INVESTMENT AID (JULY 2014) REGULATIONS

SUBSIDIARY LEGISLATION 463.10

INVESTMENT AID (JULY 2014) REGULATIONS

24th October, 2014

LEGAL NOTICE 391 of 2014,as amended by Legal Notice 98 of 2018.

(1) The title of these regulations is the Investment Aid

(July 2014) Regulations.

(2) These regulations shall apply in respect of qualifying

activities for an initial investment or an initial investment in favour

of new economic activity incurred on the 1st July, 2014 or after this

date.

In these regulations, unless the context otherwise requires

"the Act" means the Malta Enterprise Act;

"company" shall have the same meaning as "undertaking";

"the Corporation" means the Malta Enterprise Corporation

established under the Act;

"Guidelines" means such guidelines as may be published by the

Corporation from time to time in terms of the Act;

"hotel" means a hotel as defined and licensed to operate as such

in terms of the Malta Travel and Tourism Services Act and includes

a resort hotel and an apartment hotel;

"initial investment" means

(a) an investment in tangible or intangible assets related to

the setting-up of a new establishment, the extension of

the capacity of an existing establishment, the

diversification of the output of an establishment into

products not previously produced in the establishment

or a fundamental change in the overall production

process of an existing establishment; or

(b) an acquisition of assets belonging to an establishment

that has closed or would have closed had it not been

purchased, and is bought by an investor unrelated to

the seller and excludes sole acquisition of the shares of

an undertaking;

"initial investment in favour of a new economic activity" means

(a) an investment in tangible or intangible assets related to

the setting up of a new establishment, or to the

diversification of the activity of an establishment,

under the condition that the new activity is not the

same or a similar activity to the activity previously

performed in the establishment; or

(b) the acquisition of assets belonging to an establishment

that has closed or would have closed had it not been

purchased, and is bought by an investor unrelated to

the seller, under the condition that the new activity to

be performed using the acquired assets is not the same

or a similar activity to the activity performed in the

establishment prior to the acquisition;

"intangible assets" means assets that do not have a physical or

financial embodiment, such as patents, licences, know-how or other

intellectual property

Provided that

(a) they must be used exclusively in the establishment

receiving the aid;

(b) they must be amortisable;

(c) they must be purchased under market conditions from

third parties unrelated to the buyer; and

(d) they must be included in the assets of the undertaking

receiving the aid and must remain associated with the

project for which the aid is granted for at least five

years or three years in the case of small, medium-sized

and micro-sized undertakings;

"large undertaking", "medium-sized undertaking", "small

undertaking" and "micro undertaking" shall have the meaning

attributed to them by Annex I of Commission Regulation (EU) No

651/2014 of 17 June 2014 declaring certain categories of aid

compatible with the internal market in application of Articles 107

and 108 of the Treaty;

"large investment project" means an initial investment with

eligible costs exceeding fifty million Euro (€50,000,000) calculated

at prices and exchange rates on the date of granting the aid;

"start of works" means the earlier of either the start of

construction works relating to the investment, or the first legally

binding commitment to order equipment or any other commitment

that makes the investment irreversible

Provided that buying land and preparatory works such as

obtaining permits and conducting feasibility studies shall not be

considered as start of works

Provided further that for take-overs, "start of works" means

the moment of acquiring the assets directly linked to the acquired

establishment;

"tangible assets" means assets consisting of land, buildings and

plant, machinery and equipment;

"undertaking" means

(a) a partnership constituted under the Companies Act,

being a partnership en nom collectif, en nom

commandite, or a limited liability company;

(b) a body of persons constituted, incorporated or

registered outside Malta, and of a nature similar to the

aforesaid partnerships and registered as an oversea

company in accordance with the Companies Act; or

(c) a co-operative society duly registered as such under

the Co-operative Societies Act.

A qualifying activity in terms of these regulations shall be

an economic activity consisting of a trade or business the profits or

gains from which are chargeable to tax pursuant to article 4(1)(a)

of the Income Tax Act, carried on or intended to be carried out by

an undertaking in Malta which consists solely of the qualifying

activities as specified in the relevant Guidelines.

An undertaking shall not qualify for any of the benefits

provided by these regulations if it is engaged in a disqualifying

activity as specified in the relevant Guidelines.

(1) To be considered as qualifying expenditure the assets

acquired shall be new, except in the case of micro, small and

medium-sized undertakings and in the acquisition of an

establishment.

(2) Costs related to the lease of tangible assets may be taken

into account under the following conditions

(a) for land and buildings, the lease must continue for at

least five years after the expected date of completion

of the investment project for large undertakings or

three years in the case of micro, small and medium-

sized undertakings;

(b) for plant and machinery, the lease must take out the

form of financial leasing and must contain an

obligation for the undertaking to purchase the asset

upon expiry of the term of the lease.

