Intellectual Property - Malta

Published 24 Nov 2016

Legal protection of Intellectual Property (‘IP’) and IP rights in Malta is ensured through domestic legislation as well as through Malta being a member of the World Intellectual Property Organization (‘WIPO’) and a participant to a number of international agreements relating to IP rights such as the Paris Convention, Berne Convention, WTO TRIPS Agreement, Patent Cooperation Treaty, European Patent Convention and WIPO Convention.

Scope of IP

The scope of IP includes copyright, trademarks, patents, industrial design rights and trade secrets.

Copyright: means artistic works, audio-visual works, databases, literary works and musical works as well as any neighbouring rights, such as performer’s, producer’s and broadcaster’s rights.
Trademark: means any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings. A trademark may, in particular, consist of words (including personal names), figurative element, letters, numerals or the shape of goods or their packaging.
Patents: means inventions which are new, involve an inventive step and are susceptible of industrial applications.
Design: means the appearance of the whole or a part of a product resulting from  the features of, in particular, the lines, contours, colours, shape, texture and, or materials of the product itself and, or its ornamentation.
Trade secret: has three constituent elements: (i) the information must be confidential; (ii) it should have commercial value because of its confidentiality; (iii) the trade secret holder should have made reasonable efforts to keep it confidential.

Over the years, Malta has established itself as an attractive jurisdiction for entrepreneurs wishing to safeguard their IP rights.

IP, as an asset, can be held by any legal or natural person, and the most appropriate vehicle will depend on the nature of the IP and the considerations of the beneficial owner of the Maltese vehicle. The most common vehicles for holding IP in Malta are limited liability companies or private foundations.

Taxation

Various different types of intellectual property income attract different tax treatments. Given the flexibility of the IP holding infrastructure in Malta, it is possible, with proper planning, to achieve a rate of 0% tax from IP income.

Malta income tax law provides for a full exemption from Malta income in respect of royalties, advances and similar income derived from:

a. Qualifying patents in respect of inventions;

b. Copyrights;

c.Trademarks

Also exempt is income derived from a foreign company registered in Malta (branch) which does not derive the income from the IP from Malta, and does not remit the income to Malta

Royalty income which does not satisfy any of the conditions for the application of the exemption may still benefit from a very low effective tax burden as a result of Malta’s tax credit system. In most cases the applicable refund will be 6/7ths resulting in an effective tax burden of 5%. Income from ‘passive royalties’, on the other hand, will qualify for a 5/7ths refund resulting in an effective tax of 10%. The term ‘passive royalties’ refers to royalties that are not derived, directly or indirectly, from a trade or business and which have suffered less than 5% foreign tax whether directly, by way of withholding, or otherwise. Where double tax relief is claimed on foreign royalty income, refunds will be 2/3rds of the tax paid by the payor company.

Malta IP entry benefits

A foreign company may upon a migration to Malta, a cross-border merger or a transfer of residence, opt for a tax free set-up in the value of foreign assets from historic market value (book value) to fair market value.  

Therefore, in a situation of a foreign incorporated company which is tax resident in Malta, the Malta resident company would be deemed as a resident but non-Malta domiciled entity for Malta tax purposes. As a result, no Malta income tax would be triggered on:

a. Foreign sourced passive income to the extent that such income is not received or remitted to Malta; and

b. Foreign sourced capital gains even if remitted to Malta.

Malta IP exit benefits

Malta also offers various IP tax efficient exit strategies, that is:

a. Intra-group transfer of the IP asset with full tax exemption and no claw-back on subsequent disposals by the related party transferee. An intra-group transfer occurs where an asset is transferred from one company to another and such companies are controlled and beneficially owned, whether directly or indirectly to the extent of more than 50% by the same shareholders;

b. Disposal by a Malta resident, foreign incorporated company of a non-Malta registered IP with the resulting foreign source capital gain being outside the scope of Malta income taxation;

c. Malta IP company or branch of a foreign company migrate out of Malta in which case, there would be no imposition of exit taxation in Malta. Therefore, there is the possibility to transfer residence/domicile outside Malta without triggering Malta tax. There are no exit taxes on winding up of a branch or outward redomiciliation of a company in Malta.

Other

In certain cases, the use of a double tier Malta structure may have a number of advantages where the tax refunds would be taxed less favourably in the hands of foreign resident shareholders in their country of residence, than dividends (which may be exempt).

Additional Benefits

  • No withholding taxes on outbound payments;
  • Broad and flexible participating exemption regime in terms of which dividends and gains derived from qualifying subsidiaries are fully exempt from tax;
  • No transfer pricing rules, thin-capitalization rules, capital or wealth taxes;
  • R&D incentives.

 

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