A. Financial Incentives for the Audiovisual Industry

Productions filming in Malta before 31 December 2008 are eligible for the financial incentives under Legal Notice 65/2006.

The incentives are in the form of a cash grant given to eligible productions on the qualifying expenditure incurred in Malta. Up to 20% of the eligible expenditure can be obtained as a cash rebate by a qualifying production company once filming is complete.

Feature film and television productions, mini-series, animation and documentaries are all eligible for the incentives, provided that they are at least partially produced in Malta.

Procedure

A qualifying production is required to present an application to the Malta Film Commission, including a detailed projection of the Malta budget for the production. Upon assessment based on specific guidelines, the Commission would grant a provisional approval no later than 3 weeks after receipt of the application.

The final approval would be granted upon review of a final application, including audited accounts and a detailed analysis of the Maltese production expenditure, after shooting is completed. The cash rebate is forwarded to a qualifying production no later than 5 months from the date of receipt of the final application.

Qualifying Expenditure

Expenditure incurred locally on the following items is eligible for a cash rebate:
Labour, hotel bed nights, transportation equipment and hire, location fees, catering services, per diems, leasing of offices, computer equipment, props (sourced locally), property (owned locally), animals, equipment, vehicles, and boats. Other qualifying expenditure includes courtesy payments, telecommunications, craft service, laundry and cleaning services and professional services.

Presentation of expenditure should be net of V.A.T. This is charged at 18% and is fully refundable on all goods and services.






B. The Business Promotion Act (BPA)


In terms of the Business Promotion Act (BPA) various incentives of a fiscal and a non-fiscal nature are granted to companies that perform certain activities in Malta.
In particular, target activity companies including companies that produce and distribute audiovisual productions from Malta may benefit from various fiscal incentives, including reduced rates of income tax and investment tax credits.
A ‘qualifying company’ can be a Maltese or foreign company or partnership, which carries on in Malta a trade or business solely in the production of film, television, commercials and documentaries.
A newly-formed Maltese company engaged in target activities will be entitled to benefit from a substantial reduction in the tax payable on its taxable income in accordance with Regulation 4 of the Business Promotion Regulations (BPRs). These regulations provide that up to 31st December 2008 such company will be taxable at the reduced rate of 5% up to maximum profits of Lm25,000 (at 2002 prices increased by annual inflation each year) per employee – if profits are less than this maximum the difference is increased by 7% and carried forward to be utilised in future years.

In addition, these companies are entitled to a tax credit that is deducted from the tax due calculated at the reduced rate of tax of 5%. Such credit is calculated either as a percentage of the amount invested in qualifying expenditure, or as a percentage of the wage cost for the first two years for jobs created as a result of an investment project and provided such jobs are kept for at least five years.

The aforementioned percentage is 65% in the case of companies qualifying as small or mediumsized companies (SME), and 50% in the case of large companies. Any part of the investment tax credit which is not utilised to relieve the tax of a particular year is increased by 7% per annum and carried forward to be deducted from the tax payable of future years.

The combination of these two incentives may result in no tax being paid for a number of years.


C. Value Added Tax (VAT) Rebates

Malta has a Value Added Tax charge of 18% on all goods and services supplied in Malta and on all taxable importations. The VAT rate for accommodation in hotels and licensed premises and the supply of alternative energy equipment is 5%. Certain supplies are exempt (e.g. food and medicine). On the majority of goods and services supplied a VAT refund is given to the person/company acquiring the service or good – depending on the types of supplies carried out by that person/company.


Foreign film productions shooting in Malta can also claim refunds in the following cases:

1) Input VAT incurred on property rental or hotel accommodation (bed and breakfast, half board or full board) with respect to all those persons, foreign or otherwise, directly engaged in the production of a foreign film, TV series, commercial or documentary;

2) Input VAT on restaurant bills could be claimed back, even it falls outside the accommodation package, with respect to all those persons, foreign or otherwise, directly engaged in the production of a foreign film, TV series, commercial or documentary;

3) Input VAT incurred on fuel may be claimed back when consumed by vehicles, commercial or otherwise, used directly in connection with the production of a foreign film, TV series, commercial or documentary;

4) Input VAT on the cost of taxis and car hire relative to the film production – excluding however VAT on purchase of non-commercial motor vehicles;

5) Input VAT on the cost of materials used for the purpose of the film production which would not be otherwise recoverable.

VAT refunds are affected within 5 months from the later of the expiration of the time allowed for furnishing the VAT return for the particular VAT period or from the day on which the said return is made.



D. Other Tax Credits


The Malta Film Commission is offering tax credits to companies that contribute to the expansion of the Maltese audiovisual industry by investing in the infrastructure and services required by the industry. The tax credits are awarded to qualifying companies by way of a deduction from the tax chargeable on gains or profits derived from the activities of the approved investment.
Interested parties must apply for these incentives by 31 December 2008, however tax credits may be claimed until 2013.

Qualifying activities

The activities that qualify for these incentives are:
• the building and management of sound stages and other production facilities,
• post-production services,
• rental of filming, light and grip equipment
• investment in film laboratories.

Tax credits on infrastructure and labour costs

The tax credit on offer to qualifying companies investing in infrastructure and services directly related to the audiovisual industry consists of a credit of 20% on the acquisition, construction, development or improvement of any industrial building or structure including a warehouse, and including related labour costs which are capitalised as part of the cost of any such acquisition, construction, development or improvement.

Tax credits on acquisition of plant and machinery

An additional tax credit of 40% on expenditure on plant and machinery is obtainable. This excludes expenditure on motor vehicles (except for such specialised motor vehicles as may be approved by the Commissioner), works of art and antiques, any assets whose use is wholly or mainly of a decorative nature and any assets whose cost is related to their intrinsic value rather than to their specific use.

Maximum aid intensity

Small or medium sized enterprises can receive up to 50% of the total cost of an approved project. Larger firms are entitled to receive up to 40% of their total eligible investment.

Penalties

Each investment has to be retained for at least 5 years and must provide four new jobs to for a minimum of 3 years. In case the investment or part thereof is not retained within the company for a period of less than 5 years, the qualifying company would be asked to pay an amount of tax, in addition to any other liability, equivalent to the amount presented by the reversal or recalculation of the tax credit.


This information is merely a guide and does not constitute legal advice upon the film industry in Malta.

Please do not hesitate to contact Dr. James Muscat Azzopardi at jamesma@ma-advocates.com for more information in this regard.