Introduction of tax exemption for patent-derived royalties
Malta has introduced an income tax exemption applicable in respect of royalties derived from patents which are duly approved by Malta Enterprise with a view towards encouraging and assisting creative research and development resulting in the registration of patents.
This exemption from Malta tax applies to royalties accruing to any person (including a company) provided that such royalties are receivable by way of consideration for the grant of a licence to an enterprise to exercise rights under an approved qualifying patent and in the course of a productive economic activity (such as manufacturing, software development or data processing). The exemption applies regardless of the place/s where any research and development resulting in the relevant patent was undertaken.
However, an individual in receipt of royalties from a qualifying patent would only be entitled to the Malta tax exemption should s/he have been involved in the research and development of the relevant invention, whether alone or jointly with other parties. The Malta tax exemption is unavailable in respect of royalties derived by an individual from a qualifying patent which is acquired as opposed to being developed by the person/s concerned. By contrast, no such restriction applies in respect of royalties derived by any other person (not being an individual. Thus, royalties accruing to a company (or other body or persons) would be exempt from tax in Malta even if such royalties are receivable merely pursuant to the acquisition of the income-generating qualifying patent.
Qualifying patents comprise patents registered in Malta or elsewhere. However royalties derived from a patent registered outside Malta would be eligible for exemption if the invention which is the subject of the relevant patent is patentable under applicable Maltese law or is the result of fundamental or industrial research or experimental development.
The status of a qualifying patent is granted by Malta Enterprise pursuant to the submission of an application form by eligible applicants for its consideration, together with all required supporting documentation. An application must be submitted in respect of each licensing agreement and irrespective as to whether any previous confirmation or approval may have been obtained by the patent holder.
Upon receipt of an application, Malta Enterprise will verify that all applicable rules and conditions are satisfied and, if the application is successful, an Entitlement Certificate valid for a period not exceeding three years is issued. A copy of the Entitlement Certificate must be submitted by its holder to the local tax authorities to benefit from the tax exemption.