Malta has introduced patent box rules creating incentives for taxpayers involved in the development and use of intangible assets.
Following the issue of LN 208 of 2019 on 13th August 2019 Malta introduced patent box deduction rules, which allow taxpayers actively involved in the development and exploitation of IP to opt for the application of special rules on calculating deductions (“Patent Box Deduction”).
The Maltese Patent Box Deduction allows taxpayers that exploit qualifying IP to deduct their expenses related to such IP in terms of more favourable conditions than provided by the general deduction formula. The Patent Box Deduction is calculated based on the following formula:
The above deduction may be applied against income/gains from qualifying IP derived on or after 1st January 2019.
Only income/expenses from IP which meets definition of “qualifying IP” is eligible for the Patent Box Deduction. Qualifying IP includes the following categories of intangibles, provided that in any case the qualifying IP is granted legal protection in at least one jurisdiction:
The Patent Box Deduction rules target taxpayers that are involved in the active exploitation of IP. The eligible beneficiary should satisfy the following conditions:
The new Patent Box Deduction rules are based on the nexus approach as developed by the OECD, which requires a direct link between the benefits derived from favourable taxation and actual R&D activities. Only taxpayers engaged in the development of IP (either themselves or through independent subcontractors) may benefit from the Patent Box Deduction. The Patent Box Deduction rules exclude the application of the new deduction formula by taxpayers whose functions do not go beyond pure holding, deriving passive royalty income without contributing (directly or indirectly) to the development of the IP.
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