In this year's Budget Speech, delivered on 9th November 2009, the Minister of Finance announced a number of fiscal measures aiming at incentivising investment and businesses, the main thrust of which was the promotion of investment, R&D and environmental protection, on the one hand, and the tightening of anti-abuse provisions aimed at attacking certain aggressive tax planning schemes, compliance and a process of consolidation of the Inland Revenue, VAT and Customs Departments on the other hand.

The various fiscal incentives to be introduced further to the 2010 Budget shall clearly supplement the current, attractive fiscal regime. The corporate tax regime, in particular, operates the full imputation system in terms of which dividends are generally not taxed further in the shareholder's hands and a credit for the tax paid by the distributing company is available to the shareholders; in addition, distributions of profits allocated to certain tax accounts by resident companies trigger a right to refund of Malta tax paid by the company in the shareholder's hands, with the effective Malta tax rate after refund generally ranging from 0% to 5%.

Some of the more interesting fiscal measures announced in the 2010 Budget Speech and directed at the business community include:

1.   Investment Incentives

A number of new incentives will be provided to encourage foreign direct investment in Malta, including:

  • An incentive to encourage new foreign companies setting up shared services centres in sectors such as software development, digital gaming, human resources, market research, internet publication, call centres.
  • An incentive for existing foreign investors operating locally to expand their existing operations in areas such as legal, financial, logistical, R&D, back office, sales and marketing, and prototyping services.

2.   Research & Development

These incentives are:

  • A tax exemption on royalties and similar income accruing from patents on inventions payable to the developers of such patents, subject to certain conditions being met.
  • Donations made to the University of Malta's Research, Innovation and Development Trust Fund shall be tax deductible (up to a maximum €50,000).

3.   Incentives to Small Businesses and the Self-Employed

The Government has announced a number of fiscal measures intended to encourage small businesses and the self-employed to invest in efficiency.  Included therein are:

  • A 40% tax credit (increased to 60% for investments in Gozo) – up to a maximum €25,000 – will be granted to self-employed persons and small businesses employing a maximum of 10 persons and to sole traders making a qualifying investment in the next two years.
  • A micro credit of up to €25,000 will be granted to provide liquidity for investment.

4.   Focus on 'creative' sectors of the economy

A focus of a number of measures announced by the Minister of Finance in this year's Budget Speech were the 'creative' sectors of the economy, with said measures being intended to incentives areas such as ICT, film, arts and design, the performing arts and others.  The Government shall be providing:

  • fiscal benefits for qualifying costs spent on interactive digital media products as well as on sound recording houses, said costs to include those incurred in bringing productions over to Malta.
  • fiscal benefits for qualifying costs to support eligible Maltese authors in the publication of their literary works.
  • tax credits for qualifying costs spent on special effects, computer animation, films, television programmes and production services.

5.   Tax on Property Transfers

The possibility, in terms of law as currently in force, to opt out of the 12% final withholding tax applicable to immovable property transfers shall be extended from 5 to 7 years with respect to transfers taking place in 2010 and 2011.

6.   Other Fiscal Measures

Other fiscal measures include a reduction in the registration / licence fees for power boats, certain family related measures such as incentives to employers providing childcare facilities to employees at work.

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.