Malta amends income tax deduction rules for Intellectual Property expenditure
Malta’s Commissioner for Revenue issued Legal Notice No. 229 of 2024 on 13 September, which amends the Income Tax (Deductions) Rules with respect to deductions in respect of capital expenditure on intellectual property (IP) or intellectual property rights with effect from the year of assessment 2024.
The amendment establishes a new definition of ‘qualifying income’ for the purpose of the deduction, which means the income produced through the use or employment of the IP or IP rights chargeable to tax in accordance with the provisions of the Income Tax Acts before claiming relevant deductions.
The amendment rules also clarify how the full deduction is taken, including the part deductible under standard rules plus the remaining part that results in a full deduction. Where the deduction of the remaining part cannot be given full effect in any year because there is no or insufficient qualifying income, the excess must be carried forward for deduction in future years.
Similar rules were also introduced with respect to expenditure on IP brought forward from past years, which may be deducted in full subject to the limitation based on qualifying income.
“These new enhancements to the tax rules only serve to strengthen Malta’s competitiveness in the IP area,” said Managing Director of Sovereign Trust (Malta) Stephen Griffiths. “It will enable us to continue to attract business from corporates who consider Malta to be a jurisdiction of choice within the EU.”
The Commissioner also published a guidance note on the application of the rules under Article 14(1)(m) of the Income Tax Act, which clarifies that:
“Where a taxpayer incurs expenditure in respect of more than one IP or IP right, the election to claim a full deduction by virtue of the second proviso to Article 14(1)(m) is to be made in respect of each asset independently i.e., a different decision can be made in respect of different assets.
“Where the accelerated amortisation for any year cannot be given effect to in full because there is insufficient qualifying income, the amount of utilised accelerated amortisation is to be attributed to one or more of the IP or IP rights used or employed in the production of the qualifying income, at the discretion of the taxpayer.”
