“The best way to predict the future is to invent it.”  (Alan Kay)

Malta is a financial services centre of excellence, and a leading intellectual property (IP) holding jurisdiction.  In order to incentivise investment in R&D and facilitate the exploitation of IP, Maltese tax legislation provides from an outright tax exemption on royalty income derived from qualifying patents. This incentive is administered jointly by Malta Enterprise and the Inland Revenue Department.

Practical application

The tax exemption applies to royalties accruing to a person (including a company) which are receivable by way of consideration for the grant to a business of a licence to use the patent in a productive economic activity, for example manufacturing, software development or data processing.

The exemption applies regardless of the place where the patent is registered, and of where any R&D activity resulting in the qualifying patent was actually undertaken. As regards royalties derived from a patent registered outside Malta, these would be eligible for exemption if the invention which is the subject of the relevant patent is patentable under Maltese law, or is the outcome of fundamental or industrial research, or of experimental development.

Several international businesses have benefited from this incentive, most notably within the pharmaceutical industry as well as in the e-Commerce sphere, including eGaming.

The exemption is complimented by various other fiscal benefits relevant to IP structures:

• Mitigation of source country withholding tax under the EU Interest and Royalties Directive, as well as under Malta’s extensive network of more than 60 bilateral tax treaties

• No withholding taxes on outbound dividends, interest or royalties paid from Malta (irrespective of the recipient’s status and country of residence)

• The possibility of an optional “step up” in the base value of assets on the migration of a company to Malta

Other royalties

Royalty income which does not satisfy the conditions for the application of the qualifying patent exemption may still benefit from Malta’s refundable tax credit system. Typically, the applicable refund is of 6/7ths of the standard corporate income tax rate of 35%, which results in an effective tax burden of 5%.

These benefits and incentives, reinforced by a sound legal system and a highly reputable regulatory framework, reinforce Malta’s position as a highly attractive jurisdiction for IP structuring, whether through a company or other ownership structure. At Boston, we have extensive experience in advising and assisting our international clients with the setting up and administration of Maltese entities involved in cross-border transactions, including IP holding and licencing activities. I invite you to get in touch with me directly to discuss your requirements and how you and your business may take advantage of these interesting opportunities.

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