Patent Box Deduction Rules Confirmed “Not Harmful” by the OECD

The Inclusive Framework on BEPS approved for the first-time results on the review of the substantial activities factor for no or only nominal tax jurisdictions. In addition, updates to the results of reviews of preferential tax regimes conducted in connection with BEPS Action 5 on Harmful Tax Practices were approved.

Four new regimes were classified as "not harmful", as they were specifically designed to meet the Action 5 standard. One of them includes Malta’s Patent Box Regime (Deduction) Rules (“the Rules”). The Patent Box Regime (Deduction) Rules, 2019 were published in virtue of LN 208 of 2019. They apply to qualifying income derived from qualifying intellectual property (“Qualifying IP”) on or after 1 January 2019.

Enterprises may avail of a deduction not exceeding  such  percentage  amount  of qualifying  income  as  may  be  prescribed,  derived  from Qualifying  IP laid down in Article 14(1)(p) of the Income Tax Act, whether  such income  arises  in  the  course  of  a  trade,  business, profession  or  vocation  or  otherwise,  subject  to  the satisfaction of such terms and conditions established in the Rules.

Interested enterprise wanting to explore further their eligibility for the Patent Box Regime deduction may contact our Tax Team - Dr Franklin Cachia on [email protected] and/or Mr Malcolm Ferrante on [email protected].