S.L. 325.6 Art. 6Value added incentive scheme.

(1) Where a qualifying company, being a company which qualifies as such in terms of article 3(1)(a) and (b) of the Act, throughout a relevant accounting period, satisfies the conditions set out in this regulation, an amount of the company’s profits as is determined in accordance with sub-regulation (3), shall -

(a) with effect from the year of assessment from which the provisions of this regulation may become applicable and the six subsequent years of assessment, be subject to income tax at the rate of 5%;

(b) for the six years of assessment immediately following the years of assessment as determined in accordance with paragraph (a), be subject to income tax at the rate of 10%;

(c) for the five years of assessment immediately following the years of assessment as determined in accordance with paragraphs (a) and (b), be subject to income tax at the rate of 15%:

Provided that the last year of assessment in respect of which the provisions of this regulation shall be applicable shall be year of assessment 2021: Provided further that, subject to the immediately preceding proviso, the Corporation shall confirm to each company qualifying in terms of this regulation the minimum number of years of assessment, which shall not exceed ten years of assessment, in respect of which the provisions of this regulation shall be applicable to that company; and the Corporation may, not earlier than twelve months prior to the expiration of such period, renew such confirmation for a period not exceeding five years: Provided further that, without prejudice to a company’s rights with respect to any period confirmed by the Corporation in terms of the immediately preceding proviso, the Minister may by notice in the Gazette determine that the last year of assessment in respect of which the provisions of this regulation shall be applicable shall be a year of assessment prior to year of assessment 2021:

Provided further that companies referred to in sub-regulation (2)(a) shall only be eligible to be taxed at the rates stipulated in paragraphs (b) and (c) hereof, and in such case the rate of tax referred to in paragraph (b) shall be applicable for six years of assessment with effect from the year of assessment from which the provisions of this regulation may become applicable, and the rate of tax referred to in paragraph (c) shall be applicable for the following five years of assessment.

(2) For the purposes of sub-regulation (1), the year of assessment from which the provisions of this regulation become applicable, is -

(a) year of assessment 2002, or any of the subsequent two years of assessment in the case of -

(i) a company incorporated in Malta and which existed on the day immediately preceding the date of coming into force of this regulation; and

(ii) a company incorporated outside Malta and which was registered as an oversea company in terms of the Companies Act on the day immediately preceding the date of coming into force of this regulation, as shall be determined by the company by notice to the Corporation by not later than 30 April 2003;

(b) any of the first three years of assessment of the company in the case of any other company as shall be determined by the company by the end of its third year of assessment, so however that if no such notice is given by the aforementioned dates, the earlier year from the available years of assessment shall be the first year of assessment from which the provisions of this regulation shall be applicable.

(3) The amount of profits which shall be subject to reduced rates of income tax in accordance with the provisions of sub-regulation (1) shall be arrived at by the following formula:

(a) V - V c b  V    b     X (c) P - P c b    

(b) S - S c b S b Where: V = value added in relevant accounting period c V = average value added in base period b S = sales in relevant accounting period c S = average sales in base period b P = profit in relevant accounting period c P = average profit in base period: b Provided that the amount of tax payable by a company as a result of this regulation shall in no case be lower than the company’s average tax payable in the base period for year of assessment 2002 which shall be arrived at by dividing the total of the tax payable by the company for each year of assessment pertaining to each accounting period comprised in the base period by the number of days in those accounting periods and multiplying the result thereof by the number of days comprised in the relevant accounting period; and, for the purpose of this proviso, "tax payable" shall comprise the tax payable by the company on its chargeable income derived from its trade or business: Provided further that the total amount of profits which are brought to charge to tax in a year of assessment, shall in no case exceed the actual amount of profits as calculated before the application of the formula set out in this sub-regulation.

(4) A company shall only qualify for the benefit provided by the provisions of this regulation if it satisfies all of the following conditions:

(a) the amount of value added resulting from the company’s audited financial statements for the relevant accounting period exceeds the average amount of value added as shown in that company’s financial statements covering the base period;

(b) throughout the base period and the relevant accounting period it was a qualifying company;

(c) during the relevant accounting period it satisfied the conditions set out in regulation 4(4), without regard being had to the provisos to paragraph (b) thereto;

(d) during the relevant accounting period its trade or business did not include the preparation or production of "food in the course of catering" including -

(i) meals or snacks including -

(1) hot and cold dishes including antipasto and dessert;

(2) sandwiches, toast, potato chips, sausage rolls, pizza, and similar pastizzi, qassatat snacks;

(3) biscuits, cakes, confectionery and similar items but excluding those sealed in a package by the manufacturer and supplied in that original sealed package, and those items which individually weigh 500 grams or more;

(4) food supplied in restaurants, cafeterias, canteens, bars and other similar establishments

(5) food prepared or produced for parties, functions, weddings and similar events;

(6) food prepared or produced for consumption on aircraft and vessels or for consumption by persons pertaining to a particular location or organisation, including patients in hospitals or homes, residents of hotels or guest houses, workers in a particular workplace and the preparation or production of food in similar circumstances;

(ii) milk, milkshake, tea, coffee and chocolate supplied in liquid form, excluding milk and milkshake supplied by the manufacturer thereof in bottles and containers for distribution to retail outlets but including any form of drink which is merely produced by adding liquid to powder or substance and where such drink is produced in order that it may be served in a bar, restaurant, canteen, cafeteria or other establishment or place to individuals for consumption.

