Rule 8(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 relevant academic qualification

Tax credit not to exceed the

following percentage of the total

expenditure

General qualification

60%

Specific qualification

35%

In these rules unless the context otherwise requires -

"the Act" means the Income Tax Act;

"allowable wages and tuition expenditure" has the meaning

assigned to it in rule 6;

"the Corporation" means the Malta Enterprise Corporation;

"general qualification" means a masters degree or a doctoral

degree in an area that is largely transferable to other firms or fields

of work in information technology, sciences or engineering,

awarded on the successful completion of a 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 5(1);

"qualifying wages and tuition expenditure" means expenditure

that is treated as such in terms of rule 4(2);

"relevant qualification" means a general or a specific

qualification, other than a qualification which falls within the

meaning of "R&D relevant qualification"as defined in the

Deductions and Tax Credits (Research and Development) Rules

Provided that any question that may arise in general or in

any particular case as to whether a qualification falls or not within

the meaning of "R&D relevant qualification" shall be decided by

the Corporation in its absolute discretion;

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

meaning assigned to them under the provisions of the Business

Promotion Regulations;

"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 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.

Part II

Deduction and Tax Credit for Wages and Tuition Expenditure

(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.

(3) Sub-rule (2) is without prejudice to the deduction allowable

in respect of wages and tuition expenditure incurred in connection

with academic qualifications to which the Deductions and Tax

Credits (Research and Development) Rules apply.

(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 letter

of approval under rule 5.

(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 if it is incurred by a company in

connection with a course of studies leading to a relevant

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 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

4, 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 a relevant qualification and determine the extent

to w hi ch, i n it s o pi ni on , t he exp end it ure re ferred to i n th e

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

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 that 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 4(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.

(5) The Corporation shall issue the said letter of approval by

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

(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 5(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 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 5 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 5(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 4 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 A 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 6(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

5(3)(e) as the latest date by which the course was 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 B of the Schedule, if the

expenditure is incurred by a small or medium-sized

enterprise;

(b) the threshold set out in Table C 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 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 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, as subsequently amended.

This Part is prescribed and shall be applied in accordance

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

o f A r t i c l e s 8 7 a n d 8 8 o f t h e E C Tr e a t y t o t r a i n i n g a i d , a s

subsequently amended.

Part III

Tax Credit for Social Security Contributions

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

a 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 a 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 1 st 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 letter of approval 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, as may be subsequently amended.

Part IV

Further provisions applicable to Parts II and III

Notwithstanding the provisions of Parts II and II, no tax

credit shall be due to a company under the said Parts 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 5 or 10(4) 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 Part II or III, 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 5 or 10(4), 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 the

provisions of Parts II and III 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 Parts II and III 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 II or III

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.

Part V

Tax credit for individuals

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

individual is a student following a course of studies that leads to a

specific qualification and successfully completes that course, he

becomes entitled to the tax credit referred to in this rule.

(2) The tax credit referred to in this rule is an amount

equivalent to the study costs as defined in rule 20 paid by the

individual for the period commencing on the date of the

commencement of the course or the 1st January, 2005, whichever is

the later, and ending on the date of the conclusion of the course or

thirty six months from the commencement of the course, whichever

is the earlier.

(3) The tax credit shall be spread over three years and,

accordingly, one third of the amount determined in accordance with

sub-rule (2) shall be due as a deduction from the tax payable by the

individual on his chargeable income for the year of assessment

commencing on the 1st January of the year immediately following

that in which the relevant qualification is obtained and for each of

the subsequent two years of assessment, and any amount not

absorbed by the tax payable for a year of assessment may be carried

forward to be allowed as a tax credit for subsequent years.

(4) The tax credit referred to in this rule shall not be due unless

the individual is in possession of receipts of the study costs to

which the credit refers and submits to the Commissioner, together

with the tax return for the first year of assessment for which the tax

credit is claimed -

(a) an itemised statement of the study costs incurred and a

declaration that he is not and has not been entitled

from any source whatsoever to any reimbursement of

or compensation for the costs claimed as a tax credit or

any part of those costs; and

(b) a certified copy of the certificate or equivalent

document issued by the university or educational

establishment in question confirming the successful

completion of the course by that individual; and

(c) a letter of approval issued by the Corporation

confirming that the qualification obtained is a specific

qualification.

* The letter of approval referred to in rule 18(4)(c) shall be

issued by the Corporation on the application of an individual when

the Corporation is satisfied that the application is a bona fide

application that complies with the provisions of rule 18, 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 a relevant qualification and determine the extent

t o wh ic h , i n it s o pi ni on, th e e xp e nd it ur e r e f e r re d t o in t he

application constitutes qualifying 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 tuition expenditure

Provided that the Corporation shall not issue the letter of

approval 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..

The study costs to which this Part applies are

*This sub-rule shall apply to qualifying expenditure incurred on or after 1st June,

2007. (a) fees paid to the university or educational establishment

in question for the admission of the individual to the

course and his attendance for that course;

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

training programme, as may be approved by the

Corporation.

Part VI

Final Provision

No new applications under these rules shall be received by

the Corporation after the 30th June 2014.

DEDUCTIONS AND TAX CREDITS

(GENERAL AND SPECIFIC QUALIFICATIONS)