Royalties and similar income derived from qualifying patents in respect of inventions, where such patents are registered, either in Malta or elsewhere are subject to a complete tax exemption. A patent is considered to be a qualifying patent if it is registered in Malta or elsewhere, in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the relevant invention was carried out in Malta or elsewhere.
In terms of Malta’s patent box exemption this exemption has been extended to copyright and trademarks.
Once a Maltese company owns or is assigned royalties and/or licensing rights respectively, it can then enter into license or franchise agreements with other companies interested in exploiting these rights. Royalty payments would normally be deductible expenses insofar that they are used in the production of the income.
Royalty and similar income which is derived from non-patented intangibles is subject to the general effective tax rate of 5% following refunds.
Passive income received from royalties may entitle the shareholders of the local company to a tax credit of circa 5/7th of the income, amounting to an effective tax rate of 10%.
Where the income is receivable by a company which is resident but domiciled in Malta then the tax rate may fall to 0% by means of a series of DTAs in the case where the income is not remitted/received in Malta.
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