We often hear about a successful startup introducing a new service or product which becomes the next best thing, but the reality is that most startups fail in their initial years. Various research was carried out amongst startups and lack of financing comes up as a common reason why a significant number of start-ups fail. Having said this, on a positive note, a survey carried out by the Europe Startup Nations Alliance (ESNA)* among 21 EU countries placed Malta as the 4th best destination for innovative startups. Nonetheless, the report highlighted that Malta needs to improve on aspects related to access to finance and employee share options.
With reference to the startup financing cycle (figure below), seed capital can help new ventures with access to finance early on to be able to meet the initial startup costs, typically until the startup starts selling a product or service and eventually attracts more investors.
* ESNA was created in 2021 and is supported by 26 EU Member States and Iceland. ESNA focuses on implementing the “EU Startup Nations Standards of Excellence,” which outlines eight best practices in startup-friendly policies.
To encourage seed investments, the Seed Investment (Income Tax) Rules 2024 were published by LN 45 of 2024 and came into force on 1st January 2024 in respect of investments made as from basis year 2024 onwards, and shall have effect until the 31st December 2026.
SEED Investment Rules
The scope of the scheme is to grant tax credits to natural persons resident or operating in Malta investing in start-up businesses that employ less than 10 employees and have gross assets not exceeding €250k. The investment made in a qualifying company (subscription to fully paid-up equity shares at par) shall, in aggregate, not exceed €750,000 per qualifying company and must be held for a minimum period of three years.
Funding is provided in the form of tax credit equivalent to an amount amounting to 35% of the aggregate value of the investments made by such investor in one or more qualifying companies. The total tax credit applicable to any such investor shall not exceed €250k per annum. Tax credits which are not absorbed may be carried forward by the qualifying investor and set-off against tax due for any subsequent year of assessment until it is fully absorbed.
In addition to this, Malta Enterprise is also continuing to strengthen its incentives such as the Business Start and Startup Finance schemes which lead to assistance up to a maximum of €1.5 million. In terms of wider financing, the Malta Government has recently announced the creation of a €10 million Venture Capital Fund to assist innovative startups.
Zampa Debattista can assist startups and investors with sound financial management, raising capital and tapping into funding opportunities, including tax credits and non-repayable cash grants.
Kris Bartolo
Partner
