Malta: Domestic Corporate Taxation
Business Promotion Tax
The Business Promotion Act provides an incentives package aimed at establishing and strengthening certain business sectors within the Maltese economy:
- the production, manufacture, improvement, assembly, processing, repair, preservation or maintenance of any goods, materials, commodities (including computer software), equipment, plant and machinery;
- the rendering of services of an industrial nature analogous to the activities referred to above;
- fisheries or large scale aquaculture;
- agricultural stock farming or large scale horticulture;
- activities carried out by a company under the Malta Freeports Act;
- the operation of catering establishments, guesthouses, hostels and holiday premises;
- the undertaking of projects considered to be beneficial to the tourism industry;
- the production of feature films, television films, advertising programmes or commercials, and documentaries;
research and development programmes; and
- the export of goods or services produced or provided as the case may be, by other qualifying companies.
The government has discretion under the Act to give incentives to other business sectors in addition. Qualifying companies must not engage in non-qualifying activities.
Companies carrying on one or more of the qualifying activities pay reduced rates of income tax. New companies pay 5% for the first 7 years, 10% for the next 6 years and 15% for the next 5 years.
Qualifying companies are also eligible for an investment tax credit calculated either as a percentage of qualifying investment expenditure or as a percentage of the wage costs of employment created by the investment. For small and medium sized companies the percentage is 65% and for large companies the percentage is 50%. Investment tax credits which are not utilised in any particular year are carried forward to future years and on each such carry forward the credit is increased by 7% per annum.
Qualifying investment expenditure is defined as any cost incurred in acquiring industrial buildings and structures, plant and machinery, land, other buildings and know-how. Imported second hand machinery may also qualify. Investments must be maintained for at least 5 years.
Profits which have been taxed at the incentive rates or which escaped tax due to Investment Tax Credits are exempt from further tax when distributed as dividends to shareholders.
The Value Added Incentive Scheme
This incentive is available to manufacturing companies which do not qualify as above and which increase the value they add during manufacturing. Such companies pay tax on their increased trading profits at 5%, 10% and 15% for 7, 6 and 5 years respectively; and the taxed profits may be distributed without further taxation.
Other Investment Incentives
The Act provides for investment and accelerated depreciation rate allowances for acquisitions of plant and machinery or industrial buildings, subject to various conditions. The investment allowances are 20% for industrial buildings or structures, and 50% for plant and machinery. The accelerated depreciation rates are 5% per annum for industrial buildings or structures, and 33.3% for plant and machinery.
A range of further incentives includes soft loans, training grants, low-rent premises, and job creation grants.