Royalties receivable in respect of qualifying patents – EXEMPT

Royalties and similar income (including any amounts paid for the grant of a licence to exercise rights) received in respect of licensing of “qualifying” patents, whether registered in Malta or elsewhere, are exempt from tax in Malta as from 1 January 2010.  The exemption is subject to a number of conditions being satisfied, these being:

  1. The person in Malta, must own the patent;
  2. A patent is qualifying where it relates to an invention that is patentable under Maltese and/or EU law or is the result of fundamental research, industrial research or experimental development wherever the patent is registered and wherever the research and development relating to the patent was carried out;
  3. An application has been submitted to the Malta Authority, for a determination that the patent is qualifying under the applicable rules;
  4. The licensee/s is/are using the patent rights in a productive economic activity, such as but not limited to a manufacturing activity, software development and data processing;
  5. Where the patent owner and licensee are related, the royalty or license fees payable are to be established on an arm’s length basis;

Royalties receivable in respect of non-qualifying patents -0% to 10%

Royalties received in respect of non-qualifying (non patented) inventions are fully taxable in Malta and where received by a Malta company, are subject to the standard corporate tax rate of 35%, subject to tax refunds which the shareholders may claim upon the distribution of dividends.  Where the number of licensees are at least 6, the effective tax rate is reduced to 5%, which increases to 10% where the number of licensees is less than 6. This rate falls to 0% where the Malta resident entity is not incorporated under the laws of Malta but is resident for tax purposes in Malta (the so-called non-domiciled company) and the income is not physically received in Malta.

 

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