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Tax Credit on Higher Educational Qualifications

Background 
In the budget speech for 2018 a measure was announced which provides for a tax benefit to individuals who had not completed forty years of age on the date of commencement date of the course who graduate with a PHd, Masters degree or Postgraduate Diploma (minimum 60 credits) (MQF level 8 or 7).

The Tax Incentive
The benefit consists of a tax exemption on employment income which may be claimed by way of a tax credit. It applies to individuals who complete the relevant course of studies in 2018 or later. Where the individual pursues the relevant course of studies on a part-time basis, the tax credit is reduced by 50%. A reduction in the tax credit applies also where the course of studies was commenced before 2017.

In the case of a Masters, the tax credit is available against the tax on income earned during the year that follows that in which the course is completed. In the case of a PhD it is available for two successive years. An individual who obtains a Masters and claims the tax credit for one year, and later obtains a PhD, may claim the tax credit for a further year. Otherwise, the tax credit may be claimed only once.

Conditions
The incentive is not available to individuals who benefit from any other tax or other incentive related to the same qualification. An individual who is employed in a professional capacity cannot claim the tax credit if the degree was obtained as a prerequisite for the exercise of his profession. 

An individual who claims the tax credit must remain in employment in Malta for at least four years, or, where the credit has been availed of for two year, for five years after the year in which the course is completed. If this condition is breached, the tax credit must be refunded, but an exception is allowed when the employment is terminated on account of sickness or injury.

Determination of the Tax Credit
This Tax Credit can be claimed as from Year of Assessment 2020 for courses that were completed during 2018 and subsequent years accordingly. A form together with a certificate showing the completed program awarded by the relative institution at education level (Malta Qualification Framework -MQF) level 7 or level 8, should be attached to the tax return. If the taxpayer recieves from the CfR a statement indicating the tax due for the year without initially submitting a return, the taxpayer may send the lower part of the statement indicating a request for a tax return. The tax return has to be submitted to the CfR together with the completed form. A revised statement will be issued accordingly. 

Individuals submitting non-Maltese accredited programs of study must also present a Malta Qualifications Recognition Information Centre (MQRIC) statement confirming the MQF level. Certificates issued by the University of Malta, or other Maltese accredited qualifications that indicate on the certificate the License Number issued by the National Commission for Further and Higher Education (NCFHE) and the MQF level (7 or 8) are exempt from submitting an MQRIC statement.

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Examples

  1. A taxpayer successfully completed a full time course which commenced during 2017 and was awarded a Masters (level 7) qualification in 2018. Taxpayer is chargeable using the single rates and his chargeable employment income during 2019 would be €40,000 with a tax charge of €7,275. The tax credit for the year of assessment 2020 would be €7,275.

  2. A taxpayer completed a course (Masters – level 7) on a part-time basis, it commenced during 2017 and would be awarded the qualification in 2019. Taxpayer is chargeable using the single rates and his chargeable employment income during 2020 would be €40,000 with a tax charge of €7,275. The tax credit for the year of assessment 2021 would be €7,275 x 50% = €3637.

  3. A taxpayer successfully completed a full time course which commenced during 2016 and was awarded a Masters (level 7) qualification in 2018. Taxpayer is chargeable using the single rates and his chargeable employment income during 2019 would be €40,000 with a tax charge of €7,275. The tax credit for the year of assessment 2020 would be (2018 - 2017)/(2018 – 2016) X €7,275 = €3637.

  4. A taxpayer successfully completed a part-time course which commenced during 2016 and was awarded a Masters (level 7) qualification in 2018. Taxpayer is chargeable using the single rates and his chargeable employment income during 2019 would be €40,000 with a tax charge of €7,275. The tax credit for the year of assessment 2020 would be (2018 - 2017)/(2018 – 2016) X €7,275 x 50% amounting to €1819.

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