Seed Investment Tax Credit
29 July 2019
Legal notice 170 has repealed the previous seed investment tax credit rules and introduced a more beneficial tax credit system applicable for seed investments.
The legal notice grants a 35% tax credit, capped at €250,000 per annum to qualifying investors (natural persons tax resident in Malta) on upon an investment by subscribing to fully paid up equity shares at par in a qualifying company. The tax credit can be carried forward indefinitely but cannot give rise to a tax refund. In order to in a position to apply be a qualifying company, the company must meet all the following conditions:
- It is an SME 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 three years following its first commercial sale;
- is not listed on any recognised stock exchange;
- has a maximum of ten employees; and
- has gross assets of not more than €250,000 immediately preceding the issue of equity shares to the qualifying investor.
The following are the excluded activities:
- dealing in immovable property, shares, securities and, or other financial instruments;
- dealing in goods other than in the normal course of business;
- carrying on banking, insurance or any other activity covered by the Investment Services Act, the Banking Act, and the Financial Institutions Act;
- providing legal, accounting or other professional services;
- activities relating to the development of immovable property;
- receiving royalties or licence fees;
- operating or managing hotels, hostels, guesthouses or residential care homes;
- carrying on activities in connection with the generation of electricity and other energy sources;
- the holding of shares, whether directly or indirectly, in any company which carries out any of the activities listed in any one or more of paragraphs (a) to (h).
The programme is capped at a maximum of €750,000 per qualifying company and €5 million in total.
In order to qualify as being eligible for benefits under these rules, the qualifying investor must continue to hold the investment in the qualifying company for a period of not less than three years subsequent to the subscription and not be connected to the qualifying company (as defined) prior to the subscription to the equity shares. The qualifying investor must effect the investment within two years (but can be made in instalments) from when the qualifying company is first issued with a compliance certificate for the status of a ‘qualifying company’ by the competent entity.
Any loss incurred from the disposal of an investment in a qualifying company or from the liquidation of such qualifying company shall not be allowed as a deduction in respect of income or gains chargeable under articles 4 and, or 5 of the ITA.
Where the investment in a qualifying company is sold within three years from the date of subscription to the equity shares by the qualifying investor, and where the qualifying investor qualified for benefits in terms of these rules relative to such investment, the tax due in respect of the income derived from the disposal is calculated on the basis of the higher of the market value of such investment and the consideration received by the qualifying investor and taxed at the applicable progressive tax rates without any deduction whatsoever. However, if the investment in a qualifying company is disposed of after the lapse of three years from the date of subscription to the equity shares by the qualifying investor, any gains or profits derived from such disposal shall be exempt from any tax otherwise due in terms of the ITA.
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