Article 2 of the Income Tax Act (Cap. 123 of the Laws of Malta), hereinafter referred to as ‘the ITA’ states that an “industrial building or structure” includes a building used as a hotel or a car park or offices, as may be prescribed.
A hotel includes any number of constructions suitably furnished and equipped, with accommodation in single or double bedrooms, provided that such constructions are grouped together and have in common ancillary hotel services and amenities within a single and defined parcel of land and are operated by common management for the accommodation and for the use of guests against payment.
On the other hand, a car park refers to a structure of a commercial nature available to the general public, which is the main income-generating activity of any person claiming capital allowances, or whose operation by any such person involves substantial activity, having regard to the capital employed, the organisation of the operation and the income that it generates, and which is first used for this purpose after the 1st January 2012.
Furthermore, a Guidance Note issued by the Commissioner for Revenue (CfR) regarding capital allowances in respect of car parks has been published. Such guidance note stated that the definition of “industrial building or structure” in article 2 of the ITA includes a car park that satisfies all the following conditions :
- it is first used as a car park after the 1st January 2012
- It is of a commercial nature
- It is available to the general public
- It is the main income-generating activity of the person claiming any capital allowances in its respect
When the operation of the car park involves substantial activity, having regard to the capital employed, the organization of the operation and the income it generates, the Commissioner will consider the last condition as satisfied regardless of the amount of income that the taxpayer may derive from other sources. Once a car park falls within the meaning of an industrial building or structure, it will qualify for capital allowances under article 14 of the ITA. It is to be kept in mind that, In line with the rules applicable to all claims for capital allowances in respect of any industrial building or structure, the deduction for capital allowances is only allowable against income generated by the operation of the car park.
By means of Legal Notice 349 of 2016 entitled ‘INDUSTRIAL BUILDINGS AND STRUCTURES (CAPITAL ALLOWANCES) RULES, the term “offices” has been defined as an office business centre that is first used and occupied on or after the 1st January 2016. An “office business centre” means any number of units suitably furnished and equipped, with a total office space area of more than 2,500 sqms, to be used exclusively for offices, provided that such units are grouped together and have in common ancillary services and amenities within a single and defined parcel of land and are operated by common management for the use by the owner or tenants, in the course of their trade or business against payment. Capital allowances can only be claimed by the owner of the business centre.
A deduction in respect of the wear and tear of any premises being an industrial building or structure (not for offices as explained above), where the burden of wear and tear falls upon the person making use of the property in the production of the income, but such property does not belong to him, he shall still be entitled to any deduction to which he would have been entitled had the property belonged to him.
The maximum annual amount to be deducted as capital allowances in respect of premises being an industrial building or structure shall not exceed 2% of the cost. The cost of the land on which the building or structure is erected is to be excluded. Furthermore, in respect of such industrial building or structure first used and employed in the year immediately preceding the year of assessment, an initial deduction of 10% of the capital expenditure can be claimed.