Register Intellectual Property in Malta
Intellectual property may take various forms such as trade-marks, trade-names, software copyrights, brand-names, patents, designs and technical know-how. The location of an intellectual asset has a material impact on the overall results of a group.
It is therefore imperative that an intellectual asset is located in a jurisdiction which offers:
- Tax efficiency
- Tax incentives
- Amortisation of the IP
- Tax consequences arising on the inbound migration of an IP
- Deductibility of royalty payments made by the IP company
- Withholding tax rate on royalty payments by the IP company
- Effective tax rate on active and passive royalty income derived by the IP company
- Tax on Capital gains arising on the outbound migration of an IP
- Double taxation treaty network
- Domestic relief from double taxation
- Access to EU directives
- Withholding tax suffered on the repatriation of profits by the IP company
- CFC and other anti-tax haven rules
Malta Royalty Companies incorporated prior to 1st January 2007 ITC Regime
Malta has always been a popular jurisdiction for locating an IP company. Prior to 1st January 2007, companies deriving foreign sourced royalty income could be set-up as an International Trading Company. An international trading company was considered as a normal company incorporated under the Laws of Malta which had its objects expressly limited to trading activities with persons outside Malta. International Trading Companies were effectively taxed at the rate of 4.17%. An advance revenue ruling confirming the status of an ITC had to be obtained from the Maltese tax authorities.
Conversion of ITCs
A Maltese company incorporated prior to 1st January 2007 which has obtained an ITC status may convert to the new regime and access the benefits granted under the new regime.
Malta Royalty Companies incorporated after to 1st January 2007
No companies incorporated on or after 1st January 2007 may obtain the status of an International Trading Company. Various legislative changes to the Income Tax Act and Income Tax Management Act were brought into effect on the 1st January 2007 with the objective of phasing out the ITC regime by 31st December 2010.
Despite that the ITC tax refund mechanism has been abolished, which enabled to such types of companies to achieve the effective tax rate of 4.17%, a new tax refund system has been implemented to enable Maltese financing companies to achieve similar levels of tax efficiency.
A Maltese IP Company may be incorporated as a normal company registered under the Companies Act.
Alternatively an IP company incorporated under the laws of a country other than Malta may be re-domiciled to Malta either by way of continuation or by shifting its management and control to Malta.
A Maltese company may be incorporated with a minimum issued share capital of EUR 1,165, 20% of which is paid-up.
Company incorporation is an easy and straight-forward process in Malta. Provided that the required due diligence documentation is submitted to the Registry of Companies in Malta, a company may be registered within 24 hours from the submission of the Memorandum and Articles of Association and other due diligence documents which may be required.
There is no need for a Maltese company to open a bank account with a Maltese bank, however it is recommended under certain circumstances to open a bank account in Malta.
No substance requirements need to have registered employees or Maltese resident directors. A Malta royalty company is obliged to have a registered address in Malta.
Substance is however highly recommended.
Activities of an IP company
An IP company may be incorporated as a normal limited liability company registered under the Companies Act and be liable to corporate income tax.
Activities related to intellectual property
Royalty companies may hold, license and market any type of intellectual asset including trade-marks, trade-names, software copyrights, brand-names, patents, designs and technical know-how.
A Malta royalty company is a very efficient vehicle for:
- Intra-group licensing
- Back-to-back sub-licensing
A royalty company is permitted to carry out any other activity even though it may not related to the holding, licensing and marketing of an intellectual asset such as:
- Holding of participations in resident and non-resident companies (Investment Holding activities)
- Holding and leasing of immovable property
- Financing activities
- Holding and leasing of tangible assets
- Other trading activities
Amortisation of Patents and Patent Rights
In terms of the relevant provisions of the Income Tax Act, expenditure on patents or patent rights may be amortised over the life of the patent or patent right.
Similarly any expenditure on intellectual property rights may be amortised over a period of three years, commencing on the period during which the expenditure was incurred.
Tax credits for Research and Development
Certain qualifying research and development expenditure approved by the Malta Development Corporation may benefit from further deductions and tax credits.
Deductions for the payment of royalties
Royalties paid by a Maltese company to a related or non-related licensee may be deducted in full.
Malta Royalty companies are not subject to structure transfer pricing legislation
Taxation of Royalty Income
All types of royalty income (including any other income) derived by a Malta royalty is subject to a corporation tax of 35%.
Shareholders may claim the refund of the tax paid by a Malta royalty company. Three types of refunds are available:
- 6/7ths tax refund of the corporation tax.
- 5/ths tax refund of the corporation tax.
- 2/3rds tax refund of the tax paid in Malta.
The type of refund which shareholder/s are eligible to claim depend on whether double tax relief has been claimed by the Malta royalty company and whether the royalty income is qualified as active or passive income.
Exemption on foreign sourced royalties for certain types of Maltese companies
A company which has not been incorporated under the laws of Malta but managed and controlled in Malta is subject to tax on its foreign sourced income on a remittance basis. Under the remittance basis, foreign sourced income is not subject to tax in Malta unless this is received in Malta.
An IP company which has not been incorporated under the laws of Malta but has shifted its management and control to Malta is exempt from tax on any royalties arising outside Malta provided that these are not received in Malta.
For more information on shifting management and control to Malta please see our Article on Re-domiciliation of Foreign Companies to Malta
Provided that certain conditions are met, Malta does not levy any withholding tax on outbound royalty payments. This feature of the Maltese tax system enables the implementation of tax efficient back to back royalty structures. Furthermore, Malta does not levy any withholding tax on outbound dividends.
Malta Royalty companies are not subject to structure transfer pricing legislation
Tax Treaty Network
Malta currently has 45 tax double taxation treaties into force. Most of Maltas double tax treaties provide for a reduced rate of withholding tax on royalties paid to a Maltese company. In particular, Maltas double tax treaties with Barbados, Croatia, Denmark, Iceland, Spain and Sweden provide a 0% withholding tax for royalties paid to a Maltese company. Limitation of benefits provisions may apply for Maltese companies subject to tax on a remittance basis.
EU Interest and Royalties Directive
Following Maltas accession to the European Union, the Interest and Royalties Directive applies to royalty payments made to Maltese companies. Royalty payments from associated companies resident in EU Member States are not subject to withholding tax in the country of source provided that the relevant conditions imposed by the particular Member State are fulfilled.
No stamp duty is levied on the acquisition of intellectual property by a Maltese company.
Malta does not have any CFC legislation or any similar anti-avoidance rules.
Intra-Group Licensing Structures
Back-to Back Licensing Structures
- Tax Structuring and International Tax Planning
- Company incorporation
- Registered Office
- Tax Compliance
- Preparation of financial statements
- Statutory Audit
- Fiduciary Services
- Secretarial and administrative support
For more information, kindly contact: