Start-Up Finance 2017 – 2020

Introduction  A new incentive was recently launched by Malta Enterprise targeting specifically Start-Ups in their early stages of development  The aim of this measure is to finance innovative undertakings in their early stages of development by supporting Small Start-up Undertakings that demonstrate a viable business concept in the setting-up and initial growth phases.  Duration of the incentive  This incentive […]

Written By Stephen Balzan

On August 6, 2017
"

Read more

Introduction 

A new incentive was recently launched by Malta Enterprise targeting specifically Start-Ups in their early stages of development 

The aim of this measure is to finance innovative undertakings in their early stages of development by supporting Small Start-up Undertakings that demonstrate a viable business concept in the setting-up and initial growth phases. 

Duration of the incentive 

This incentive shall be available until the 31st December 2020. 

What is a small start-up undertaking? 

A ‘small start-up’ undertaking is an unlisted small undertaking that has been established for less than five (5) years and which has not yet distributed profits and has not been formed through a merger. A start-up does not include any undertakings that closed down and re-opened. Undertakings controlled by owners of previously closed down businesses cannot be considered as a start-up undertaking under this incentive if the new undertaking is operative in the same or related sectors as that of the closed down firm. This restriction applies for a period of twelve (12) months following such closure. 

A small start-up undertaking must employ less than fifty (50) Full Time Equivalent FTE employees and have a turnover or balance sheet total which does not exceed €10 million. 

Which undertakings will be considered as innovative? 

‘Innovative undertaking’ means an undertaking: 

(a) that can demonstrate, by means of an evaluation carried out by an external expert that it will in the foreseeable future develop products, services or processes which are new or substantially improved compared to the state of the art in its industry, and which carry a risk of technological or industrial failure; 

or

(b) the research and development costs of which represent at least 10 % of its total operating costs in at least one (1) of the three (3) years preceding the granting of the aid or, in the case of a start-up undertaking without any financial history, in the audit of its current fiscal period, as certified by an external auditor. 

Eligible undertakings 

Small start-up undertakings shall be considered as eligible if they are, or shall be engaged in one or more of the following activities:

  1. Manufacturing including the Manufacture of Gas
  2. Information Technology, Digital Media and Communications;
  3. Research, Development and technical Innovation
  4. Industrial and Product design
  5. Biotechnology, Pharmaceuticals and Life Sciences
  6. Audio visual and creative media investment in facilities (Sound Studio)

In Eligible undertakings must be:

  1. proposing products and/or services that have potential to be marketed and distributed internationally and  
  2. producing products and/or services which are new or substantially improved compared to the state of the art in the local industry.

Incentive Description

The scheme supports small start-up undertakings with a repayable assistance which may be based on the parameters established below. 

Support as co-investment linked to private equity 

Malta Enterprise may provide a repayable assistance equivalent to the value of which may be established by considering the private equity held in the company. The support shall be provided on the basis of the parameters established below:

The total value of funding supported by Malta Enterprise under this measure may not exceed the nominal value of paid up share capital held by private parties or €200,000 (whichever is the lowest).

Malta Enterprise shall disburse the repayable assistance in a maximum of four (4) tranches.

Companies who have received other public funding as equity or in relation to the private equity invested in the company may not benefit from this measure.

Each tranche shall be subject to a review of the operations of the start-up undertaking. Such review is required to confirm adherence to the approved business plan and to approve any adjustments which may be warranted. 

Support for the procurement of tangible assets 

Malta Enterprise may award repayable assistance which will enable the beneficiary to fund approved tangible assets. The tangible assets purchased by the beneficiary shall be considered as security against the repayment of the grant and hence cannot be used as collateral for any other financial instrument. 

Any machinery or equipment supported through this incentive must be new or first time used in Malta. 

The maximum amount of assistance may not exceed €200,000. 

Support linked to Crowdfunding 

Malta Enterprise may provide repayable assistance up to a maximum of €50,000 in support of a pre-approved crowdfunding campaign. The funding may not exceed the amount requested through the crowdfunding campaign. The beneficiary must indicate on the crowdfunding platform page that the project has received support from Malta Enterprise. 

Funds will only be made available if the crowdfunding campaign is successful. In approving this support Malta Enterprise may specify that should the beneficiary succeed in raising a higher amount than what has been requested on the crowdfunding platform, the difference may be deducted from the repayable assistance. 

A company may request support for multiple crowdfunding campaigns, yet the repayable assistance under this provision shall be limited to € 100,000. 

Aid Intensity

The maximum support that small start-up undertakings may be assisted under this scheme is €600,000. 

Interest and Redemption 

An annual interest at a rate calculated on the balance owed to Malta Enterprise at the end of each year is charged at the end of the year. The cumulative interest shall be calculated as a percentage over the European Central Bank’s (ECB) base rate as per the table below:

Year  % interest
1 – 5 ECB base rate plus 3%
6 – 7 ECB base rate plus 4%
8 – 10 ECB base rate plus 5%
10+ ECB base rate plus 6%

On an annual basis, if the interest payable to Malta Enterprise exceeds 50% of the total profits of the beneficiary for the year in review, the value in excess of 50% of the total profits shall be added to the outstanding value of the repayable assistance.  This is subject to the approval of Malta Enterprise. 

Beneficiaries shall be required to repay the awarded assistance within ten (10) years. Malta Enterprise may, at its own discretion, agree to extend the repayment period in-line with the performance of the supported undertaking. 

The beneficiary may opt to initiate the process of paying the interest of the first twenty-four (24) months as from the third year that the assistance has been awarded. 

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

Disclaimer: This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.