In June 2016, the Commissioner for Revenue has issued new rules to grant tax credits to natural persons investing in start-up businesses (hereinafter referred to as ‘qualifying investors’). These rules came into force on 1st January 2016, will apply with respect to investments made as from basis year 2016 and will have effect until 31st December 2018.
In terms of these rules, any qualifying investor will benefit from a tax credit of 35% of the aggregate value of the investments made in a qualifying company, provided that the total tax credit shall not exceed Eur250,000 p.a. The credit can be set off against the tax due by the qualifying investor in respect of any income and gains earned by him in the basis year during which the investment is made. Any amount which is not fully absorbed can be carried forward to be absorbed against the tax due in subsequent years of assessment.
In terms of the new rules, a ‘qualifying investment’ means the subscription to a fresh issue of fully paid up, non-redeemable equity shares in a qualifying company by a qualifying investor. The investment made in a qualifying company and benefitting from the tax credits shall not exceed Eur750,000 per qualifying company.
The term ‘qualifying activities’ is defined as any activity (unless it is an excluded activity), the income from which is chargeable to tax in terms of Article 4(1)(a) of the ITA.
The term ‘qualifying company’ is defined as a company that:
- Is incorporated in Malta or controlled and managed from Malta or has a place of business in Malta;
- Has been in existence and engaged in carrying out qualifying activities for a period not exceeding 3 years;
- Is not listed on the MSE;
- Has a maximum of 10 employees;
- Has gross assets of not more than Eur250,000 immediately preceding the issue of equity shares to the qualifying investor.
A qualifying investor must be a natural person resident in Malta who bears the full risk in respect of his investment. The scheme also applies to non-resident EU/EEA nationals who have at least 90% of their world-wide income derived from Malta. The investment must be held for a period of not less than 3 years after the subscription of the equity shareholding. The investment shall be made within a period of two years from the date in which the company is granted the status of a qualifying company.
Any losses incurred from the disposal / liquidation of a qualifying investment will not be allowed as a deduction against any income or gains chargeable to Malta tax. Where the qualifying investment is sold within three years, the transfer value that is taken into account for the purposes of calculating the gain thereof is the higher of the transfer consideration and the market value. No deductions (including the cost of acquisition) are allowed for the purposes of calculating the gain.
Where the investment is sold after three years, the gain will be exempt from income tax.
ACT can advise and assist qualifying investors to obtain the status of qualifying investors and to prepare and submit applications to the competent authority.