Malta IP Holding Companies

A Malta-registered company that is tax resident and domiciled in Malta is subject to tax on its worldwide income at the standard 35% corporate income tax rate under the Income Tax Act (Cap. 123).

Malta operates a full imputation system, meaning that tax paid at company level is credited in full to shareholders upon distribution, avoiding economic double taxation. Where shareholders are non-resident, this system is complemented by statutory tax refund mechanisms provided for in the Act and related subsidiary legislation.

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Royalty and Licensing Income

Income derived from the licensing, assignment or exploitation of intellectual property rights constitutes taxable income under Maltese law. Depending on the nature of the activity, such income may be characterised as trading income or passive income, a distinction that remains relevant when assessing the availability and rate of tax refunds.

Where IP income forms part of an active licensing or development business, distributions to non-resident shareholders may qualify for the 6/7ths tax refund, resulting in an effective Maltese tax leakage of approximately 5%, subject to the applicable conditions being satisfied.

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Legislative Basis

Malta’s Patent Box regime is governed by the Patent Box Deduction Rules (Subsidiary Legislation 123.163), issued under the Income Tax Act. These rules were introduced to ensure alignment with the OECD BEPS Action 5 modified nexus approach and apply to qualifying income earned from qualifying intellectual property.

Qualifying Intellectual Property

Qualifying IP includes, among others:

• patents and patent-equivalent rights protected under Maltese or foreign law;
• copyrighted software; and
• other IP assets that are functionally equivalent to patents, where certification requirements are met.

Marketing intangibles such as trademarks and brands are expressly excluded, in line with OECD standards.

Deduction Mechanism

The rules allow a deduction of up to 95% of qualifying IP income, calculated by reference to the nexus fraction, which links the benefit directly to qualifying research and development expenditure incurred by the taxpayer.

In practice, where the nexus requirements are satisfied, the Patent Box regime may reduce the effective tax burden on qualifying IP income to approximately 1.75%, without recourse to refund mechanisms.

IRD (Inland Revenue Department) Administrative Position

Inland Revenue guidance and interpretative practice emphasize that:

• the regime is activity-based, not asset-based;
• taxpayers must retain documentation evidencing R&D expenditure, development activity and nexus calculations; and
• election into the regime is voluntary and subject to ongoing compliance.

Capital Expenditure on IP

Amendments carried out between 2018 and 2019 to the Income Tax Act and related subsidiary legislation allow taxpayers to claim deductions for capital expenditure incurred on the acquisition or development of intellectual property, including expenditure on patents, software and similar rights.

Depending on the circumstances, such expenditure may be:

• amortised over a statutory period; or
• deducted on an accelerated basis where the law permits.

Outbound Payments

Under Maltese domestic law:

• no withholding tax is levied on outbound royalty payments to non-resident recipients, irrespective of jurisdiction;
• the same applies to dividends and interest paid to non-residents.

This feature makes Malta particularly attractive for group IP licensing structures involving multiple jurisdictions.

Double Taxation Treaties

Malta has concluded an extensive network of double taxation agreements, many of which provide reduced or nil source-state taxation on inbound royalty income. Treaty relief operates in tandem with Malta’s domestic rules and must be assessed on a case-by-case basis.

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Economic Substance

While Malta does not impose a standalone IP-specific substance regime, general anti-avoidance principles, IRD practice and international standards require that IP holding companies demonstrate real economic activity.

This may include:

• strategic decision-making in Malta;
• control and management of IP portfolios;
• development or enhancement activity; and
• appropriate personnel or other arrangements.

Documentation and Reporting

Taxpayers benefitting from IP incentives must ensure robust transfer pricing, R&D and licensing documentation, particularly where IP is exploited cross-border or within a group context.

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Malta’s IP holding company framework has evolved decisively from the pre-2012 environment into a modern, substance-driven regime grounded in statute and international best practice. When properly structured, it offers:

• EU-compliant tax efficiency,
• legal certainty through clear legislative provisions, and
• flexibility to integrate IP ownership with broader group structuring, financing or operational activities.

The regime rewards genuine value creation, making Malta a strategic jurisdiction for businesses that treat intellectual property as a core driver of growth rather than a purely passive asset.

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Our lawyers advise multinational groups, technology companies and private clients on the structuring, migration and ongoing operation of IP holding companies in Malta, combining corporate, tax and regulatory expertise to ensure compliance, efficiency and long-term sustainability.