Cap. 325 Art. 12Research and development allowance.

(1) In the case of a qualifying company, other than a company contemplated in article 3(1)(h), the provisions of article

14(1)(h) and (i) of the Income Tax Act, shall in any year in which the company is entitled to a deduction thereunder as from the year of assessment 1988 -

(a) be deemed to allow a deduction in respect of expenses incurred as follows in addition to any other expenses contemplated in the said paragraphs:

(i) experimental or theoretical work aimed at the discovery of new knowledge related to its trade or business;

(ii) searching for applications of such work and knowledge;

(iii) formulation and design of possible applications

*year of assessment 2002 - see Legal Notice 135 of 2001. for such work;

(iv) testing in search for, or evaluation of, product or process alternatives;

(v) design, construction and testing of pre-production prototypes and models;

(vi) design of product, processes, systems or services involving new technology or substantially improving those already produced or installed;

(b) be deemed not to allow as a deduction any expenses incurred as follows:

(i) routine design, testing and analysis of equipment or product for the purpose of quality or quantity control;

(ii) routine or periodic alterations to existing products or processes;

(iii) operational research;

(iv) legal and administrative work in connection with patent applications, records and litigation and the sale or licensing of patents and patent rights;

(v) any activity, including design and construction, relating to the construction, relocation, rearrangement or start-up facilities or equipment other than facilities or equipment whose sole use is for a specified and particular research or development project;

(c) be read and construed as if all the provisos thereto were omitted.

(2) Deductions due under the provisions of article 14(1)(h) or

(i) of the Income Tax Act, as modified by the provisions of this article, shall be allowed for the purposes of the said Act at one hundred and twenty per cent of the actual amount of the expenditure incurred, but the total deduction granted as aforesaid shall not, for any year of assessment, exceed five per cent of the turnover of the company for that year: Provided that if the amount of the deduction is such that the full amount thereof cannot be allowed in the year in which it is incurred, that part which cannot be so allowed shall be added to any deduction due in this respect for the following year and be deemed to be part of that deduction or, if there is no such deduction for that year, be deemed to be the deduction for that year, and so on for subsequent years.

(3) Nothing in this article shall be considered to grant an allowance in respect of research and development which is not substantially carried out in Malta.

(4) With effect from such year of assessment as may be * determined by the Minister by order in the Gazette , the provisions of this article shall cease to have effect.

*year of assessment 2002 - see Legal Notice 135 of 2001.