On 13 August 2019, the Government of Malta has published Legal Notice 208 of 2019 introducing ‘Patent Box Regime (Deduction) Rules, 2019’ on qualifying intellectual property (IP). The patent box regime grants additional tax deductions on income derived from qualifying intangible property (IP). The law includes following measures:
Conditions to claim the deduction
Entitlement to the Patent Box Regime Deduction is subject to the satisfaction of a number of conditions:
- The research, experimentation, design, testing or otherwise of the Qualifying IP must be carried out wholly or in part by the person claiming the deduction (the beneficiary);
- The beneficiary must be the owner of the Qualifying IP or the holder of an exclusive license to the Qualifying IP;
- The beneficiary must also maintain sufficient substance in terms of physical presence, assets or other relevant indicators, in proportion to the type and extent of activity being carried out in the relevant jurisdiction of the Qualifying IP;
- The Qualifying IP must be granted legal protection in at least one jurisdiction;
- In case the beneficiary is a body of persons, such beneficiary must be specifically empowered to receive such income; and
- The beneficiary must request the Patent Box Regime Deduction in computing its income or gains in the tax return.
Deduction Calculation
The deduction shall be calculated on the basis of the following formula:
- 95% x (Qualifying IP Expenditure / Total IP Expenditure) x Income or Gains derived from Qualifying IP)
The notice explains about Income or Gains derived from Qualifying IP, Total IP Expenditure and Qualifying IP Expenditure
Loss from qualifying IP
If the beneficiary incurs a loss in respect of the qualifying IP which he is entitled to set-off against his income or gains in terms of article 5 or article 14 of the ITA and the beneficiary claims the benefit of such loss, he is entitled to elect to benefit from any one of the following:
- in lieu of the entitlement set out in article 5 and article 14 of the Act, a deduction corresponding to 5% of the loss which would otherwise be available for deduction in terms of the ITA in respect of the qualifying IP; or
- a
deduction corresponding to the full amount of the loss which would be available
for deduction in terms of the ITA, so however that:
- the beneficiary would not be entitled to claim the tax treatment referred to in paragraph (a) for any subsequent year of assessment; and
- in subsequent years of assessment, any such loss is then deducted from the “Income or Gains derived from qualifying IP” on which the patent box regime deduction is calculated, until such losses are fully utilized.
Submission of Documents
The beneficiary can claim the patent box regime by submitting the required documents to the Commissioner.
Effective Date
These rules apply to qualifying income derived from qualifying intellectual property, on or after the 1st day of January 2019.
