The opportunities for finance leasing activities in Malta have been greatly enhanced by new Finance Leasing Rules, which although published in November 2005 apply to finance leases that commenced on or after January 1 2005.
A financial institution that has either been licensed under the Maltese Financial Institutions Act or is a company of a similar nature incorporated outside Malta may provide finance leases.
Any fixed asset may be the subject of a finance lease, except immovable property. The period of the lease must be for four years or more and cannot be shorter than the period of the asset's depreciation as established by law.
The lessor pays income tax on the full amount of the annual lease payments, but is entitled to a deduction in respect of the wear and tear of the leased asset. The lessee is entitled to an income tax deduction in respect of the full amount of the lease payments they make. If the ownership of a leased asset is eventually transferred to the lessee, any payment made to the lessor in excess of the total agreed annual payments will be subject to income tax in the hands of the lessor. Thereafter the lessee will be entitled to any applicable wear and tear deductions.
With more companies looking towards financial leasing, these regulations have introduced the tax certainty that will surely promote a widespread use of this financial product in Malta.
Frank Chetcuti Dimech
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