(3) In the case of the assets of an establishment in an initial

investment or in an initial investment in favour of a new economic

activity, only the costs of buying the assets from third parties

unrelated to the buyer shall be taken into consideration. The

transaction shall take place under market conditions. If the aid has

already been granted for the acquisition of assets prior to the

purchase, the costs of those assets shall be deducted from the

eligible costs related to the acquisition of an establishment

Provided that where a member of the family of the original

owner, or an employee, takes over a small undertaking, the

condition that the assets be bought from third parties unrelated to

the buyer shall be waived. The acquisition of shares does not

constitute initial investment.

(4) The investment shall be maintained in Malta for at least

five years, or at least three years in the case of micro, small and

medium-sized undertakings, after completion of the investment

Provided that plant or equipment that has become outdated

or broken within this period may be replaced as long as the

economic activity is retained in Malta for the relevant minimum

period.

(5) In the case of aid granted for a fundamental change in the

production process, the eligible costs shall exceed the depreciation

value of the assets linked to the activity to be modernised in the

course of the preceding three fiscal years.

(6) In the case of aid granted for a diversification of an existing

establishment, the eligible costs shall exceed by at least two

hundred per cent (200%) the book value of the assets that are

reused, as registered in the fiscal year preceding the start of works.

(7) An undertaking wishing to avail itself from the benefits of

these regulations must provide a financial contribution of at least

twenty-five per cent (25%) either through its own resources or by

external financing, in a form which is free from any public support.

(1) An undertaking carrying on or intending to carry out a

qualifying activity in terms of regulation 3 that may contribute to

the economic development of Malta shall, subject to the terms and

conditions of the Guidelines, be entitled to an investment tax

credit, which tax credit shall, with respect to an initial investment

or an initial investment in favour of new economic activity be

calculated either -

(a) as a percentage of the qualifying expenditure in

tangible or intangible assets incurred by such

undertaking in the year preceding the year of

assessment in question; or

(b) as a percentage of wage costs for jobs directly created

by the initial investment or for an initial investment in

favour of a new economic activity in accordance with

the provisions of regulation 8.

(2) In the case of an investment project that may make a

substantial contribution to the economic development of Malta, the

Corporation may approve a cash grant instead of the investment tax

credit referred to in sub-regulation (1) as may be prescribed in the

Guidelines

Provided that any such cash grant may only be awarded if

an official application form is submitted and approved by the

Corporation prior to the start of works.

(3)

(a) A micro, small and medium-sized undertaking which

qualifies for the benefit provided by this regulation

shall be entitled to an investment tax credit with

respect to an initial investment.

(b) A large undertaking which qualifies for the benefit

provided by this regulation shall be entitled to an

investment tax credit with respect to an initial

investment in favour of new economic activity.

(1) Where the start of works of an initial investment or for

an initial investment in favour of a new economic activity falls on

the 1st July 2014 and before the 31st December 2017, the total

amount of investment tax credits that may be granted in terms of

this regulation for a specific investment project shall not exceed

(a) thirty-five per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a micro or

small undertaking;

(b) twenty-five per cent of the qualifying expenditure in

the case of an undertaking which qualifies as a

medium-sized undertaking;

(c) fifteen per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a large

undertaking;

(d) fifteen per cent of the qualifying expenditure in the

case of a licensed hotel.

(2) Where the start of works of an initial investment or for an

initial investment in favour of a new economic activity falls on the

1st January 2018 and before the 31st December 2020, the total

amount of investment tax credits that may be granted in terms of

this regulation for a specific investment project shall not exceed

(a) thirty per cent of the qualifying expenditure in the case

of an undertaking which qualifies as a micro or small

undertaking;

(b) twenty per cent of the qualifying expenditure in the

case of an undertaking which qualifies as a medium-

sized undertaking;

(c) ten per cent of the qualifying expenditure in the case

of an undertaking which qualifies as a large

undertaking;

(d) fifteen per cent of the qualifying expenditure in the

case of a licensed hotel qualifying as micro, small and

medium-sized undertakings.

(3) The costs of intangible assets for large undertakings are

eligible only up to a limit of fifty per cent (50%) of the total

eligible investment costs for the initial investment.

(4) The maximum aid amount for a large investment project

shall be calculated according to the following formula

Maximum aid amount = R x (A + 0,50 x B + 0 x C),

where R is the maximum aid intensity applicable for a large

undertaking carrying out an initial investment in favour of new

economic activity, A is the initial fifty million Euro of eligible

costs, B is the part of eligible costs between fifty million Euro and

one hundred million Euro and C is the part of eligible costs above

one hundred million Euro.

