REINVESTMENT TAX CREDIT (INCOME TAX) [ S.L.123.71 1
SUBSIDIARY LEGISLATION 123.71
REINVESTMENT TAX CREDIT (INCOME TAX) 
REGULATIONS
22nd July, 2003
 LEGAL NOTICE 187 of 2003.
Title.
Credit (Income Tax) Regulations.
Interpretation.
''base year'' means the year during which the profit eligible to be
reinvested has been earned and subsequently declared in the tax
return for the relative year of assessment;
''Commissioner'' means the Commissioner of Inland Revenue;
''Corporation'' means the Institute for the Promotion of Small
Enterprise Limited;
''eligible person'' means a person resident in Malta deriving
eligible profits that are reinvested in an eligible reinvestment
project approved by the Corporation and conforming with the
requirements of regulation 3;
Cap. 123.
''eligible profits'' means income deriving from any activity
carried out in Malta chargeable under the provisions of article
4(1)( a ) of the Income Tax Act, hereinafter referred to as ''the Act''
and computed in accordance with the provisions of the Act, and set-
aside for the exclusive purpose of financing an approved
reinvestment project;
''eligible reinvestment project'' means a project approved by the
Corporation under these regulations, in respect of which qualifying
expenditure has been incurred and is retained within the business
for at least two years or such other shorter period as the
Corporation may deem appropriate in view of the nature of the
project;
''qualifying expenditure'' shall mean expenditure of a capital
nature exclusively financed by eligible profits, incurred as part of
an eligible reinvestment project as approved by the Corporation in
acquiring brand new plant and machinery, but excluding motor
vehicles unless these are specialised commercial vehicles that are
essential to the implementation of the project:
Provided that the Corporation may, in its absolute
discretion, approve expenditure within an eligible reinvestment
project, incurred in acquiring:
( a ) second-hand, refurbished or reconditioned plant and
machinery;
( b ) any extension to an existing industrial building or
structure, including the cost of land forming an
integral part of such extension:
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Provided further that such expenditure is incurred on
assets-
( a ) which are first used in Malta; and
( b ) in respect of which no income tax benefit or incentive
has previously been obtained under any other
legislation;
''qualifying profits'' means income deriving from the same
activity in which eligible profits have been earned, computed in
accordance with the provisions of the Act, that is relieved by a
reinvestment tax credit.
Application and 
eligibility.
3. (1) These regulations shall apply to eligible persons
deriving eligible profits in any of the years of assessment 2003 to
2005 and reinvested in an eligible reinvestment project within three
years from the end of the base year.
(2) In order to qualify for the benefits under these regulations,
a person shall have in the base year:
(i) had a turnover of not more than Lm250,000, and
(ii) had a minimum of two but not more than five
employees of whom at least two were full time
employees, and
S.L. 372.14 (iii) was registered as an FSS payor under the Final
Settlement System (FSS) Rules:
Provided that in the case of a company which prepares its
financial statements in a currency other than in Maltese liri, the
turnover shall be changed into Maltese liri by reference to the
middle rate of exchange as determined by the Central Bank of
Malta.
(3) A person intending to benefit from the incentive provided
by these regulations, shall, by not later than one month after the
relative tax return date, notify the Corporation of such intention for
each base year by means of a letter of application specifying such
intention and providing the following details:
(i) the person’s name, address, income tax
registration number and employer number;
(ii) the profit declared for the base year;
(iii) the amount of eligible profits to be set-aside for
reinvestment;
(iv) the turnover for the base year;
(v) the number of employees engaged during the
year, distinguishing between part-time and full-
time;
(vi) the period during which the reinvestment is to be
made,
(vii) the details of the reinvestment project, with a
breakdown of the major expense headings;
(viii) a certificate issued by a certified public
accountant and auditor confirming that the
reinvestment project is viable, that the expenses
REINVESTMENT TAX CREDIT (INCOME TAX) [ S.L.123.71 3
involved are reasonable and fair according to
market values, and that the reinvestment has the
capacity to expand the business:
Provided that any person who fails to notify the
Corporation in writing about the intention to apply for the incentive
provided by this regulation, shall forfeit the right to be eligible for
the benefit:
Provided further that for the year of assessment 2003, such
notification shall reach the Corporation by not later than the 31st of
October 2003.
(4) The Corporation, on being satisfied with the application
referred to in this regulation, shall issue a certificate indicating the
amount of the eligible profits approved for reinvestment.
Reinvestment tax 
credit.
4. (1) Where it appears to the Corporation that eligible profits
derived by an eligible person have been set aside for the exclusive
purpose of financing an eligible reinvestment project as shall have
been approved by the Corporation, and that the eligible profits or
part thereof have in fact been used for such purpose, the
Corporation shall issue a certificate showing compliance and
thereupon the person shall be entitled to the benefit under
subregulation (2).
(2) The benefit available under these regulations shall be in the
form of a reinvestment tax credit equivalent to the tax chargeable
on that part of the eligible profits that is reinvested in an approved
project on the basis of the following formula:
tax on total income for the base year
less
tax on total income after excluding that part of the
eligible profits for the same base year that is being
reinvested, calculated at the rates applicable for the
base year.
