Malta Favourable Patents Tax Regime

Malta Introduces Favourable Patents Tax Regime

In August 2019, Malta introduced a patent box regime via the enactment of the ‘Patent Box Regime (Deduction) Rules 2019 – (the Rules’) –  thereby setting a legislative base for allowable deductions claimable on taxable income deriving out of Intellectual Property (“Qualifying IP”) on or after 1^st January 2019.

By virtue of the Rules, patents, issued or patent, and assets over which protection rights are granted in terms of national, European or international models, including software and utility models, which are non-obvious, useful and novel shall all be eligible for tax deduction.  However, marketing-related IP assets including brands and tradenames are outside the scope of the Rules.

In order to be eligible, the applicant must prove that the research, processing, testing, devising of the Qualifying IP has been undertaken wholly or in part by the applicant, which applicant which maintain sufficient substance.

Provided that the applicant meets the criteria, the latter is eligible for a 95% deduction calculated as a percentage of the IP expenditure divided by income/gains derived from such qualifying IP.  Income or gains shall include royalties derived from such IP or gains arising upon a disposal thereof.

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Even if such threshold is not met, the applicant may still claim a fiscal redress calculated as the cost of the income incurred in the production of such IP.

Furthermore, any losses incurred in the development of the Qualifying IP may be set-off against future income or gains.

All applications must be made to the Commissioner of Inland Revenue evidencing an application to Malta Enterprise, inclusive of the amounts and workings thereof, ensuring that such calculations are undertaken via arm’s length arrangement.

This legislative enactment shall continue to bolster the island’s reputation as a knowledge-based hub, incentivizing the creation, development and nurturing of intangible assets, which are enjoying ever-increasing clout in today’s economy.

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