Malta offers effective tax structures for the ownership of the intellectual property and the channelling of fees generated from licensing rights.
Intellectual Property Structures in Malta
The Malta IP Company is a very effective international tax planning vehicle and is suitable for:
- licensed investment services activities;
- brokerage activities & commission income;
- management and consultancy activities;
- international trading business;
- e-commerce activities;
- licensed online gaming & betting activities;
- ownership & licensing of patents, copyrights, trademarks, franchises, domain names and other intangible assets;
- property ownership & project management;
- ownership and leasing of machinery, foreign registered motor vehicles and trucks;
- holding assets and investments of all kinds (intellectual property, real estate, shares and securities, bank accounts).
Intellectual Property Holding Companies (IP Holding Companies) generally derive income in the form of royalties. Maltese law distinguishes between active and passive royalties.
Malta Tax Refunds & IP Companies
Where the Malta Company receives royalties as part of its business of licensing patents, the income is deemed to be part of its business income and taxed in Malta at the income tax rate of 35%. Maltese law, however, provides for a refund of 6/7ths of Malta tax paid upon its distribution as dividend, thus effectively reducing taxation in Malta to 5%.
Where royalties are not derived, directly or indirectly, from a trade or business, and have not suffered, directly or otherwise, foreign tax at the rate of at least 5%, they are deemed to be passive royalties. Passive royalties may benefit from a 5/7ths refund of Malta tax paid, bringing effective tax paid down to 10%.
Where double taxation relief has already been claimed in respect of the royalty income, a refund of 2/3 of Malta tax may apply.
Malta Tax Exemption on Royalties
As of January 2010, royalties, and similar income such as advances, derived from patents in respect of inventions and copyrights, even where derived in the course of a trade or business, are exempt from income tax. The interpretation of a qualifying is very broad and relates to a patent wherever registered irrespective of whether its development was carried out in Malta or otherwise.
The distribution of dividends from the exempt profits of the company is also exempt from tax in the hands of the shareholders. This applies to subsequent distributions to higher-tier shareholders for as long as the exempt profits are distributed by way of dividends. Further, if received from another Malta company, the royalties would not be subject to withholding tax.
Other reasons for Structuring of IP using Malta Companies
Malta has concluded approximately 60 double tax treaties, providing for beneficial tax treatment of trade and investment between the two contracting states. Further, Malta is an EU member state and thus implements the Interest & Royalties Directive and the Parent-Subsidiary Directive, both of which prevent withholding taxes.
