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Seed Investment Scheme (Income Tax) Rules, 2016 (Legal Notice 232 of 2016)

Effective Date – 1 January 2016 until 31 December 2018

 

Benefit – A tax credit will be granted to natural persons (individuals) investing in start-up

businesses (hereinafter referred to as ‘qualifying investors’). 

A qualifying investor will benefit from a tax credit of 35% of the aggregate value of the

investments made in a qualifying company, provided that the total tax credit shall not exceed

Euro 250,000 per annum. 

The credit can be set off against the tax due by the qualifying investor in respect of any income

and gains earned by him in the basis year during which the investment is made.  Unabsorbed tax

credits may be carried forward to the following year against tax due on the taxable income

generated by the investment in subsequent years of assessment.

Any losses incurred from the disposal / liquidation of a qualifying investment will not be allowed

as a deduction against any income or gains chargeable to Malta tax. 

Where the qualifying investment is sold within three years, the transfer value used for the

purposes of calculating the gain thereof is the higher of the consideration and the market value

of the investment. No deductions (including the cost of acquisition) are allowed for the purposes

of calculating the gain. 

Where the investment is sold after three years, the gain will be exempt from income tax.

 

Definitions –

Qualifying investor - must be a natural person (individual) resident in Malta who bears the full

risk in respect of his investment. 

The scheme also applies to non-resident EU/EEA nationals who have at least 90% of their world-

wide income derived from Malta.

The investment shall be made within a period of two years from the date in which the company

is granted the status of a qualifying company and must be held for a period of not less than 3

years after the subscription of the equity shareholding by the qualifying investor.

In addition, the investor or any relative in the direct line, the investor’s siblings and descendants

cannot be connected to the qualifying company via employment, debt or investment purposes

before the subscription to the equity shares.

Qualifying investment – The qualifying investor should subscribe to a fresh issue of fully paid

up, equity shares at par in a qualifying company.  The investment in the qualifying company

should not exceed Euro 750,000 per qualifying company.  

Qualifying company is defined as a company that:

 Is incorporated in Malta or controlled and managed from Malta or has a place of business in

Malta;

 Has been in existence and engaged in carrying out qualifying activities for a period not

exceeding 3 years;

 Is not listed on the Malta Stock Exchange;

 Has a maximum of 10 employees;

 Has gross assets of not more than Euro 250,000 immediately preceding the issue of equity

shares to the qualifying investor;

 Holds a relative compliance certificate by the competent entity qualifying the company as

such;

 Does not engage in any excluded activities

Qualifying Activities - any activity (unless it is an excluded activity), the income from which is

chargeable to tax in terms of Article 4(1)(a) of the ITA;

Excluded Activities – These include

 Dealing in immovable property, shares, securities and, or other financial instruments;

 Dealing in goods other than in the normal course of business;

 Carrying on banking, insurance or any other activity covered by the Investment Services Act,

the Banking Act, and the Financial Institutions Act;

 Providing legal, accounting or other professional services;

 Activities relating to the development of immovable property;

 Receiving royalties or license fees;

 Operating or managing hotels, hostels, guest houses or residential care homes;

 Carrying on activities in connection with the generation of electricity and other energy

sources;

 The holding of shares, whether directly or indirectly, in any company which carries out any

excluded activities

An application process is in place with respect to obtaining the status of a qualifying company

and a qualifying investor.

3a accountants can advise and assist potential investors to obtain the status of qualifying

investors and to prepare and submit applications to the competent authority.