Patent Box Regime (Deduction) Rules (continued)

The Government of Malta has by means of Legal Notice 208 of 2019, recently published new rules, introducing a patent box regime on 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:

  1. 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:

  1. 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;

  2. 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.

  3. 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.

  4. the qualifying IP is granted legal protection in at least one jurisdiction;

  5. 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;

  6. where  the  beneficiary  is  a  body  of  persons,  such beneficiary is specifically empowered to receive such income; and

  7. 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. 

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.   

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected].

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