Malta tax legislation provides for an exemption on royalties derived from qualifying patents. Under the exemption, royalties and similar income (including any amounts paid for the grant of a licence to exercise rights) derived from registered patents, in respect of qualifying inventions, whether registered in Malta or elsewhere, are exempt from tax in Malta as from 1 January 2010. The exemption applies regardless of where the underlying research and development was carried out. A patent is considered to be a qualifying patent if it is registered in Malta or elsewhere, in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the relevant invention was carried out in Malta or elsewhere.
This incentive is available to all persons (individuals and enterprises) that own the rights to patented intellectual property and are receiving income in the form of royalties (or other similar income there from).
A patent granted in Malta or overseas is considered as eligible as long as the same invention is considered patentable under Maltese Law or is the result of Fundamental Research, Industrial Research or Experimental Development.
Royalties and income derived from other (i.e. non-patented) intangibles continue to be taxed in Malta at the statutorily guaranteed maximum overall effective rate of 5%. This rate falls to 0% where the Malta resident entity is not incorporated under the laws of Malta and the income is not physically received in Malta.
In terms of Malta’s patent box, royalties and similar income derived from patents in respect of inventions are exempt from Malta tax. The regime was extended to also include income derived from copyright and other non-patented IP. Recently, the Budget Act extends the remit of the royalty exemption to income derived from trademarks.
The tax exemption is optional. Consequently, the person entitled to such exemption may waive the exemption and declare the income in its tax return. Should such person declare the royalty income in the pertinent Malta tax return, the person would be taxable at progressive rates of tax in case of individuals, and at the rate of 35% in the case of companies. Malta tax legislation also provides for case special deductions. By way of example, expenditure of a capital nature on IP rights is allowable as is expenditure on patents and patent rights. Expenditure on IP rights is spread equally over 3 years. Expenditure on patent rights is spread over the life of a patent.
Royalties and income derived from other (i.e. non-patented) intangibles are subject to the standard Malta tax treatment, depending on the person in receipt of such income. In the case of companies click here to find out more. The Malta tax rate falls to 0% where a Malta resident entity is not incorporated under the laws of Malta and the income is not physically received in Malta.
This regime has recently been extended to include income derived from copyright and other non-patented IP, as well as income derived from trademarks.