Tax incentives for ESG centered investments

A focus on local green incentives

The international community has set an ambitious agenda in the fight against climate change. The UN 2030 Agenda for Sustainable Development and the EU’s Green Deal are the key strategic frameworks for the transformation of Europe into a climate-neutral continent. The need to meet the challenges is urgent.

With a growing consciousness and demand for climate action amongst stakeholders, it is now more important for business entities to adopt Environmental, Social and Governance (ESG) measures as part of their business strategies.

Tax incentives play an important role in driving this investment and the reallocation of capital towards more environmentally and socially sustainable outcomes. Indeed, governments can use tax and other fiscal policy measures to change the relative prices of sustainable and unsustainable activities and thereby induce market responses to achieve ESG objectives.

In this article, we will be looking at the Environmental part of ESG and focusing on some of the support measures that have been introduced locally by different authorities to incentivise decarbonisation and the energy transition and provide assistance to environmentally-friendly projects.

Malta Enterprise (‘MEC’/ ‘the Corporation’)

Investment Aid for Energy Efficiency Project Scheme

This Scheme is open to undertakings having an operating base in Malta that carry out investments leading to improved energy efficiency. Projects may include (but are not limited to):

Substitution or upgrading of equipment and installations to reduce energy consumption;
Renovation or upgrading of equipment of existing installation for heating (or cooling) systems;
Improvement of energy efficiency of existing illumination systems;
Eligible projects must entail an investment of at least €10,000 directly related to achieving energy savings, and must be expected to result in energy savings of at least 10% as corroborated by a competent person.

Ineligible projects include investment in new buildings or extensions of existing buildings, and investments related to the generation of electricity such as PV installations.

The aid is awarded in the form of a tax credit or a cash grant (the latter is subject to certain conditions) or a combination of both which is calculated as a percentage (depending on the size of the eligible undertaking) on eligible costs.

Interested applicants should submit their application before the start of work date, and approved projects must commence within 6 months from the date they are approved and should be completed within 36 months from approval date.

This incentive scheme is available until 31 December 2023, however, the deadline to submit an application with the Corporation is 31 October 2023.

Smart & Sustainable Scheme

This scheme is available to businesses undertaking investment projects of more than €10,000 with the aim of achieving sustainability and improving environmental performance or digitisation leading to growth potential.

Aid is granted in the form of cash grants of up to €50,000, which may be topped up with an additional 10% or 20% support (up to €20,000) in the form of tax credits if additional conditions are satisfied. Eligible costs should be incurred after the approval is issued by MEC and approved investment projects should be implemented within 12 months from the date when funding is approved. Furthermore, the beneficiary should maintain the supported investment for a minimum period of 3 years.

Applications should be submitted to MEC by 30 November 2023.

Change to Grow Scheme

The aim of this Scheme is to incentivise self-employed persons and SMEs to embark on new investment projects aimed to strengthen business activities, create new products or diversify existing services, or use more sustainable practices including in technology.

The scheme provides aid at the rate of 75% of eligible costs (up to €10,000), incurred both at the stage when the enterprise seeks advisory services in connection with the project as well as during the project implementation phase.

Further information on this scheme can be found here.

Transport Malta

Transport Malta has recently issued a number of incentive schemes aimed at improving the sustainability and accessibility of road transport.

New Electric Vehicles

To reduce the carbon emissions from fossil-fueled vehicles in Malta, Transport Malta has launched a new grant scheme with a total budget of €15,000,000 to encourage the purchase of new electric vehicles that fall within the following categories:

New passenger cars;
Goods carrying vehicles;
Minibusses;
Coaches;
Quadricycles;
Motorcycles; and
Pedelecs.

This incentive is applicable to persons residing in Malta, Local Councils, Voluntary Organisations (including NGOs) (“VOs") and other undertakings established in Malta.

This incentive scheme distinguishes between establishments that carry out economic activities and those that do not. Moreover, the intensity of financing differs according to the size of the enterprise and the type of electric vehicle category. In addition, this Scheme differentiates the EU funding basis (i.e. whether the aid awarded is regulated under ‘De Minimis Aid Regulation’ or the General Block Exemption Regulation) depending on the number of vehicles acquired.

Further information may be found here

New or used Plugin Hybrid, and used Electric Vehicles

This incentive scheme provides support to Maltese businesses, Maltese resident individuals, Local Councils and VOs when purchasing a plugin-hybrid vehicle or an electric vehicle whilst simultaneously scrapping a vehicle of any category which is older than 10 years from the manufacturing date.

The grant received will vary depending on the vehicle type and category as follows:

Vehicle Type and Category	Grant Amount
New Plugin Hybrid M1 (Car) / N1 (Van).	€11,000
New Plugin Hybrid M2 (Minibus) / N2 (Small Truck).	40% of Invoice value, capped at €40,000
New Plugin Hybrid M3 (Coach) / N3 (Truck).	40% of Invoice value, capped at €200,000
Used Plugin Hybrid/Electric M1 / N1 – Older than one day and not older than 2 months.	€8,000
Used Plugin Hybrid/Electric M1 / N1 – Older than 2 months but not older than 6 months.	€4,000
Used Plugin Hybrid/Electric M1 / N1 – Older than 6 months but not older than 36 months.	€2,000
Used Plugin Hybrid/Electric M1 / N1 – Older than 36 months but not older than 60 months.	€1,000

Depending on the applicant, the maximum number of grants which may be awarded under this Scheme is as follows:

Person residing in Malta: 2 grants;
Local Councils and VOs: 10 grants; and
Undertakings established in Malta: 10 grants.