(5) For the purposes of this regulation:

(a) except for paragraph (c), "profits" means the company’s chargeable income for income tax purposes after deducting any part thereof which does not accrue to the company from its trade or business carried out in Malta and after account has been taken of any incentive or benefit obtained by the company under the provisions of the Act or of these regulations;

(b) a loss made in any accounting period comprised in a base period shall be deemed to be zero profits;

(c) "value added" means the aggregate of -

(i) the profits, before taxation, derived by the company from its trade or business, as reported in the company’s financial statements for the accounting period in question;

(ii) the wages and salaries paid by the company, whether in cash or in kind, to its full-time and part-time employees and which amounts have been reported to the Inland Revenue Department under the final settlement system rules or any other rules complementing or replacing the same;

(iii) the social security contributions paid by the company in respect of the amounts referred to in sub-paragraph (ii); and

(iv) the cost of services which are provided by a company which, during the relevant accounting period, did not qualify for any of the benefits provided by this regulation, regulation 4 or articles 4, 5 or 5A of the Act and which is, directly or indirectly, controlled and beneficially owned to the extent of more than ninety per cent by the same persons and for the purpose of this sub-paragraph (iv) the cost of services shall mean the wages and salaries paid by such other company, whether in cash or in kind, to its full time and part-time employees that carried out the services in question to the company claiming the benefit of this regulation and which amounts have been reported to the Inland Revenue Department under the final settlement system rules and any other rules complementing or replacing the same;

(d) where a company was not in existence, or in the case of a qualifying company incorporated outside Malta such company was not registered as an oversea company in accordance with the Companies Act, during the accounting periods comprised in a base period, the company shall, for the purpose of applying the formula set out in sub-regulation (3), be deemed to have had zero profits and zero value added in the base period and the result of parts (a) and (b) of the said formula shall be deemed to be one;

(e) the amount of total sales shall be calculated free on board and where the sale is made pursuant to a contract of works, the amount of total sales shall include the uninvoiced value of any materials and components provided by the customer;

(f) the average value added, average sales and average profits of a base period shall be arrived at by dividing the aggregate sales, value added and profits of the accounting periods comprised in the base period by the number of days comprised in those accounting periods and multiplying the result thereof by the number of days comprised in the relevant accounting period;

(g) the base period shall be comprised of the accounting periods the profits of which fall to be charged to tax in the three years of assessment preceding the two years of assessment which precede the year of assessment in which the profits of the relevant accounting period fall to be charged to tax: Provided that where the profits of the relevant accounting period fall to be charged to tax in the company’s fourth year of assessment, the base period shall be comprised of the accounting period the profits of which fall to be charged to tax in the company’s first year of assessment; and where the profits of the relevant accounting period fall to be charged to tax in the company’s fifth year of assessment, the base period shall be comprised of the accounting period or periods the profits of which fall to be charged to tax in the company’s first two years of assessment;

(h) where the result of parts (a) and (b) of the formula set out in sub-regulation (3) is a negative amount, such result shall be multiplied by "-1";

(i) where the result of part (b) of the formula set out in sub-regulation (3) is zero, the result of parts (a) and

(b) of the said formula shall be deemed to be one.

(6) Where a company which claims the benefit provided by this regulation has, since the end of any accounting period comprised in a base period, acquired the business, or part thereof, of another person, who is connected with such company, whether such acquisition is made by means of a merger or otherwise, the value added, total sales and profits for that accounting period and relating to the business acquired, shall be added to the value added, total sales and profits respectively of the company for the purpose of determining the amount of profits which shall be subject to reduced rates of income tax in accordance with the provisions of this regulation; and for the purposes of this sub-regulation, a person shall be considered to be connected to such company if one is, directly or indirectly, beneficially owned and controlled to the extent of more than fifty per cent by the other or both are, directly or indirectly, beneficially owned and controlled to the extent of more than fifty per cent by the same persons.

(7) The provisions of regulation 4(5) to (11) shall apply mutatis mutandis to the benefit provided by this regulation as they apply to the benefit provided by that regulation.