The budget from a business perspective

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%).