Malta Business Incentives – Complete Breakdown
The Malta Enterprise Corporation has devised a number of incentives aimed at promoting Small and Medium Sized Enterprises (SMEs) as well as investment by local and foreign companies in industries such as Information Technology, biotechnology, and manufacturing etc;
Until recently, the legislative framework for incentives to business were the Business Promotion Act and the Business Promotion Regulations which allowed for generous tax credits and tax holidays to qualifying enterprises carrying out qualifying activities. However, most of the incentives granted by the BPA and the BPR are now subject to sunset provisions and are now no longer available to new applicants.
Currently business incentives are entrusted to the following three (3) regulations;
- Investment Aid Regulations;
- Assistance to Small and Medium-Sized Undertakings Regulation; and
- Enterprise Support Incentives Regulations, 2008.
The Malta Enterprise Corporation offers assistance in the following manners:
- The development of new businesses;
- Small sized start-ups;
- The use of experts;
- The participation in fairs and exhibitions;
- The preparation and submission of proposals for the participation in projects funded through the initiatives promoted by the European Union such as the FP7 and the CIP;
- The use of ICT and e-business
Investment Aid Regulations
The Investment Aid Regulations allow tax incentives aimed at stimulating investment and job creation by attracting new investment projects and promoting the expansion or diversification of existing enterprises into certain targeted fields of business defined in these regulations as qualifying activities. In order to qualify for tax credits under the Investment Aid Regulations, undertakings solely carrying out a qualifying activity may organise themselves in the following legal forms:
- a partnership constituted under the Companies Act, or
- a body of persons constituted, incorporated or registered outside Malta and of a nature similar to a partnership set up under the Companies Act; or
- an oversea company registered in accordance with the Companies Act; or
- a co-operative society duly registered under the Co-operative Societies Act.
The regulations provide an exhaustive list of activities which may be eligible to receive tax incentives, as follows:
- Information and Communications Technology (I.C.T.);
- Research and development and innovative start-ups;
- Eco-innovations, waste treatment and environmental solutions;
- The provision of facilities directly required in the development or production of feature films;
- Science and technology private tertiary educational services;
- Private health-care services;
- Logistics services;
- Activities set forth in the Malta Freeports Act
The tax incentives take the form of an investment tax credit, calculated either as:
- A percentage of the capital expenditure on the qualifying activity; OR
- A percentage of the wage costs for wages paid in connection with the jobs created as a result of the qualifying project
The amount of credit varies in proportion to the size of the undertaking and is capped at the percentages prescribed in the Incentive Guidelines.
These tax credits may be granted on eligible costs incurred by an enterprise in running:
- Industrial Research Projects;
- Experimental Development Projects
The following costs are considered as eligible as long as they are incurred in relation to an approved Industrial Research or Experimental Development project.
Wages of researchers and technicians, to the extent and for the duration that they are directly engaged in the research project.
Instruments and equipment
Costs of instruments and equipment to the extent and for the duration of the research project. If such instruments and equipment are not used for their full life for the research project, only the depreciation costs corresponding to the life for the research project, as calculated on the basis of good accounting practices shall be considered as eligible.
Costs for building
Depreciation costs of buildings calculated on the basis of good accounting practice corresponding to the duration of and direct use in the research project.
Material, supplies and similar products
The costs of material, supplies and similar products, bought specifically for the research project and incurred directly as a result of the research activity.
Contractual research, technical knowledge and patents
Costs of contractual research, technical knowledge and patents bought or licensed from outside sources at market prices (where the transaction has been carried out at arm’s length and there is no element of collusion involved), as well as costs of consultancy and equivalent services used exclusively for the research activity.These costs may not exceed 25% of the total project costs.
Additional overheads incurred directly as a result of the research project. These costs may not exceed 10% of the total project costs. The following cost items incurred by an SME for obtaining and validating patents and other intellectual property rights in relation to an approved Industrial Research or Experimental Development project shall also be eligible:
Costs preceding grant of IP rights
Costs preceding the grant of the right incurred for:
- the preparation, filing and prosecution of the application of the right in the first legal jurisdiction;
- renewing the application before the right has been granted.
Translation costs incurred in order to obtain or validate the IP right in other legal jurisdictions;
Costs incurred in defending the validity of the right
Costs incurred in defending the validity of the right during the official prosecution of the application and possible opposition proceedings, even if such costs occur after the right is granted. The following additional provisions shall apply to any costs that may be supported through this incentive:
- The summation of costs incurred in relation to contractual research, technical knowledge and patents and additional overheads must not exceed 25% of the total project cost;
- Any Tax Credit must be claimed on costs incurred by the applicant after the aid is approved;
- All transactions relevant to the approved project must be accounted for separately;
- Subcontracting is not considered to be effective collaboration.
Assistance to Small and Medium-Sized Business
The incentives prescribed by these Regulations aim to provide financial aid by way of cash grants to SMEs (undertakings which employ less than 10 persons and have a turnover of less than EUR 2 million) carrying out the specific types of business activities listed therein.
There is an exhaustive list of the business activities which may be entitled to receive financial aid under these regulations. The qualifying activities are equivalent to those which may receive an investment tax credit under the Investment Aid Regulations, with the exception of activities in connection with the provision of logistical services and those activities set forth in Malta Freeports Act. However, undertakings which undertake selling by retail, dividing, sorting, packaging, mixing of goods which are acquired in bulk, as well as undertakings carrying out business activities in connection with the preparation and the production of food in the course of catering are disqualified from obtaining financial assistance.
Enterprise Support Incentives Regulations
The Enterprise Support Incentives Regulations (ESIR) provide the necessary legal basis by which Malta Enterprise Corporation may provide monetary grants to those undertakings which carry on or intend to carry on an activity which may contribute to the economic development of Malta.
In line with the above, the ESIR only lists down the undertakings to which these incentives do not apply, which include those operating in the fishery and aquaculture sectors and those operating in the primary production of agricultural products (excluding undertakings that operate in the processing or marketing of agricultural products).
Assistance may be granted in several forms, including the assistance for participation in trade fairs, assistance for collaboration with other undertakings, assistance for business development projects, assistance in the engagement of advisors and assistance for the development of international competitiveness.
Any incentives, benefits or grants received by virtue of these regulations are exempt from income tax in the hands of the relevant beneficiaries. Further, where such benefits are received by a partnership which is a transparent entity for tax purposes, the partners or members of the partnership will also be exempt from income tax.
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