Industrial Incentives in Malta
 By George Farrugia
Situated in the centre of the Mediterranean, Malta has a long
tradition of international business that goes back to the first
millennium
BC. This industrial tradition has led to today’s favourable
industrial and pro-business environment which makes Malta the
ideal location for foreign direct investment.
Malta Enterprise (ME) is the major catalyst in attracting foreign
industrial investment as well as the encouragement of local industrial
initiative.
Besides being responsible for 10 Industrial Estates situated in
strategic locations around Malta and Gozo, ME is also responsible
for implementing the government’s industrial policy. The
result of this conducive industrial policy has led to the establishment
of over 200 foreign and 400 local companies that between them account
for most of the islands industrial production and export. As at
2002 the value of such exports amounted to Lm961 million.
The principal legislation governing industrial development is
the Business Promotion Act enacted in 2000 which overhauled the
Industrial Development Act of 1988. This law provides for various
incentives to the local and foreign entrepreneur who decides to
set up a manufacturing base in Malta. The Act also provides attractive
fiscal incentives for companies engaged in certain qualifying activities
that include:
• Electronic and telecommunications equipment
• Software development including installation, implementation, support
and training
• Machinery and engineering
• Fabricated metal products
• Rubber and plastic items
• Pharmaceuticals and medicinals
• Medical, precision and optical instruments and equipment
• Production of audio-visual productions including films, advertising
programmes or commercials and documentaries
• Jewellery and related articles
• Repair, improvements and maintenance of aircraft, yachts, motor
boats, turbines, gantry cranes and their equipment
• Biotechnology
• Waste treatment and recycling
• Research and development
Fiscal Incentives for Qualifying Companies
Qualifying companies will benefit from the following fiscal incentives:
1) Reduced rates of income tax
The applicable tax rates on profit are:
• 5% for the first 7 years of operation;
•
10% for the following 6 years
•
15% for the following 5 years
2) Investment tax credits
Additional charge against taxable profit include:
• 50% of the amount invested; or
•
50% of the first 2 years wages costs of new jobs created
For SME’s the above percentages are increased to 65%
Unutilised investment tax credits may be carried forward to the
following year and increased by 7%.
The interaction of the above incentives would normally result
in minimal or no taxes being paid for a number of years.
Fiscal Incentives applicable to manufacturing and related service
companies
Under this scheme, companies operated in the designated industries
can benefit from the following fiscal incentives on the value added
of the activities.
1) Reduced rates of tax on profit which are as follows:
• 5% for the first 7 years
•
10% for the following 6 years
•
15% for the following 5 years
For new companies, since the base period will be NIL, all the
profits in the initial three years will be taxed at the reduced
rate of 5%.
2) Investment allowances
Additional investment allowances in addition to the normal wear
and tear on capital investment are as follows:
• 50% on the cost of investment in plant and machinery
•
20% on the cost of investment in industrial buildings
3) Reduced Tax Rate on Re-Invested profits
Although the normal company tax rate in Malta is 35%, when taxable
profits are re-invested in approved projects, this rate will be
reduced to 15.75%.
4) Double Taxation Agreements
The double taxation agreements that Malta has signed with most
of the commercial centres in the world enhance the incentives provided
by Maltese domestic legislation. Most of these treaties ensure
that profits generated in Malta are either exempt from tax in the
country of residence of the investor, or else that such a country
will provide a tax credit for the Malta tax saved as a consequence
of the incentives that Malta provides.
Other Non-Fiscal Incentives
The Business Promotion Act also provides for the following non-fiscal
incentives:
• Provision of immovable property at competitive rental
rates
•
Soft loans of up to 75% of the qualifying expenditure at favourable
interest rates
•
Subsidies on loan interest rates
•
Guarantees to Commercial Banks on loans taken by qualifying projects
•
Additional tax credits on wage costs for additional jobs created
•
Training assistance varying from 35% to 80% of the costs involved
•
Work permits for indefinite periods for shareholders (or their
nominees) holding more than 40% of the equity, whilst definite
work permits will be granted to specialists.
Disclaimer
The above information is being provided as a general guide only
and should not be considered as a substitute for professional advice.
George
Farrugia is the founding partner of MGI Malta. He can be reached
at
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