An undertaking which is entitled to an investment tax

credit in respect of a year of assessment shall be entitled to deduct

from the amount of income tax which is due on its chargeable

income derived from its trade or business for that year of

assessment the amount of investment tax credit and, where the

investment tax credit, for any year of assessment, exceeds the

income tax payable by such an undertaking for that year, the excess

shall be added to the investment tax credit for the following year

and deemed to be part of that investment tax credit, or if there is no

such investment tax credit for that year, be deemed to be the

investment tax credit for that year and so on for subsequent years

Provided that so much of the investment tax credit which is

not so utilised at the end of any year and which is therefore carried

forward to be added to the investment tax credit of the following

year of assessment and deemed to be the investment tax credit for

that year, shall be increased by such rate as may be prescribed in

the Guidelines; and where any part of the investment tax credit as

so increased is again not utilised, so much of it as is not utilised

shall be further increased by the said percentage and carried

forward to the following year, and so on for subsequent years

Provided further a tax credit shall not give rise to a right to

a refund of tax.

(1) The amount of investment tax credits based on job

creation which an undertaking may claim in a year of assessment in

terms of regulation 6(1)(b) shall be based on the wage cost incurred

by the undertaking in the accounting period ending in the year

preceding that year of assessment.

(2) An undertaking shall, subject to the terms and conditions of

the Guidelines, be considered to have created a job as a result of an

investment project for those individuals who are employed by the

undertaking, if the job is directly connected with the activity to

which the investment project relates and is created within three

years from completion of the investment project and as long as the

employment of any such individual is not in replacement of another

individual and provided that such employment is not terminated

before the lapse of five years from the date of employment in the

case of large undertakings and not before the lapse of three years

from the date of employment in the case of micro, small and

medium-sized undertakings

Provided that for the purpose of determining whether jobs

have been created, individuals who are employed by the

undertaking on a part-time basis shall be deemed to be a number of

full-time employees as is produced by dividing the number of hours

worked by such part-time employees by one thousand and seven

hundred and sixty

Provided further that where the accounting period ending in

the year preceding a year of assessment is more or less than twelve

months, the number of hours worked by part-time employees shall

be divided by an amount which shall be arrived at by dividing the

amount of one thousand and seven hundred and sixty, by three

hundred and sixty five, and then multiplying the result by the

number of days comprised in that accounting period.

(1) Where an undertaking has benefited from the

provisions of regulations 6 and 7, the investment tax credit shall be

deemed to have relieved from tax so much of that undertaking’s

chargeable income which, when multiplied by the rates of tax at

which it was chargeable in that year, is equal to the investment tax

credit; and where the undertaking or any subsequent undertaking

distributes the income which is so deemed to have been relieved

from tax, such undertaking or undertakings shall state in the

dividend warrant pertaining to any such distribution that such

income has been relieved from tax by an investment tax credit in

accordance with regulations 6 and 7; and that tax which has so been

relieved shall not be available for refund for any purpose of the

Income Tax Act.

(2) The chargeable income which is deemed to have been

relieved from tax in accordance with sub-regulation (1) shall, for

the purposes of the Income Tax Act, be allocated to the Final Taxed

Account of the company in question and any dividends (or part

thereof) distributed from such income shall be exempted from

income tax in the hands of the members of the company on receipt

of such distribution.

(3) Where a dividend referred to in sub-regulation (1) is

distributed to a member which is also a company (in this sub-

regulation referred to as "the second company"), the said dividend

shall likewise be distributed by the second company to its members

in the form of dividends exempt from income tax in the hands of

recipients, and where a member of the second company is again a

company, the preceding provisions shall apply mutatis mutandis as

though references to the first company were references to the

second company, and as though references therein to the second

company were references to that member, and the principle set out

in this sub-regulation shall continue to be applied for as long as

such income or part thereof to which this regulation applies are

distributed by way of dividends.

No tax credit shall be due to an undertaking under these

regulations 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.

(1) Where for a year of assessment, an undertaking

qualifies for a tax credit under the Business Promotion Act and also

under the provisions of these regulations, it shall avail itself of the

tax credit due under the Business Promotion Act before any set-off

is made in respect of the tax credit due under these regulations.

(2) Where for a year of assessment, an undertaking qualifies

for a tax credit under the Investment Aid Regulations, and also

under the provisions of these regulations, it shall avail itself of the

tax credit due under the Investment Aid Regulations before any set-

off is made in respect of the tax credit due under these regulations.