Malta positioning itself as an Intellectual Property hub

The Commissioner for Tax and Customs has announced that as from year of assessment 2024 accelerated deductions may be taken on expenditure of a capital nature incurred on intellectual property and intellectual property rights.

These changes will allow taxpayers to do away with the current position whereby this one-off deduction may not be availed of immediately but only over a minimum period of three consecutive years on a straight-line method. For avoidance of any doubt, the Commissioner clarifies that these accelerated deductions may only be claimed against income produced through the use or employment of the intellectual property or through any rights held thereon.

These changes shall apply retroactively and any qualifying deductions that had not been availed of previously due to temporal limitations previously in place, can still benefit from this accelerated deduction with respect to the remaining portion. It will need to be seen how this announcement will now translate in terms of the legal implementation, however, we expect that this change will be incorporated as part of the Budget Implementation Bill which typically is passed by the legislature through all its stages in the first quarter of the calendar year.

It should be noted that these reforms build on previous innovations including the interesting Patent Box Regime which was introduced as from basis year 2019 and which allows for special deductions to be taken against qualifying IP income to incentivise investment in creativity and innovation. It also builds on the Notional Interest Deductions which Malta introduced as from the year of assessment 2018, notwithstanding that the European Union has not finalised the work on DEBRA. This income tax regime reinstates neutrality between debt and equity financing ensuring more substance in Malta.

Finally, the recent introduction of transfer pricing as from 1st January 2024 which will ensure that that qualifying controlled transactions (between associated enterprises) will now need to be adjusted in line with the arm’s length principle for taxpayers within scope.

It should be noted that these tax reforms cannot be seen in isolation but must also be seen in the wider context with other reforms both from a regulatory perspective and also in terms of grants and incentives being afforded by Malta Enterprise and the Malta Digital Innovation Authority amongst others.

In this regard, ARQ Group with its multidisciplinary team can provide you with a cost-effective solution to navigate across all these matters comprehensively in a time-efficient manner. Contact us today to start this conversation.

[email protected] – Tax & Advisory Partner
[email protected] – Senior Tax Advisor