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Dalli Unveils Two New Maltese Tax Credits

by Robert Lee, Tax-News.com, London

05 September 2003

Maltese Finance Minister John Dalli announced earlier this week the details of two new tax credits aimed at small business and those conducting research and development, both of which were flagged in the minister's last budget speech.

The Institute for the Promotion of Small Enterprise describes the first scheme as a tax incentive for small enterprises which will provide stimulus for expansion. Small enterprises that invest profits derived from their trade in an approved project that falls within this scheme will be entitled to the tax credits.

The IPSE outlines the details of the scheme as follows:

"An individual or company residing in Malta and deriving eligible profits chargeable under 4(1) (a) of the Income Tax Act and that satisfies the three conditions highlighted below in each base year qualifies for this scheme:

  • i. Turnover does not exceed Lm250,000
  • ii. Employing between 2 and 5 employees, of whom at least 2 were in full-time employment
  • iii. Registered as an FSS payor under the Final Settlement System (FSS) Rules

"An eligible reinvestment project is defined as a scheme under these regulations, in respect of which qualifying expenditure has been incurred and is retained within the business for at least two years or such other shorter period as the Institute for the Promotion of Small Enterprise (IPSE Limited) may deem appropriate in view of the nature of the project.

"This includes expenditure of a capital nature exclusively financed by eligible profits, incurred as part of an eligible reinvestment project as approved by IPSE Limited in acquiring brand new plant and machinery. Motor vehicles are excluded from this category unless they are specialised commercial vehicles that are essential to the implementation of the project."

Meanwhile, Mr Dalli explained that the second scheme would allow money spent in the course of research and development, plus an additional 50%, to be deducted as costs. To illustrate the basics of this tax credit, the minister gave an example of a firm who spending Lm5,000 in one year on R&D would be permitted to deduct Lm7,500 for tax purposes under the scheme.

Individuals and firms who have already lodged their 2002 tax returns can still apply for the credits under both schemes.

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