(3) A person entitled to a reinvestment tax credit in respect of a
year of assessment shall be entitled to deduct from the amount of
tax which is due on qualifying profits for that year of assessment
the amount of the reinvestment tax credit, calculated as a
proportion of the qualifying expenditure to the eligible profits that
are deemed reinvested and multiplied by the maximum tax credit
entitlement derived by applying the formula in subregulation (2).
(4) ( a ) Where the reinvestment tax credit for any year of
assessment exceeds the tax payable by such person for
that year, the excess shall be added to the reinvestment
tax credit, if any, for the following year:
Provided that so much of the reinvestment tax
credit which is not so utilised at the end of any year is
carried forward up to the year of assessment 2010 and
may not be set off against the tax due on any other
source of income or to generate a refund of tax.
( b ) The reinvestment tax credit shall only be deducted
from the tax due on qualifying profits from the same
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source of the eligible profits and for the purpose of this
subregulation qualifying profits are deemed to be the
last part of the total income.
( c ) The reinvestment tax credit granted under these
regulations shall not be allowed if the eligible profits
have not been reinvested, even if such profits had been
set aside for reinvestment under an eligible
reinvestment project.
(5) Where a person has benefited from the provisions of this
regulation, the reinvestment tax credit for any year of assessment
shall be deemed to have relieved from tax so much of the
qualifying profits for the year which when multiplied by the rate or
rates of tax at which it was chargeable in that year, is equal to the
reinvestment tax credit.
(6) The chargeable income which is deemed to have been
relieved from tax in accordance with subregulation (4), shall, for
the purposes of the Act, be retained in the business for at least until
the end of the year of assessment 2009, and:
( a ) in the case of an individual it shall be included in the
capital account and the movements in such account
shall be disclosed by way of a note to the audited
financial statements;
( b ) in the case of a limited liability company it shall be
disclosed separately in the audited financial statements
in a reserve entitled ''Reinvestment Reserve''.
(7) ( a ) In the case of a limited liability company the
qualifying income which is deemed to have been
relieved from tax is allocated to the Maltese Taxed
Account and, upon distribution, shall be exempt from
tax in the hands of the shareholders up to the ultimate
shareholder.
( b ) The company shall state in the dividend warrant
pertaining to any such distribution that such income
has been relieved by a reinvestment tax credit in
accordance with these regulations, and the tax which
has so been relieved shall not be available for refund
for any purpose of the Act.
(8) Where the benefit provided by these regulations is due to a
partnership, any such benefit shall be due to the partners of any
such partnership:
Provided that the reinvestment tax credit is calculated
separately for each partner on the share of qualifying profit
attributable to such partner in the manner set out in subregulation
(4).
Certificate of 
compliance.
5. (1) A person wishing to claim a reinvestment tax credit for
any year of assessment, shall submit to the Corporation, by not
later than three months before the relative tax return date, a written
application supported by audited financial statements and any other
documentary evidence requested by the Corporation.
REINVESTMENT TAX CREDIT (INCOME TAX) [ S.L.123.71 5
(2) Any application required to be submitted to the Corporation
in order to benefit from these regulations shall be in such form and
contain such particulars as the Corporation may require.
(3) The Corporation, on being satisfied with the submissions
referred to in this regulation and within sixty days from the receipt
of all relevant information it may request, shall issue a certificate
of compliance confirming that all the provisions of these
regulations have been complied with.
(4) On granting its approval for any purpose under these
regulations, the Corporation shall confirm its approval in writing
setting out the conditions to be satisfied by the person, and the
person’s entitlement to the benefit provided by these regulations
shall be conditional on the production of such written approval.
(5) The Corporation shall forward to the Department of Inland
Revenue copies of certificates and approvals issued under the
provisions of these regulations.
Examination of 
records.
6. ( a ) Where a benefit has been provided in terms of these
regulations, the Corporation may -
(i) from time to time make such examination of
books and documents, hold on-site inspections
on premises and all other things and matters of
that person as may be necessary to ensure that
the benefit is being applied for the purpose for
which it has been made; and
(ii) request such financial statements from the
person as it may require, to be submitted
quarterly or at shorter intervals at the discretion
of the Corporation.
( b ) Where the Corporation is not satisfied that an eligible
person is employing the benefit for the purpose it is
intended for or has failed to fulfill any condition under
these regulations, such person shall immediately
forfeit the right for the benefit.
Further conditions.
eligibility to the benefit under these regulations:
S.L. 372.22
( a ) the tax return together with audited financial
statements incorporating the TIFD codes as stipulated
in the Tax Index of Financial Data Rules, are to be
submitted to the Commissioner by the relative tax
return date for each year of assessment starting from
the base year and all subsequent consecutive years
during which a reinvestment tax credit is available
irrespective of whether it is utilised or not;
( b ) no other benefits are being claimed or may
subsequently be claimed by a person on the same
activity or project under any other legislation granting
fiscal incentive schemes;
( c ) all tax liabilities including amounts due in respect of
FSS tax as well as social security contributions due up
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to the time of the application, except for any tax still in
dispute, must have been settled or is being settled in
accordance with a formal agreement drawn up with the
Commissioner.
Power of the 
Commissioner.
Cap. 318.
8. Notwithstanding the other provisions of these regulations,
the Commissioner shall have the right not to allow any
reinvestment tax credits if any default is committed by the
applicant in respect of any provision of the Act or the Social
Security Act.
