Other deductible expenditure (this is a non-exhaustive list and is purely being provided for guidance purposes)
1. Capital allowances
A deduction in terms of wear and tear may be claimed on capital expenditure incurred to acquire Plant and Machinery, and Premises satisfying the definition of an “Industrial building or structure”, used/ employed in the production of income.
There are specific rules for what constitutes Plant & Machinery and the number of years over which capital allowances may be claimed over such Plant & Machinery for income tax purposes. For example, capital allowances for computers and electronic equipment may be claimed over a minimum period of 4 years.
There are specific rules defining Industrial buildings/structures. Generally capital allowances at 2% per annum may be claimed of the cost thereof, not including the cost of the land on which the building or structure is erected.
Any capital allowances not claimed and utilised in a given year may be carried forward to be off set against profits or gains from the source of income in respect of which they are allowable.
Upon a disposal a “balancing statement” will need to be drawn up to calculate any balancing allowance or balancing charge. The equivalent of a gain or loss on disposal of a tangible asset for accounting purposes. If the sales proceeds differ from the tax written down value as at the date of disposal, a balancing charge (taxable income) or allowance (tax deduction) arises.
2. Capital expenditure on Intellectual Property (IP) or IP rights
Expenditure of a capital nature on IP or IP rights, incurred by a person and used/employed in the production of income, is deductible.
The rule previously required that such expenditure be spread equally over a minimum period of three consecutive years (first year being when incurred or when first used for income).
With effect from the year of assessment 2024 (basis year 2023) the rules now allow (at the taxpayer’s option) full deduction in the first year of expenditure or first use of the IP/ IP rights.
3. Repairs of premises, plant or machinery
A deduction if any sum incurred for repairs of premises, plant or machinery employed in acquiring the income, or for the renewal, repair or alteration of any implement, utensil or article so employed.
4. Borrowing costs
A deduction for borrowing costs such as interest expense wholly and exclusively incurred for the purpose of trade, business, profession or vocation, or on capital employed for the purpose of acquiring income. Further rules apply in terms of such borrowing costs deductibility such as the interest limitation rules.
As from 1 January 2019, it is important to consider the ATAD provisions on interest deductibility. These rules limit the amount of interest tax deductions that may be deducted. The limit applies for borrowing costs which exceed interest income, capped at 30% of tax-adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA). This cap does not apply where exceeding borrowing costs are lower than EUR 3 million. A grandfathering clause is included in the Maltese provisions for loans that were concluded before 17 June 2016, in that these fall out of the scope of the directive.
5. Rent
A deduction for rent paid by any tenant for the purpose of acquiring the income.
6. Bad debts
A deduction is allowed for bad debts incurred in any trade, business, profession or vocation, proved to the satisfaction of the Commissioner. There are specific guidelines on what constitutes a debt as being bad and the steps one would need to take and proof to deduct such bad debt. Provisions for bad debts are typically not allowed.
7. Trading losses
A deduction for a loss incurred in any trade/business/profession or vocation during a particular year (which, if it had been a profit, would have been assessable to income tax).
Such allowable trading losses may be carried forward indefinitely to offset against future trading profits (subject to all the conditions being satisfied).
8. Business permits/concessions/commercial leases
As from 1 January 2025, a new provision was implemented for a deduction of capital expenditure incurred on the acquisition of a business permit, a concession or a commercial lease (used in income production), subject to certain conditions, and deduction is spread over 15 years (or shorter if the permit/lease duration is shorter).
9. Pension contributions
Contributions by an employer to a pension, saving, provident or any other society or fund which may be approved by the Commissioner as may be prescribed.
10. Childcare fees
Fees paid by an employer to a licensed or registered childcare centre as fees in respect of childcare services for the children of his employees, up to a maximum of 935 per child. Such fees must be proven to the satisfaction of the Commissioner.
11. The Notional Interest Deduction (NID)
A deduction of such sums in respect of risk capital as are aimed at approximating neutrality between debt and equity financing.
12. Scientific research
Expenditure on scientific research incurred by a person engaged in any trade, business, profession or vocation and proved to the satisfaction of the Commissioner to have been incurred for the use and benefit of the trade, business, profession or vocation.
The deduction shall be spread equally over the year in which it has been incurred and the five succeeding years.
“Scientific research" shall include:
i. basic research comprising activities undertaken for the advancement of scientific or technological knowledge.
ii. applied research where a specific application is in view.
iii. development work involving the use of the results of basic and applied research as aforesaid for the purpose of creating new or improving existing materials, devices, products or processes.
13. Market research and market advertising
Expenditure on market research and obtaining market information, advertising or other means of soliciting business, providing samples, and participating in fairs and exhibitions incurred in a trade, business, profession or vocation for the purpose of promoting that trade, business, profession, or vocation.
