Amendments to the Tax Accounts (Income Tax) Rules

By means of Legal Notice 38 of 2018, the Government of Malta has amended the Tax Accounts (Income Tax) Rules which were originally issued by means of Legal Notice 79 of 2008 as subsequently amended by various legal notices.

The amendment to the rules refers to notional interest deduction against the chargeable income of an undertaking for sums that are deemed to be payable by way of interest on risk capital.  For further information on The Notional Interest Deduction Rules, please read our article which you can find on our website by clicking on the following link http://www.act.com.mt/articles-publications/Notional-Interest-Deduction-Rules.php

Where profits of an undertaking are relieved from tax through the above-mentioned deduction, an amount corresponding to 110% of the amount of profits which are so relieved from tax are to be allocated to the undertaking’s final tax account in the following manner:

  1. An amount corresponding to 100% of the amount of profits which are relieved from tax (direct allocation).

  2. An amount corresponding to 10% of the relieved profits, out of the tax account to which such relieved profits would have been allocated to if the deduction for the notional interest was not taken (additional reallocation). 

If the amount of the additional reallocation, exceeds the total profits of the undertaking for the particular basis year, any such excess shall be ignored for the purposes of the additional reallocation.

The additional reallocation shall be effected only after the company would have made the secondary allocations which it is required to make in terms of the Tax Accounting Rules, namely the allocation regarding the annual market rent of immovable property which it owns and uses and the allocation from the Immovable Property Account of other related companies in cases it does not have enough tax profits in its Malta Taxed Account and Foreign Income Account to make its own secondary allocations.

For further information please contact the firm’s tax partners Stephen Balzan on [email protected] or Elaine Camilleri on [email protected].

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 [email protected].

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