Tax Exemption on Royalties derived from Patents

Dr. Trudy Marie Attard | Published on 07 Sep 2011

Chetcuti Cauchi Lawyers
In a bid to encourage the creation and exploitation of intellectual property, an incentive administered by Malta Enterprise and the Maltese tax authorities envisages zero taxation on royalties received from the licensing of patents.
Any person, whether an individual or company, that owns the rights to patented intellectual property and derives royalties and similar income from the granting of a licence to exercise those rights, is exempt from tax where such royalties would have otherwise been taxable as business income or arise from property. The licence giving rise to the royalties must be granted to an enterprise for the use of the patent in a productive economic activity, such as manufacturing, software development and data processing.
The incentive is applied through very broad margins. A qualifying patent comprises any patent, wherever developed and registered. The patented invention must be new, involve an inventive step and be susceptible of industrial applications or must be a result of Fundamental Research, Industrial Research or Experimental Development.
To benefit from the incentive, the person receiving the royalties is to complete and submit the application issued by Malta Enterprise, together with any required additional documentation. Further, although the person is required to declare all and any income in the annual tax return, it is important that the royalty income to which the incentive applies is not declared, allowing the person to opt for the exemption.
Once a correct application is submitted and Malta Enterprise is satisfied that the patentable invention exists and conforms to public policy objectives, an Entitlement Certificate is issued declaring that from the evidence provided any royalty payments received by the patent holder from the licensee are exempt from tax. The tax exemption would then apply from the year of assessment stipulated in the Entitlement Certificate.

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