Introduction

The Minister of Finance, the Economy and Investment, the Hon. Mr. Tonio Fenech delivered the 2012 Budget Speech on the 14th November 2011 and announced a number of fiscal measures aimed at incentivizing investment and business, amongst others.

These measures are being introduced against a backdrop of positive economic growth, namely a projected increase in Gross Domestic Product (GDP) of 2.6% in real terms in 2011, and Malta's positive performance in the context of the current global financial crisis. The Minister of Finance listed the following as the main Budget objectives:

  • Ensuring the macro economic stability and financial sustainability required to attractive further investment and job creation is in place;
  • Investing in initiatives aimed at fostering economic activity;
  • Sustaining the current programme of investment in the country's infrastructure, energy sector and the environment;
  • Investing in education and training;
  • Supporting the needs of families, the elderly and the more vulnerable members of society.

This brief update looks at some of the more interesting fiscal measures announced in the 2012 Budget Speech as these will affect the business community.

Incentives for Business

A significant number of fiscal incentives shall be introduced with the aim of further encouraging investment in Malta as well as attracting the necessary talent required to encourage further growth in key areas. These incentives, some of which specifically underline the Government's support for innovation, include:

  • A tax exemption applicable to royalty income derived from copyright – to include copyright on books, film scripts, music and art - on the lines of the one currently in force for income from patents on inventions;
  • An expenditure-based income tax credit of up to €15,000 will be granted to companies that commission the development of educational or promotional digital games;
  • The Highly Qualified Persons Scheme – which provides for a flat 15% personal tax rate to highly qualified expatriates working in the financial services and egaming sectors – shall be extended to international professionals such as game directors and game designers, as well as academics and researchers in the research and development sector.

Other incentives aimed at fostering growth within the business sector include the extension of the MicroINVEST scheme, offering a 40% (60% to Gozo businesses) tax credit to small businesses, for a further year; the launch of a MicroGuarantee scheme catering for Government-provided bank guarantees on loans to existing or new enterprises requiring access to capital; the launch of the Malta Games Fund to support the growth of the digital games sector locally, amongst others.

Value Added Tax

With a view to supporting those businesses that have encountered difficulties in recent years relative to the timely payment of VAT dues and, as a result, have accrued significant penalties, the Government shall be introducing a scheme enabling businesses to benefit from a reduction in accumulated fines and penalties. This scheme is expected to be published shortly by way of Legal Notice in terms of the VAT Act.

Tax incentives for working women and families

The Government has announced an extension of the period of maternity leave from 14 to 16 weeks as of 2012, going up to 18 weeks in 2013; this increase in benefits shall however be borne by the state as opposed to the employer.

Other family friendly tax incentives include the introduction of a 'parent tax computation'. New income tax bands shall in fact apply to income derived by parents having children in their custody under 18 years of age (21, if in tertiary education) and are not gainfully employed.

Amendments shall also be introduced to the Part-Time Work Rules, providing for a 15% income tax rate in respect of income from part time work or activities, so as to extend the benefits of same generally as well as to extend the statutory deadline for payment of the tax.

Other Fiscal Measures

Other fiscal measures include family-related measures, such as a further increase in the private school fees personal tax deduction; a revision of various vehicle registration taxes as well as of various excise duties, including an increase in the excise duty levied on cement. A number of other measures include tax incentives for the elderly, tax incentives relative to the restoration and renovation of scheduled properties and properties in Urban Conservation Areas.

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.