TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE) REGULATIONS

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

SUBSIDIARY LEGISLATION 478.02

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

REGULATIONS

21st March, 2006

LEGAL NOTICE 66 of 2006.

(1) The title of these regulations is the Tax Credit

(Audiovisual Infrastructure) Regulations.

(2) These regulations shall apply in respect of qualifying

expenditure incurred on or after the 1st January, 2005.

(3) The equivalent of the benefits under these regulations shall

be an amount specifically appropriated in Government’s financial

estimates for a particular financial year.

In these regulations, unless the context otherwise requires -

"the Act" means the Malta Film Commission Act;

"additional employee" means an employee whose employment is

certified by the Commissioner as the employment of an additional

employee by means of a certificate issued under regulation 13;

"allowable expenditure" has the meaning assigned to it in

regulation 11;

"approved project" means a project approved in accordance with

regulation 7, as subject to any conditions that may be applicable in

terms of regulation 7(2);

"company" has the meaning assigned to it under the Income Tax

Act;

"eligible company" means a company established or having a

place of business in Malta whose business consists solely or mainly

of activities that form part of the film servicing industry;

"maximum qualifying expenditure" means the amount

determined in accordance with regulation 8;

"project period" means the period commencing on the date

indicated in the letter of approval as the earliest date by which the

project must commence and ending on the date indicated in the said

letter of approval as the latest date by which it must be completed;

"qualifying company" means an eligible company which is

certified as a qualifying company and which is in possession of a

valid certificate issued under regulation 4;

"qualifying expenditure" means expenditure which has been

incurred on or after the 1st January, 2005 for

(a) the acquisition, construction, development or

improvement of any industrial building or structure,

including a warehouse, and including related labour

costs which are capitalised as part of the cost of any

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

such acquisition,

construction,

development

or

improvement;

(b) the acquisition of plant and machinery, excluding -

(i)

motor vehicles, except for such specialised

motor vehicles as may be approved by the

Commissioner;

(ii) works of art and antiques;

(iii) any assets whose use is wholly or mainly of a

decorative nature; and

(iv) any assets whose cost is related to their intrinsic

value rather than to their specific usefulness for

a qualifying investment;

(c) the acquisition of intellectual property rights from

third parties under open market conditions the cost of

which is amortisable;

"qualifying project" means a project in which qualifying

expenditure is incurred and which, in the opinion of the

Commissioner, contributes towards the development, improvement

or expansion of the audiovisual infrastructure in Malta;

"self-assessment", "tax", "tax return date" and "year of

assessment" have the meaning assigned to them under the Income

Tax Act or the Income Tax Management Act;

"small enterprise" and "medium sized enterprise" shall 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 regulation 12 and the other

relevant conditions laid down in these regulations are satisfied, it

shall be entitled to a tax credit in accordance with and subject to the

provisions of these regulations.

(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 Income Tax Act.

(1) An eligible company may apply to the Commissioner

to be certified as a qualifying company for the purpose of these

regulations.

(2) An application under this regulation shall be made on such

form as may be acceptable to the Commissioner and shall contain

such particulars, and be accompanied by such documents and

certifications as the Commissioner may consider relevant.

(3) When the Commissioner is satisfied that a company that has

made an application under this regulation is an eligible company

an d th at i ts activ iti es are co nduci ve to th e devel opm ent or

expansion of the audio visual industry in Malta, he may certify it as

a qualifying company for the purposes of these regulations.

(4)

The certificate shall indicate the date from which and the

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

period for which such certificate shall be valid

Provided that the Commissioner may, in line with the

criteria set out in sub-regulation (3), by notice in writing cancel a

certificate issued under this regulation or extend or restrict the

period of its validity.

(1) When a qualifying company carries out or intends to

carry out a qualifying project it may apply to the Commissioner for

the approval of that project.

(2) An application under this regulation shall be made in such

form as may be acceptable to the Commissioner 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;

(b) describe the project and its purpose and state the

expected date of its commencement and its expected

duration;

(c) provide details of the investment that the company

plans to make for the realisation of the project,

including a description of each item of qualifying

expenditure that the applicant intends to incur,

distinguishing between expenditure on plant and

machinery, expenditure on industrial buildings and

structures and expenditure on intellectual property

rights;

(d) state the number of additional employees that it plans

to employ during the project period;

(e) grant the authorisation referred to in sub-regulation

(3);

(f)

contain such other information, breakdowns and

details, and be accompanied by such documents and

certifications as the Commissioner 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-regulation (2)(e) shall -

(a) grant to the Commissioner and his officers access to

any premises or works as the Commissioner may

consider necessary in order to ascertain any matter

relevant to the approval of the application;

(b) authorise the Commissioner to disclose to the

Commissioner of Inland Revenue any information and

to pass on to him originals or copies of any documents

and records that may have been obtained in connection

with the application.

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

(1) When the Commissioner is satisfied that an application

complying with the requirements of these regulations has been filed

by an eligible company, and that a project to which the application

refers is a bona fide qualifying project, he may recommend to the

Commission that the project be approved.

(2) In his recommendation the Commissioner shall state the

extent to which, in his opinion, the investment that the applicant

plans to make towards the project represents qualifying expenditure

and is necessary and reasonable in the light of the purpose for

which it is planned to be incurred.

(3) The Commissioner shall not recommend the approval of a

project -

(a) that requires for its realisation a period of more than

five years;

(b) if the application for its approval is made after the 31st

December, 2008.

