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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.