The primary and perhaps most challenging stumbling block that young entrepreneurs are facing in today’s economy is accessing finance for their new ideas. Given the intrinsic higher-risk profile of start-ups and early stage companies, conventional debt financing is not readily available and some entrepreneurial potential may be lost. With this in mind the Malta Investment Management Company Limited (MIMCOL) launched the Seed Investment Scheme on 1 August 2016, precisely to create a stronger framework for start-ups to access finance.
What is the Seed Investment Scheme?
The Seed Investment Scheme (SIS) offers incentives in the form of tax credits to individual investors in return for equity investment in qualifying Maltese start-ups.
Benefits to entrepreneurs
The Scheme offers young entrepreneurs access to finance in the initial stages of their project by effectively minimising the risk to investors. The investor needs to subscribe to fully paid up, non-redeemable equity shares in a qualifying company, subject to the following two conditions:
- The investment must be made within a period of 2 years from when a company is first issued with a Compliance Certificate for Qualifying Company by MIMCOL;
- The investments in a qualifying company shall not, in aggregate, exceed EUR750,000.
Incentives to investors
A qualifying investor will benefit from a tax credit equivalent to 35% of the aggregate value of the investments made in qualifying companies, up to a maximum of EUR250,000 per annum. The applicable tax credit is set off against the tax due by the investor in respect of any taxable income or gains in the year of assessment immediately following the basis year during which the relevant investments are made. Should any part of the applicable tax credit not be absorbed in that year of assessment, it may be carried forward and set off against any tax due for any subsequent year of assessment, until it is fully absorbed.
In addition to the tax credit, any gains or profits derived from the disposal of investments under the Scheme after the lapse of three years from the date of subscription to the equity shares are exempt from tax.
Who is eligible to apply?
A company will be issued with a Compliance Certificate for Qualifying Company if it satisfies the following cumulative conditions:
- is a Small and/or Medium Sized Enterprise;
- is incorporated in Malta or is controlled and managed from Malta or has a place of business in Malta;
- has been in existence and engaged in carrying out qualifying activities for a period not exceeding 3 years following its first commercial sale;
- is not listed on any stock exchanges;
- does not have more than 10 employees; and
- has gross assets of not more than EUR250,000.
The Guidelines, which can be downloaded from www.seedinvestment.com.mt, outline a number of excluded activities and non-eligible undertakings.
To qualify as an investor under the Scheme, a person must be:
- a natural person; and either (b) or (c) below:
- a resident in Malta; or
- a non-resident individual who is a national of an EU or EEA Member State whose worldwide income, at an individual level or coupled with that of his spouse, is at least 90% derived from Malta.
To benefit from the Scheme an investor must:
- Subscribe to fully paid up equity shares in a qualifying company;
- Continue to hold the investment in the qualifying company for a period of not less than 3 years;
- Not be connected to the qualifying company prior to the subscription to the equity shares.
Duration of the Scheme
The Scheme is effective until 31December 2018, unless extended by the Ministry for Finance. In any event the Scheme will cease to be active upon the application of the Scheme to EUR5 million of investments in the start-ups.
How can companies and investors apply?
Application forms can be downloaded from www.seedinvestment.com.mt.