Tax Exemption on Royalty Income from Patents


Intellectual capital must be protected and nurtured to ensure that those members of our society that can contribute to our future development are motivated to support and seek the creation of new knowledge. Intellectual property is increasingly becoming a strategic asset that individuals and enterprise can exploit to generate wealth. The successful deployment of intellectual property rights leads to economic returns to the owner and also ensures that the knowledge is utilized and exploited.


This tax exemption is available to all persons (individuals and companies) that own the rights to patented intellectual property and are receiving income in the form of royalties or other similar income therefrom.


A patent granted in Malta or overseas is considered as eligible as long as the same invention is considered patentable under Maltese Law or is the result of Fundamental Research, Industrial Research or Experimental Development.


Any person (individual or company) receiving royalty payment or similar income for granting, through a licensing agreement or similar agreement, the exploitation of knowledge protected under a qualifying patent in terms of the Regulations, may opt to have any such income exempt from tax as long as all the following conditions are adhered to:


·    In the case where the owner of the patent is an individual, the individual must have been engaged in carrying out, solely or together with another person, the research, planning, processing, experimenting, testing, devising, designing, developing, or other similar activity leading to the invention which is the subject of the qualifying patent;

 ·        In any case the license must be granted to a company for using the patent in a productive economic activity, such as manufacturing, software development and data processing;

 ·         The royalty paid does not exceed an amount that would have been paid at arm’s length, that is the amount that would have been paid if the companies were not related;

  ·         The related company acquiring the license must be directly involved in a productive economic activity, such as manufacturing, software development and data processing. 


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