Update of Guidelines
The Malta Commissioner for Revenue has issued updated guidelines in relation to the application of the Notional Interest Deduction (NID) mechanism to Malta companies or partnerships. The updated guidelines elaborate on a number of factors including the determination of the reference rate, the attribution of the deemed interest income, the calculation of the deduction of the NID and carry forward possibilities.
Calculating the risk-free rate
The guidelines clarify that the risk-free rate, referring to the yield to maturity on Malta Government Stocks with a remaining term of approximately 20 years is published on the website of the Central Bank of Malta on a quarterly basis. To arrive at the reference rate used to calculate the NID, this risk-free rate must be added to a 5% premium. The reference rate at the end of calendar year 2017 is 7.03% (2.03% + 5%).
The role of the shareholders and partners
Shareholders or partners as at the end of the year preceding the year of assessment are required to give their approval for the undertaking to claim a NID by the earlier of the date of the filing of the income tax return or the date on which any one of the said shareholders or partners ceases to be a shareholder or partner of the undertaking. In terms of Rule 5 of the Notional Interest Deduction Rules, interest income that is deemed to accrue to shareholders or partners of an undertaking should be allocated in its entirety to the undertaking’s shareholders or partners, as the case may be.
