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Nowadays many businesses are becoming aware of the importance in recognising and protecting Intellectual Property (IP). IP can be a brand, design, invention or other kinds of creations, and can be legally owned by the business. IP can be protected through patents, trademarks, copyrights, or other rights.

Protecting IP and Costs related with Registration

IP can be a valuable business asset which can be bought, owned, sold or licensed out in much the same way as other assets such as property or land.

When a business owns IP or rights over an IP, the first issue that must be addressed is its protection – and such protection is possible by registering the IP. The type of protection available will depend on the nature of IP itself but commonly include Copyrights, Patents, Designs Rights and Trademarks.

In most cases, the costs incurred in developing, protecting and registering your IP can be capitalised and recognised as an asset for your company, in accordance with International Financial Reporting Standards (IFRS). The tax treatment for costs incurred in relation to IP will depend on the type of protection involved. If costs relate to a patent these could be deducted for tax purposes as long as they are spread over its useful life. In the case of other types of IPs, the capital costs can be deducted as long as they are spread equally over the year in which such costs would have been incurred and the two succeeding years.

Tax Implications of licensing IP to create an income stream

For a start, when a Maltese company acts as a licensee of an IP and hence pays royalties to a non-resident company, the Maltese company is not be subject to any further withholding taxes in Malta.

On the other hand, Companies wishing to exploit their IP and thus license it to derive royalty income therefrom (hence acting as licensors) would benefit from Malta's unique fiscal regime for royalty income. In general, royalty income derived from qualifying patents, copyrights and trade-mark/names is exempt from tax in Malta. There are no restrictions in order to qualify for this exemption as the patent/copyright/trademark/name may be registered in Malta or elsewhere and the activity leading to the relative invention may be carried out in Malta or elsewhere.

If the aforementioned exemption does not apply and royalty income is subject to Maltese taxation, the tax refund system triggers in and thus the shareholder of the IP Holding Company would generally still suffer an effective corporate tax rate between 0% and 6.25% if double taxation relief is availed of; and between 0% and 10% in other cases.

If you would like to know more about the benefits of setting up an Intellectual Property Holding Company in Malta and the fiscal matters in relation to its income; or to discuss any other fiscal matter, please get in touch with Bernard Gauci (bgauci@ksimalta.com) or Benjamin Griscti (bgriscti@ksimalta.com).

Benefits of using a Maltese Holding Company

  • Malta is an EU member state and offers full access to applicable EU Directives;
  • Malta embraces a continually expanding network of double taxation treaties
  • The participation exemption enables Maltese holding companies to incur a 0% tax rate on income received;
  • A substantial portion of Maltese tax incurred could be claimed through tax refunds Malta withholds no tax on payments of interest, dividends, interest and royalties;
  • Generally, transfers of shares by non-resident persons are exempt from capital gains tax and duty;
  • Malta does not have any CFC, thin capitalisation or transfer pricing regulations
  • Incorporation thereof requires a minimum authorised and issued share capital of €1,165, out of which only 20% needs to be paid.

VAT Obligations of a Maltese Holding Company

Maltese VAT law is based on the provisions of the EC Sixth VAT Directive. Typically, a company which simply holds shares (passive holding company) is not deemed to be a taxable person for VAT purposes and therefore does not need to register for VAT. However, if such a holding company receives services from suppliers established outside Malta, there is an obligation to register under a special VAT rule which requires the self-accounting of VAT in Malta when services are received from non-Maltese suppliers.

If you would like to know more about the benefits of setting up a Holding Company in Malta and how this can be introduced within your group, or to discuss any other fiscal matter, please get in touch with Bernard Gauci (bgauci@ksimalta.com) or Benjamin Griscti (bgriscti@ksimalta.com).