In a bid to encourage the creation and exploitation of intellectual property, Malta introduced an incentive administered by Malta Enterprise and the Maltese tax authorities in respect of royalties received from the licensing of patents.
The incentive envisages a tax exemption on royalty income derived from patents licensed to enterprises for use in a productive economic activity. This encourages the utilization of the patented knowledge and corporate investment in research and knowledge creation.
Any person, whether an individual or company, that owns the rights to a patent and derives royalties and similar income from the granting of a licence to exercise those rights, is exempt from tax on such royalties even where such royalties, were it not for the exemption, would have been taxable as business income. 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.
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. Following the expiration of 3 years, a new application is to be submitted.
