On 20 December 2023, Malta’s Commissioner for Revenue published Version 1.1 of the Guidelines in Relation to the Notional Interest Deduction (NID) Rules. The Version 1.1 updates the sections regarding notional interest deduction (NID) approval, claiming, deduction, and carry forward, as well as a new section that includes other considerations.

The updates and new sections are as follows:

Approval for Claiming the NID

The shareholders or partners in an undertaking, as the case may be, 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 on which the said undertaking files its income tax return for that particular year of assessment or the date on which any one of the said shareholders or partners ceases to be a shareholder or partner of the undertaking, as the case may be.

It is hereby being clarified that the approval mentioned in the previous paragraph must be given in respect of the year of assessment in which, and to the extent that, a claim for NID causes an actual reduction in the total income.

Deduction and Carry Forward of NID

Where risk capital of an undertaking is not employed in a trade or business, and such risk capital does not result in any income (which, for the avoidance of doubt, is to be construed as referring to income before taking account of any expenses or other items that are deductible for income tax purposes) being produced in the year preceding the relevant year of assessment, the NID available on such risk capital shall not be allowable as a deduction for income tax purposes, and therefore no excess thereof shall be carried forward to subsequent years of assessment.

The previous paragraph shall, however, not affect an undertaking’s ability to carry forward unutilised NID that has been brought forward from prior years of assessment to subsequent years of assessment.

Other considerations

(A) Claiming of NID against foreign-sourced income arising from immovable property

The allowance of deductions from income which falls within the purview of Article 4(1)(e) of the Income Tax Act is regulated by the Deduction of Expenses in respect of Immovable Property Rules .L. 123.26]. It is hereby clarified that where an undertaking derives foreign-sourced rental income which falls within the purview of article 4(1)(e) of the Income Tax Act, that undertaking is also eligible to claim a notional interest deduction in respect of risk capital employed in acquiring the said income when determining the amount chargeable to income tax in Malta in terms of S.L. 123.26. For the avoidance of doubt, the NID allowable as a deduction must not be taken into consideration when determining the 20% further deduction provided for in sub-rule 3(d) of S.L. 123.26.