Article 14(1)(p) of the Income Tax Act, Chapter 123 of the Laws of Malta allows for a deduction against income from qualifying intellectual property. The mechanism through which this deduction can be computed has been prescribed through the enactment of Legal Notice 208 of 2019, Patent Box Regime (Deduction) Rules, 2019 published on 13th August 2019 (hereinafter referred to as ‘the Rules’).
How is the deduction calculated?
The Rules states that the deduction shall be calculated on the basis of the following formula:
Against what type of income is this deduction claimable?
Income from qualifying IP shall comprise both income derived from trading activities as well as capital gains and includes:
- income which is derived from the use, enjoyment and employment of the qualifying IP;
- royalty or similar income whether this is embedded in the consideration for the use of goods or services;
iii. advances and similar income derived from qualifying IP;
- any sum paid for the grant or a licence or similar empowerment to exercise rights under qualifying IP;
- compensation for infringements in respect of qualifying IP whether such compensation is granted through judicial means or otherwise;
- gains on disposal of qualifying IP and such other similar or related income as is derived from the qualifying IP and as being calculated after deducting such expenditure, whether of a capital nature or otherwise, as is deductible from income derived from the qualifying IP.
What are the conditions which need to be satisfied to claim this deduction?
- The IP must meet the definition of a qualifying IP as defined in the Rules and must be approved by Malta Enterprise as a qualifying IP;
- 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 these are resident in Malta or otherwise;
- The beneficiary shall be the owner of the qualifying IP or the holder of an exclusive license in respect of the qualifying IP;
- 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;
- vi. 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 his income tax return.
How can Nexia BT assist?
We at Nexia BT can assist you in ascertaining that your intellectual property qualifies as a qualifying IP in terms of the Rules. We can also offer our assistance in applying for the qualifying IP to be recognized as such with Malta Enterprise and help you meet your compliance obligations to be able to claim the deduction against your income. Find more about our Tax services here.
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