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Tax credit or cash grant to undertakings conducting Research and Development Activities

An undertaking that carries out a research activity relating to science and technology may be eligible for a tax credit, provided certain conditions are satisfied and the application is approved by Malta Enterprise ("ME").

A tax credit or a cash grant may be granted to an undertaking in order to carry out a project for the development of products, services or processes that necessitates the execution of experimental development and/ or industrial activities. Such tax credit or a cash grant may be granted as a percentage of the eligible costs incurred by such undertaking in relation to the experimental development and/ or industrial activities and in line with the terms and conditions set out in the guidelines issued by ME, provided that the project together with the relative costs have been approved a prior in writing by ME.

A cash grant may be granted to an undertaking that requires assistance to carry out feasibility studies in preparation for an industrial research or an experimental development activity. The cash grant will be a percentage of the eligible costs incurred by such an undertaking in accordance with the terms and conditions set out in the guidelines issued by ME. The above-mentioned assistance may be provided only if the feasibility studies with the relative costs have been approved a priori in writing by ME.

ME will issue a Tax Credit Certificate wherein it is specified the amount of tax credit that has been awarded and how the tax credit may be used.

A tax credit may be granted to an SME that requires assistance for the loan of highly qualified personnel from large undertakings or a Research and Knowledge-dissemination organisation.

The above-mentioned tax credits may be deducted from the amount of income tax which is due on the undertaking's chargeable income derived from its trade or business in the years of assessment following the award of the benefit.

Where the tax credit is not utilised in any year of assessment, or the undertaking deducts the value from the amount of income tax which is due on its chargeable income derived from its trade or business that is less than the tax credit awarded, the undertaking shall carry forward the unutilized tax credits for the following years of assessment and so on for subsequent years.

The above-mentioned tax credits shall not give rise to a right to a refund of tax.

Where an undertaking has benefited from the above-mentioned tax credits, the tax credit shall be deemed to have been relieved from tax of that undertaking's chargeable income which, when multiplied by the rates of tax at which it was chargeable in that year, is equal to the tax credit.

Where the undertaking or any subsequent undertaking distributes the income which is so deemed to have been relieved from tax, such undertaking/s shall state in the dividend warrant pertaining to any such distribution that such income has been relieved from tax by a tax credit in accordance with the Research and Development Activities Regulations ("Regulation"), and the tax which has so been relieved shall not be available for refund for any purpose of the Income Tax Act.

The chargeable income which is deemed to have been relieved from tax as outlined above, shall, for the purposes of the Income Tax Act, be allocated to the respective tax accounts of the company in question, in accordance with the Tax Accounts (Income Tax) Rules), and any dividends, or part thereof, distributed from such income shall be exempted from income tax in the hands of the members of the company on receipt of such distribution.

Where such dividend is distributed to a member which is also a company, the said dividend shall likewise be dividend exempt from income tax in the hands of the recipients, and where a member of the second company is again a company, the principle set out above shall continue to be applied for as long as such income or part thereof to which this Regulation applies are distributed by way of dividends.

No tax credit shall be due to an undertaking under this Regulation for a year of assessment unless it is claimed in the appropriate section of a tax return submitted.

The provisions of Assistance for Research and Development and Innovation Regulations shall remain applicable for assistance awarded by ME prior to the coming into force of these Regulations.

Applications for assistance under these Regulations shall reach ME by not later than the 31st December 2020.