Patent Box Regime (Deduction) under the Maltese Tax Rules
Last August 2019, the Government of Malta has by means of Legal Notice 208 of 2019, introduced a patent box regime. The Rules provide a foundation on which the deduction within the Income Tax Act (ITA) may be claimed and shall apply in relation to qualifying income derived from qualifying Intellectual property (IP). The deduction is applicable to qualifying income derived from qualifying intellectual property on or after the 1st January 2019.
The Patent Box Regime deduction shall be calculated by means of the following formula:
95% X (Qualifying IP Expenditure / Total IP Expenditure) X Income or Gains derived from Qualifying IP
The entitlement to the deduction is subject to the satisfaction of the following conditions:
- the research, planning, processing, experimenting, testing, devising, designing, development or similar activity leading to the creation, development, improvement or protection of the qualifying IP, shall be carried out wholly or in part by the beneficiary, solely or together with any other person or persons or in terms of cost sharing arrangements with other persons, whether resident in Malta or not:
The above-mentioned activities include among others:
- functions which are performed by employees of other enterprises, which employees are acting under the specific directions of the beneficiary in a manner equivalent to that of employees of the beneficiary;
- functions carried out through a permanent establishment (including a branch) situated in a jurisdiction other than the jurisdiction of tax residence of the beneficiary, where such PE derives income which is subject to tax in the jurisdiction in which the beneficiary is tax resident.
- the beneficiary shall be the owner of the qualifying IP or the holder of an exclusive license in respect of the qualifying IP. Where the activities are carried out together with any other person or persons or in terms of cost sharing arrangements with other persons, the beneficiary must own or share in the ownership of the qualifying IP or be the holder of an exclusive license in respect thereof.
- the qualifying IP is granted legal protection in at least one jurisdiction;
- the beneficiary maintains sufficient substance in terms of physical presence, personnel, assets or other relevant indicators, as is commensurate with the type and extent of activity being carried out in the relevant jurisdiction in respect of the qualifying IP;
- where the beneficiary is a body of persons, such beneficiary is specifically empowered to receive such income; and
- the beneficiary requests the Patent Box Regime deduction in computing his income or gains in the tax return.
Where a benefit is claimed in respect of a patent that is still pending, and the application is eventually rejected, any such benefit claimed shall be reversed by making the appropriate adjustment in the year in which it is ascertained that the particular patent will not be issued.
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