Furthermore, the applicant may also benefit from the scrappage scheme, in addition to the above-mentioned grants. The amount awarded for scrapping the vehicle depends on the category of vehicle and whether such vehicle was registered in Malta or Gozo.

Use of LPG as fuel for vehicles

To promote the use of LPG as fuel for vehicles, Transport Malta has issued this incentive scheme with a total budget of €60,000 which is applicable to persons residing in Malta and undertakings established in Malta.

The grant amounts to be issued will depend on the category of the retrofitted vehicle and if operated by LPG or petrol or LPG and diesel simultaneously, as follows:

Category	Grant Amount
Petrol-powered Category M1 or N1 vehicle is retrofitted to operate on LPG or petrol	€400
Diesel-powered Category M1 or N1 vehicle is retrofitted to operate with LPG and diesel simultaneously	€900
Diesel-powered Category M2 or N2 vehicle is retrofitted to operate with LPG and diesel simultaneously	€1,000
Diesel-powered Category M3 or N3 vehicle is retrofitted to operate with LPG and diesel simultaneously	€1,500

This grant may also be available for persons who have already modified their vehicle in the past, subject to additional criteria/considerations.

New ‘Category L’ Petrol Motorcycles

This incentive scheme provides support to Maltese businesses, Maltese resident individuals, Local Councils and VOs when purchasing new electric vehicles and pedelecs, as well as when replacing old vehicles (vehicles classified as ‘L’, ‘M1’ and ‘N1’) which are older than 10 years from the manufacturing date. Specifically, it shall support the purchase of mopeds, motorcycles, tricycles, and quadricycles.

The amount of grant awarded for each Category L Petrol motorcycle varies between €750 and €1,000 depending on the type of vehicle and vehicle sub-category. The maximum number of grants which may be awarded under this Scheme also varies by type of applicant.

Furthermore, the applicant may also benefit from the scrappage scheme, in addition to the above-mentioned grants. This varies depending on the category of the vehicle scrapped.

New Low Emission Petrol and Diesel Vehicles

This incentive scheme provides support to Maltese resident individuals and VOs when purchasing new Category M1 motor vehicles with low emissions and hybrids and also deregister a Category M1 or N1 vehicle that is older than 10 years from its year of manufacture.

The following grant amounts apply, subject to conditions:

up to a maximum of €1,500 when registering a new Category M1 motor vehicle; and
up to a maximum of €2,000 when registering a new hybrid Category M1 vehicle.

These grant amounts shall be paid when the applicant de-registers a vehicle in Category M1 or N1 at the same time while registering any of the above mentioned vehicles.

Retrofitting of energy-friendly systems on specific vehicles

Transport Malta has also launched three incentive schemes aimed at retrofitting energy-friendly systems on a variety of vehicles.

Retrofitting of approved photovoltaic panels on passenger transport vehicles
Retrofitting of DPFs and SCR systems on heavy duty vehicles
Retrofitting of battery electric powertrains

Retrofitting of approved photovoltaic panels on passenger transport vehicles

This Scheme promotes the retrofitting of approved PV panels on buses, coaches and minibusses and is applicable for undertakings established in Malta.

Aid is granted at 15% of the investment costs required for installing the panels, up to a maximum of €900 for a Category M3 vehicle (bus or coach) and €450 for a Category M2 vehicle (minibus).

Persons who have retrofitted their passenger transport vehicle with photovoltaic panels in past years may still apply for assistance under this incentive scheme.

Retrofitting of DPFs and SCR systems on heavy duty vehicles

This incentive scheme provides a grant of up to €10,000 to undertakings established in Malta when retrofitting Diesel Particulate Filters (DPFs) and Selective Catalytic Reduction (SCR) systems on heavy duty vehicles (with a maximum permissible mass exceeding 3,500kgs), such as buses, coaches, mini-buses, trucks and big vans.

Retrofitting of battery electric powertrains

This incentive scheme provides support to Maltese businesses and Maltese resident individuals when retrofitting approved battery electric powertrains on passenger cars, vans, goods carrying vehicles, minibusses, buses and coaches.

The aid is awarded at 80% of the investment costs required for the retrofitting of the electric powertrain, up to a maximum of:

€20,000 for a Category M1 or N1 vehicle (cars and vans); or
€40,000 for a Category M2 or N2 vehicle (minibus and small trucks), or
€80,000 for a Category M3 or N3 vehicle (buses, coaches and big trucks).

Conversion of Bicycles to Pedelecs

This incentive scheme intends to promote the conversion of bicycles to pedelecs and is applicable to owners of new bicycles or owners of used bicycles that are in a good state of repair and roadworthy. Eligible applicants shall be entitled to one grant of €400 for each converted bicycle (per applicant).

Other Considerations - De Minimis Aid Threshold

A number of incentive schemes, including some incentive schemes referred to above, are regulated under the EU’s ‘De Minimis Regulation’. Very broadly, the De Minimis Regulation provides for an aggregate maximum amount of aid of €200,000 over a three-year fiscal period for a ‘single undertaking’ (as defined), which amount is reduced to €100,000 in the case of a ‘single undertaking’ performing road freight transport for hire or reward.

This maximum threshold would include all aid granted in Malta from all sources of De Minimis aid.