The Commissioner for Tax and Customs ('CfTC') has released on 20 December 2023 updated guidelines (Version 1.1) in relation to the Notional Interest Deduction ('NID'). The guidelines are issued in terms of Article 96(2) of the Income Tax Act ('ITA') and are to be read in conjunction with the Notional Interest Deduction Rules (S.L.123.176) (the 'Rules').

The first update is in relation to the shareholder and partners of an undertaking who are required to give their approval for the undertaking to claim a NID by the earlier of the date by which the said undertaking files its income tax return for that particular year of assessment or the date on which any one of the said shareholders or partners ceases to be a shareholder or partner of the undertaking, as the case may be.

The guidelines clarify that the said approval must be given in respect of the year of assessment in which, and to the extent that, a claim for a NID causes an actual reduction in the total income.

The second update is in connection with the proviso to subrule (3) of Rule 5 of the Rules when the CfTC exercises his discretion to allocate the deemed interest income on a basis other than the nominal value of the risk capital held by the shareholder or partner, as the case may be. The criteria on which the CfTC bases his decision constitutes an exchangeable ruling in terms of the Cooperation with Other Jurisdictions on Tax Matters Regulations (S.L.123.127) and the Joint Council of Europe/OECD Convention on Mutual Assistance in Tax Matters Order (S.L.123.150)

The final update is in relation to a claim of a NID against foreign sourced income arising from immovable property falling within the scope of article 4(1)(e) of the ITA as regulated by Deduction of Expenses in respect of Immovable Property Rules (S.L. 123.26).

Where an undertaking derives foreign-sourced rental income falling within article 4(1) (e) ITA that undertaking is also eligible to claim a NID in respect of risk capital employed in acquiring the said income when determining the amount chargeable to income tax in Malta in terms of Subsidiary Legislation 123.26. It is being clarified that the NID allowable as a deduction must not be taken into consideration when determining the 20% further deduction as provided in sub-rule 3(d) of Subsidiary Legislation 123.26.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.