Cap. 325 Art. 36Certain reserve funds.

(1) A qualifying company in receipt of any of the incentives and benefits indicated in subarticle (4) shall, at the end of the accounting period during which the incentive or benefit stands to be accounted for, transfer to and show in its balance sheet as on the said date a reserve to be called the "Incentives and Benefits Reserve" in a sum equal to the amounts therein specified. This reserve shall show separately any amounts transferred under subarticle (4)(a) and any amounts transferred under subarticle (4)(b).

(2) The amounts to be transferred to the Incentives and Benefits Reserve, as provided for by subarticle (1), shall be so transferred from profits which, but for the provisions of this article, would otherwise be available for distribution under the laws for the time being in force in Malta, and where at the end of any accounting period there are insufficient distributable profits to enable the transfer to the said reserve of the full amount which should be transferred in accordance with subarticle (1), the obligation to transfer any amount which could not be so transferred shall be carried forward to the subsequent accounting period and deemed to be an obligation for that period, and so on for subsequent periods.

(3) A reserve created under the provisions of subarticle (1) shall, except as otherwise provided for in this article, be retained separately in the balance sheet of the company and shall not be

*Repealed by Act XXV of 1995 (Cap. 386). distributable or convertible into share capital of the company. The said reserve shall also not be reduced to take account of any losses incurred by the company, whether such losses are of an ordinary or extraordinary nature, or capital or revenue in character:

Provided that, notwithstanding anything in this subarticle, any amount transferred to the Incentives and Benefits Reserve under subarticle (4)(a) may, after the lapse of eight years from the end of the approved investment period, be applied by the company in paying up unissued shares of the company to be allotted to members of the company as fully paid bonus shares. Such distribution shall not be chargeable to tax.

(4) The incentives and benefits referred to in subarticle (1) are the following:

(a) the net amount of the profits subject to income tax at a reduced rate under the provisions of article 6 and article 24B;

(b) the amount of any grants given under the following provisions of this Act:

(i) article 19 by way of a training grant;

(ii) article 20 by way of a management services grant;

(iii) article 23(3) and (4) by way of accommodation and training grants to industry in Gozo, respectively.

(5) Distributions made to the members of a company in the course of winding up the company out of any reserve created in accordance with the provisions of this article shall not be liable to tax under the Income Tax Act: Provided that any tax paid by the company on the profits referred to in subarticle (4)(a) shall not be available as a credit or set-off under the provisions of the said Act to the recipient of the distribution.

(6) Where a qualifying company is a company incorporated outside Malta, such company shall show the Incentive and Benefits Reserve on its balance sheet in respect of its business activities in Malta until the company’s place of business in Malta, in respect of which the reserve is required, ceases to exist.

(7) The provisions of subarticles (2), (3) and (5) shall only apply to companies constituted under Maltese Law.