The bud­get from a busi­ness per­spec­tive

Malta Independent - - BUDGET 2017 - Austin De­majo Mr Austin De­majo is a Part­ner at Grant Thorn­ton

This bud­get has been coined as one that mainly ad­dresses so­cial is­sues. How­ever it goes be­yond that, in­tro­duc­ing a num­ber of fis­cal mea­sures which con­tinue to build on Malta’s com­pet­i­tive­ness, stim­u­lat­ing eco­nomic growth by mea­sures in­tended to in­ject liq­uid­ity into the econ­omy.

Bold cor­po­rate tax re­forms will be in­tro­duced as from next year. The in­tro­duc­tion of No­tional In­ter­est De­duc­tion (NID) will bring com­pa­nies cap­i­talised via equity on an equal foot­ing to debt fi­nanc­ing as this mea­sure should al­low com­pa­nies to claim a no­tional in­ter­est de­duc­tion at a per­cent­age of their equity. This favourable tax treat­ment should act as a stim­u­lus in re­duc­ing in­debt­ed­ness of com­pa­nies. In­ter­est­ingly, it was only last 14 June that the Swiss Par­lia­ment voted in favour of the in­tro­duc­tion of NID as part of the Swiss Cor­po­rate Tax Re­form. Other EU mem­ber States that have NID in their cor­po­rate tax sys­tem are Bel­gium, Cyprus and Italy.

The Min­is­ter for Fi­nance also an­nounced another mea­sure by virtue of which a group of com­pa­nies will be able to de­ter­mine the tax base on a group con­sol­i­dated ba­sis. Cur­rently, mem­bers of a group de­ter­mine their tax base and tax payable on a stand­alone ba­sis, and, more of­ten than not, the re­sul­tant tax due of the group ex­ceeds the amount that would have been due had it been cal­cu­lated on a group ba­sis; this in view of cer­tain an­ti­quated lim­i­ta­tions on de­duc­tions. Group tax­a­tion en­sures that a group pays tax on group prof­its, thereby im­prov­ing liq­uid­ity of the busi­ness.

Busi­nesses do not usu­ally fail be­cause they are not prof­itable but be­cause they face dif­fi­cul­ties in rais­ing the nec­es­sary fi­nance. To ad­dress this prob­lem, the bud­get in­tro­duces an in­cen­tive for SME fund­ing by way of the Risk In­cen­tive Scheme whereby in­vestors in a SME, or a fund in­vest­ing in a num­ber of SMEs, listed on an al­ter­na­tive trad­ing plat­form, such as Prospects, will ben­e­fit from a tax credit of up to €250,000 per an­num.

The an­nounced mea­sures also ad­dress another liq­uid­ity prob­lem faced by busi­ness own­ers in the trans­fer of their busi­ness across gen­er­a­tions. Liq­uid­ity prob­lems are ex­ac­er­bated by duty payable upon the trans­mis­sion of busi­ness en­ti­ties to the next gen­er­a­tion. The im­pact will be re­duced by the re­duc­tion of the max­i­mum duty rate from 5% to 1.5% upon the trans­fer of such busi­nesses to the younger gen­er­a­tion.

Other im­por­tant mea­sures are the Ac­cel­er­a­tor Pro­gramme to as­sist niche lo­cal busi­nesses, new schemes to be in­tro­duced by Malta En­ter­prise in the form of tax cred­its mainly for start-ups, and a cap­i­tal gains ex­emp­tion on the sale of listed shares held prior to list­ing on the Malta Stock Ex­change (a re­duc­tion from 15%).

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