FINANCE LEASING RULES

SUBSIDIARY LEGISLATION 123.88

FINANCE LEASING RULES

8th November, 2005

LEGAL NOTICE 369 of 2005, as amended by Legal Notice 368 of 2009.

The title of these rules is the Finance Leasing Rules, and

they shall come into force as from the year of assessment 2006.

(Rule 4)

Notification to the Commissioner for Revenue of a Finance Lease Contract

Name and Address of lessor: .................................................................................

Income Tax Reg. Number: ....................................................................................

Name and Address of lessee: .................................................................................

Income Tax Reg. Number: ....................................................................................

Description of asset leased: ...................................................................................

Country where asset will be used: .........................................................................

Annual lease payments: ........................................................................................

Date and period of lease: .......................................................................................

Tax residence of lessee: ........................................................................................

PURSUANT to the provisions of rule 4 of the Finance Leases Rules, notice is

hereby given that a finance lease has been contracted between the above named

parties. Details of the lease appear in the attached authenticated copy of the relevant

instrument.

Finance Leasing Company / Lessee

Date

In these rules, unless the context otherwise requires -

"the Act" means the Income Tax Act;

"asset" means any asset in respect of which a deduction is due

under article 14(1)(f) of the Act but excluding any industrial

building or structure;

"financial institution" means an institution licensed under the

Financial Institutions Act;

"finance lease" means a lease of assets referred to in rule 3

Provided that the Commissioner may, at his absolute

discretion, not recognise a lease of assets as a finance lease if he is

of the opinion that the leasing company and the lessee are in any

way related;

"finance leasing company" means -

(a) a company as defined in the Act, being a duly licensed

financial institution which has its objects expressly

limited to that of being engaged solely in the business

of granting finance leases and in such other acts and

activities as are necessary for the conduct of the said

business;

(b) a company incorporated outside Malta and of a nature

similar to that mentioned in paragraph (a);

"qualifying finance lease" means a finance lease qualifying in

accordance with the provisions of rule 4.

(1) A finance lease is constituted by the lease of an asset

on or after the 1st January, 2005 involving the payment by the

lessee to the lessor over a number of years of the full, or nearly the

full cost of the asset together with a return on the finance provided

by the lessor and such other remuneration as may be reasonable in

the circumstances of the case. The lessee shall substantially assume

all the risks and rewards normally associated with the ownership of

an asset, other than the legal title thereto.

(2) A contract of hire purchase, a lease purchase agreement, an

operating lease and similar arrangements, as well as sale and

leaseback transactions shall not constitute a finance lease.

A contract of lease shall qualify as a finance lease under

these rules where -

(a) the lessor is a finance leasing company; and

(b) the period of the lease is for four years or more and is

not shorter than the period of the asset’s depreciation

as established in the Schedule to the Deduction (Wear

and Tear of Plant and Machinery) Rules; and

(c) notification of the lease contract is made to the

Commissioner by the finance leasing company, or, if

the finance leasing company falls under paragraph (b)

of the definition of "finance leasing company" in rule

2, by the lessee, within three months of the signing of

the lease contract, on the prescribed form in the

Schedule together with an authenticated copy of the

relative lease contract.

For the purpose of determining the income chargeable to

tax under the Act of a lessor and of a lessee, notwithstanding the

provisions of rule 3 of the Income Tax (Deductions) Rules, the

following arrangements shall apply in the case of a qualifying

finance lease

(a) without prejudice to the right for any deduction

properly attributable there against, the lessor shall be

chargeable to tax on the full amount of the annual

lease payments;

(b) the lessor shall be entitled to a deduction in respect of

the wear and tear of the leased asset in accordance

with the provisions of article 14(1)(f) of the Act;

(c) the lessee shall be entitled to a deduction in respect of

the full amount of the lease payments made by him in

respect of the leased asset as well as all other

deductions properly due under article 14 of the Act

provided that no deduction under subarticle (1)(f) of

the said article shall be granted.

Where on the occasion of the transfer of the title of

ownership over a leased asset the lessee makes a payment to the

lessor in excess of the total agreed annual payments such payment

shall be chargeable to tax in the hands of the lessor. The lessee shall

thereafter be entitled to deductions under article 14(1)(f) of the Act

in respect of any such payment and the provisions of article 24 of

the Act shall also apply.

(1) For the purposes of these rules, where a finance lease is

terminated prior to the expiration of the lease term, the following

provisions shall apply

(a) where a lessor obtains repossession of a leased asset

and enters into a second or subsequent lease agreement

or agreements in respect of the same asset, the total of

the deduction for wear and tear to which the lessor is

entitled in respect of the asset shall be equal to the

total of the deduction for wear and tear not availed of

under the previous agreement or agreements;

(b) article 24 of the Act shall apply where -

(i)

a lessor disposes of an asset after having

obtained repossession of the said asset as

mentioned in paragraph (a) of this sub-rule; or

(ii) the lessee takes over the asset against a

consideration.

(2) Where a finance lease has been terminated before the due

date, the finance leasing company and the lessee shall both be

under obligation to give notice in writing to the Commissioner of

the said termination and notice shall be given within thirty days of

the happening thereof.

(1) A finance leasing company shall be deemed not to

constitute part of a group of companies for the purposes of articles

16 to 22 of the Act.

(2) No successor in title shall be entitled to any set off, or other

benefit or relief, in respect of any losses incurred by a finance

leasing company, nor shall a finance leasing company be entitled,

as a successor in title, to any set off, or other benefit or relief, in

respect of any losses incurred by any other company.

(3) Any losses incurred by a finance leasing company can only

be set off against profits from the same activity.

(1) These rules shall only apply where no other benefits

are being claimed on the same asset under any other legislation

granting fiscal incentive schemes.

(2) The provisions of these rules shall not have effect where

any transaction purporting to be a finance lease is an artificial or

fictitious scheme to reduce, whether directly or indirectly, the

amount of tax payable on the transaction.

(3) If a finance lease does not qualify as such under these rules

for any reason whatsoever, the Commissioner may, at his absolute

discretion, determine the manner of its treatment for tax purposes.

FINANCE LEASING