As from year of assessment 2020, any person incurring qualifying IP expenditure and from which qualifying IP income is derived, may claim a deduction which may reduce the chargeable income from qualifying IP by 95%. The assets that are considered as qualifying IP are defined in the Rules and include registered patents and assets covered by protection rights, however, exclude brands, trademarks and trade names. Every item of qualifying IP in relation to which income is derived and against which the Patent Box Regime Deduction is claimed, need to be vetted and approved by the Malta Enterprise. The deduction is aimed for assets which are developed by the person rather than for acquired assets. The deduction is however not limited to assets developed in Malta but require that the beneficiary maintains sufficient substance as is commensurate with the type and extent of activity being carried out. The Rules also require that the income brought to charge is in line with the Transfer Pricing Method in terms of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
The introduction of the Patent Box Regime is particularly interesting for persons investing in the development of patents or other innovative products from which income or gains arise. Indeed, this regime may drastically reduce the taxable income of the person and may also be applied upon the disposal of the relevant asset.