Investment aid tax credits and micro-invest tax credits – an update

Updated: June 25, 2020 | 6 minute read

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Introduction

Malta Enterprise, the country’s economic development agency, aims at attracting foreign direct investment to Malta and to support local businesses to invest in the development of their operations. Aid is granted in various manners and the Corporation aims to assist different enterprises across the Maltese economy.

The most common type of aid granted by Malta Enterprise is in the form of tax credits mainly through the Investment Aid scheme and the Micro Invest scheme. Whereas both these incentives both provide assistance to businesses in the form of tax credits, the schemes are aimed to different types of businesses seeking to invest in their operations.

Investment Aid Tax Credits

The Investment Aid Tax Credits 2014 - 2020 scheme is aimed at sustaining the regional, industrial and economic development of Malta by providing the basis of investment support. This incentive is reserved for enterprises carrying on eligible activities in Malta, which mainly consist of the following:

  •  Manufacturing;
  •  Information and communication technology;
  •  Call centre activities;
  •  Research and development, and Innovation;
  •  Eco-Innovation, waste treatment and environmental solutions;
  •  Biotechnology;
  •  Facilities for filming and audio-visual productions;
  •  Provision of tertiary education in the fields of science and technology;
  •  Provision of private healthcare services;
  •  Freeport and logistics operations;
  •  Operation of Hotels, resort hotels, suite/apartment hotels or guest houses;
  •  Restoration of works of art and antiques but, excluding restoration of buildings and structures;
  •  Knowledge intensive business services;
  •  Cultural restoration on works of art and antiques, but excluding immoveable property;
  •  Facilities for large scale cultural, creative and trade events; and
  •  Packaging on an industrial scale through automation.

Assistance is granted on investment aimed at setting up new establishments, the extension of capacity of an existing establishment, a fundamental change in the overall production process of an existing establishment or a diversification of the output of an establishment into products not previously produced by the establishment.

How are Investment aid tax credits calculated?

Investment Aid tax credits are computed as a percentage of either the value of capital investment or the value of wages for 24 months covering new jobs created as a result of an investment project. Aid intensity depends on the size of the enterprise as per table below.

Relative Tax Credit
  Small Medium Large
Applicable aid intensities for project where the
‘start of works’ is on or after 1 January 2018 but
before 31 December 2020
30% of eligible cost 20% of eligible cost 10% of eligible cost

 

In the case of large investment projects exceeding €50 million other rates may apply but, in any case, no aid is granted for investments exceeding €100 million.

Aid intensity applicable to enterprises engaged in the operation of hotels is 15% for small and medium sized enterprises and 10% for large enterprises.

Any investment on which a tax credit has been granted shall be retained by the beneficiary for at least five years, or three years if the beneficiary is a micro, small or medium-sized enterprise unless the investment becomes obsolete due to rapid technological change

The tax credits may be utilised against the tax incurred on income derived from the eligible trade or business activity of the company. Tax credits which are not utilised during a particular year are carried forward indefinitely to subsequent years.

Qualifying Investments in Tangible Assets

For the purpose of Investment Aid, qualifying investments in tangible assets include:

  • Investments in land, buildings and structures in relation to industrial property;

  • Investment in machinery and equipment in relation to the project. To be considered as a qualifying expenditure, the asset acquired must be new, except in the case of micro, small and medium-sized enterprises in which case the assets must be first used in Malta;

  • Assets of an establishment which has closed down or would have otherwise closed down had it not been purchased; and

  • Assets acquired under a lease contract as long as the lease continues 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 enterprises, and where the lease is in the form of a finance lease and contains an obligation for the undertaking to purchase the asset upon expiry of the lease term.

Investment Aid Deadline for Submission of applications:

The Investment Aid Scheme is currently open for submission of applications and shall remain in force until 31st December 2020.

Micro Invest Tax Credits

The objective of the Micro Invest Scheme is to assist small and medium sized enterprises to invest in their business by providing a tax credit which is calculated as a percentage of eligible capital expenditure and wage costs.

How do Micro Invest tax credits work?

Eligible undertakings may be approved a tax credit equivalent to 45% of the eligible expenditure, up to a maximum of €50,000, over a period of three consecutive years. In case of Start-up businesses, the tax credit must be utilized over a period of 5 years.

As from January 2018, female-owned businesses including self-employed (but not only start-ups) or Undertakings registered as a Family Business will be granted a maximum tax credit of up to €70,000 instead of €50,000.

Undertakings operating from Gozo benefit from a tax credit of 65% of the eligible expenditure, up to a maximum tax credit of €70,000.

Once a tax credit certificate has been issued by Malta Enterprise, the tax credits can be utilised against the tax incurred on income derived from the eligible trade or business activity for that financial year. Any unutilized tax credits shall be carried forward and can be utilised by the third year of assessment commencing from that year of assessment specified on the Incentive Entitlement Certificate.

What are the conditions which shall be satisfied to be eligible for Micro Invest Tax Credits?

  1. As of January 2018, the employees’ threshold for eligibility under the Micro Invest scheme for applications on expenditure incurred during calendar year 2018 onwards increased from 30 to 50 full time employees;

  2. The applicant must be an undertaking whose turnover did not exceed €10 Million in the calendar year preceding the year in which the application is submitted;

  3. Applicants must employ at least one person (on full or part time basis) on the date of application. The person employed may be the applicant him/herself;

  4. Applicants should be registered with the VAT Department, unless they are exempt from such registration; and

  5. Persons or undertakings engaged in activities specifically excluded under the de minimis regulations are not eligible for this incentive.

Eligible costs for the Micro Invest Tax Credits

  • Costs in relation to furbishing; refurbishing; and upgrading of business premises, including extensions or modifications to such premises;

  • Investment in acquiring machinery, technology, apparatus or instruments which enhance the operations, including systems which help to save energy or to produce alternative energy such as Solar Systems;

  • Investment made by the undertakings for it to become compliant with regulations, including health and safety, environmental directives and physical access;

  • Investment in one motor vehicle over a period of 3 years, as long as it is involved in the carrying of goods, or Special Purpose Motor Vehicles as defined, or any vehicle that is designed specifically for the carriage of ten persons or more; and

  • Increases in wage cost that exceed 3% of the highest annual wage cost incurred in the preceding two fiscal years. Part-time employment is eligible when such employment required the employee to work in excess of 20 hours per week.

Micro Invest Deadlines for Submission of applications: 

  • Extended deadline for costs incurred in 2018 is 11th December 2019. Applicable to both Self-employed and Limited Liability Companies.
  • The deadline for costs incurred in 2019 by Self-employed individuals is 25th March 2020;
  • The deadline for costs incurred in 2019 by Limited Liability Companies is 27th May 2020.

How can Nexia BT assist?

Nexia BT has advised and assisted various clients from different business sectors in the past years. We can assist you with the preparation and submission of the tax credit applications and other supporting documents with Malta Enterprise, ensuring that the maximum eligible tax credit is claimed.

Written By
Roderick Mifsud
Tax Advisory Services

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