(1) When the Commission receives a recommendation

from the Commissioner under regulation 6 it may, if it considers it

appropriate so to do, approve the project and proceed to make a

determination and issue a letter of approval as provided in

regulations 8 and 9.

(2) The Commission may make the approval of a project

subject to such conditions as it may consider appropriate.

(1) When the Commission approves a project it shall

determine the maximum qualifying expenditure for each item of

expenditure.

(2) The total amount determined in accordance with sub-

regulation (1) shall not exceed the amount recommended by the

Commissioner in terms of regulation 6(2).

(1) In respect of every approved project the Commissioner

shall issue a letter of approval showing

(a) particulars of the applicant;

(b) a description of the project, with such conditions as

may have been considered appropriate pursuant to

regulation 7(2);

(c) the maximum qualifying expenditure for each item of

expenditure;

(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 regulation 11;

(g) such other particulars as the Commissioner may

consider appropriate.

(2)

The Commissioner shall deliver the letter of approval to the

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applicant and a copy thereof to the Commissioner of Inland

(3) The Commissioner 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

Commissioner a certificate drawn up by a person who is recognised

by the Commissioner as competent for this purpose, showing

(a) the date of completion of the project;

(b) the amount of allowable expenditure actually incurred,

distinguishing between expenditure on plant and

machinery, expenditure on industrial buildings and

structures and expenditure on intellectual property

rights.

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

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

of Inland Revenue.

(3) The Commissioner of Inland Revenue may, after receiving

a copy of the certificate, request an independent opinion from the

Commissioner 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

qualifying 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 regulation 9 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 regulation

7(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 three years after the

termination of the project period.

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

company for the period referred to in sub-regulation (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 regulation 15 shall apply.

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

employment condition referred to in regulation 3(1) shall be

satisfied if, during the project period or within three years from the

termination thereof, the qualifying company in question employs at

least four additional employees.

(2) Subject to sub-regulation (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 the

activities carried out by the qualifying company in the

film servicing industry;

(c) his employment represents a net increase in the

number of full time employees of the qualifying

company;

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

prior to his employment with that company, employed

with a person related through direct or indirect

ownership or shareholding with that company;

(e) his employment is certified by the Commissioner in

accordance with regulation 13 as an employment of an

additional employee for the purpose of these

regulations;

(f)

he remains in the employment of the said qualifying

company for at least three years.

(3) When the employment of an individual has been certified in

accordance sub-regulation (2)(e) and that individual does not

remain in the employment of the qualifying company in question,

for any reason whatsoever, for a period of at least three years and is

not validly replaced as provided in sub-regulation (4), he shall be

deemed to have never been an additional employee.

(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 with a qualifying company, that

company employs another individual in his place; and

(b) the employment of the replacement employee satisfies

the conditions of sub-regulation (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

(c) thereof; and

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

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original employee and of his replacement

or

replacements is not less than three years.

(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-regulation (4)(c).

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

employee and his replacement or replacements shall count as one

additional employee.

(7) If a qualifying company that has availed itself of the benefit

of the tax credit under these regulations does not satisfy the

employment condition it shall forfeit the right to that benefit and

the provisions of regulation 15 shall apply.

(1) A qualifying company whose project is approved

under these regulations shall prepare and deliver to the

Commissioner such information about its employees as is

necessary to enable the Commissioner 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 and during the following three years;

(b) such further information and details

as

the

Commissioner may consider relevant.

(2) The statement shall be prepared at such intervals as the

Commissioner may require.

(3) When the Commissioner is satisfied that a qualifying

company has employed an individual that qualifies as an additional

employee in accordance with the provisions of regulation 12, 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

regulation 12(3).

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

of allowable expenditure shall be allowable for the year of

assessment immediately following that in which the expenditure is

incurred or in which the employment condition is first satisfied,

whichever is the later, and shall be equal to

(a) 25% of expenditure to which paragraph (a) of the

definition "qualifying expenditure" applies;

(b) 40% of any other allowable expenditure.

(2) Notwithstanding the provisions of sub-regulation (1) 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

TAX CREDIT (AUDIOVISUAL INFRASTRUCTURE)

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

regulations, 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 in respect of 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 regulations, 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 regulations.

(6) A tax credit due in accordance with these regulations shall

not give rise to a right for any refund.

(1) In the circumstances mentioned in regulations 11(3)

and 12(7) 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 regulation 9 shall submit to the Commissioner, by not later

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

return for the year of assessment for which the relative benefit may

be claimed in terms of under these regulations and for each

subsequent year of assessment for which the said benefit remains

available to it, irrespective of whether the benefit is utilised or not.

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(1) When the Commissioner issues a letter of approval to a

company in terms of regulation 9, he 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 he

may consider necessary for the purposes of these regulations and

for any matter relevant to an approved application.

(2) The Commissioner shall keep a database of all assistance

provided to, or claimed by, a company under these regulations 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 regulations have

been complied with;

(b) provide the State Aid Monitoring Board with such

information as it may require; and

(c) inform the Commissioner of Inland Revenue whether

the credits claimed in terms of these regulations have

been properly calculated.

Notwithstanding the other provisions of these regulations,

the Commissioner of Inland Revenue may make such enquiries and

verification as he deems fit in accordance with the provisions of the

Income Tax Act and the Income Tax Management Act, and shall,

after consulting the Commissioner, have the right not to allow a

benefit under these regulations if any default is committed by the

applicant in respect of any provision of those Acts or the Social

Security Act or any subsidiary legislation issued thereunder.

No tax credit shall be due to a company 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.

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.