Amendments to the Capital Gains Rules

By means of Legal Notice 379 of 2017, the Government of Malta has made a number of amendments to the Capital Gains Rules, which were originally issued by means of Legal Notice 102 of 1993 as subsequently amended by various Legal Notices. 

(i)                 Transfer of shares that have been admitted for trading on an alternative trading platform

Any capital gains derived from the transfer of shares by the original shareholders (as defined below) which is made in consequence of the admission of those shares for trading on an alternative trading platform will be calculated in the manner prescribed by the rules.  However, the gain derived will be multiplied by a percentage as indicated below depending on the level of public participation in the company in which the shares are held.

Level of public participation Taxable portion
Less than 10% 100%
At least 10% but less than 15% 75%
At least 15% but less than 20%    50%
At least 20% but less than 25%    25%
25% or more 0%

Furthermore, when persons who are not the original shareholders transfer shares in a company that have been admitted for trading on an alternative trading platform and the level of public participation in the company is at least 10%, no tax will be due on the capital gains derived. 

The original shareholders consist of:

  1. Persons who were shareholders of the company before any shares in that company were admitted for trading on an alternative trading platform.

  2. The spouse, direct descendant or the spouse of a direct descendant of an original shareholder.

  3. A legal entity whose beneficiaries consist as to more than 50% of original shareholders, or which is owned and controlled, directly or indirectly as to more than 50% by such original shareholders.

  4. A shareholder in a company who acquired his shares from an original shareholder by means of a transfer ‘causa mortis’ to which the reduction in the taxable proportion referred to in the above table was not applicable.

An alternative trading platform is a multilateral trading facility where the majority of the financial instruments admitted to trading are issued by small and medium sized enterprises (SMEs) and which is operated by a Stock Exchange recognized by the Financial Markets Act (The Malta Stock Exchange PLC and The European Wholesale Securities Market Limited).

The level of public participation referred to above is the percentage of equity shares held by persons who are not the original shareholders at the end of the day when the transfer in question takes place. 

(i)                 Gains derived from the transfer of intellectual property or intellectual property rights

In the calculation of any capital gains derived from the transfer of intellectual property or intellectual property rights, the cost of acquisition shall not include any amounts in respect of which a deduction has been claimed in terms of Article 14(1)(m) of the Income Tax Act. 

Article 14(1)(m) of the Income Tax Act provides for a deduction of any expenditure of a capital nature on intellectual property or any intellectual property rights which is incurred by a person in the production of the income.  The expenditure is spread equally over the life of the relevant intellectual property or rights in a reasonable manner, which cannot exceed three consecutive years, the first year being that in which the said expenditure has been incurred. 

How can we help? 

For further information, please contact either Stephen Balzan on sbalzan@act.com.mt or Elaine Camilleri on ecamilleri@act.com.mt.  ACT can help you understand the changes to the capital gains rules and how these can impact your business. 

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on info@act.com.mt. 

Disclaimer  

This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.  

17th February 2018

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