Malta as a Jurisdiction to Hold Intellectual Property

Malta as a Jurisdiction to Hold Intellectual Property

1024 575 Ciantar Associates

Malta as a Jurisdiction to Hold Intellectual Property

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Malta has been described to me by some of my clients as a very well kept secret. While I am not sure that this is a good thing for us practitioners, it is true that our tax system offers a myriad of opportunities for cross border tax planning which are only just beginning to be tapped by foreign investors. Once case in point is the use of Malta for holding of intellectual property.

The Advantages in a Nutshell

1. A step-up provision upon migration of foreign IP companies to Malta allows the intellectual property (which can remain situated outside Malta) to be raised from historical cost to fair market value at the date of the migration

2. IP rights can then be amortised using the new fair market value over a three year period

3. Research and development taking place outside Malta and which leads to inventions – Income and royalties arising from such patented inventions are tax exempt in Malta. Moreover the patent can be registered anywhere in the world

4. There are no withholding taxes on payments of royalties to licensors outside Malta (provided the IP is used outside Malta by the Maltese registered company)

5. Malta’s extensive network of double tax treaties (which at the moment number almost sixty including with all EU countries as well as Canada, USA and China), together with the EU Interest and Royalty Directive, lead to 0% of withholding taxes on incoming royalties in most cases and hardly ever more than 10% in a worse case scenario

6. Tax refunds: The Maltese tax refund system has already been tackled in previous articles of mine, and I will not bother the reader by repeating the details, however suffice to say the upon a payment of the corporate tax (35%) a 6/7 refund of the tax suffered on the declared dividend is paid out within a maximum period of 6 weeks to the shareholder (individual or corporate). Thus effectively leading to a 5% net tax

7. Therefore, if a foreign IP company enters into a license agreement with a Maltese company for the foreign company’s EU patent rights, the Maltese company can now utilise these rights within the EU. The Maltese company retains a license fee and passes the rest to the foreign company with which it has the license agreement

The resultant net income of the Maltese company is considered as taxable trading profits which will be taxed at the Maltese corporate tax rate of 35%. However, with the use of the refund system, the non resident shareholders can claim a 6/7 refund of this , thus mitigating the net overall tax rate to 5%.

There will be no withholding tax on the royalty income remitted to the foreign entity.

And if the same company also holds IP rights directly and receives royalties from abroad this will be taxed at 35% and will be subject to a tax refund of 5/7 thus resulting in a net effective tax of 10%.

Moreover, when no double taxation relief is claimed this rate can be further mitigated by making use of what is known as the Flat Rate Foreign Tax Credit or (FRFTC) for short.

This involves getting the foreign royalty income net of any foreign tax suffered, grossing up the net resultant income by 25%, taxing the resultant notional income at 35% and then deducting from the notional tax charge the 25% grossed up income. The result is the tax payable in Malta, which will be in region of 18% to approximately 7% (depending on whether there are local expenses or not) . Then the shareholder will apply for a 2/3 refund on the Malta tax paid. This will lead to net Malta tax charge of 6.25%. Furthermore, where local expenses are present these are included in the computation, further reducing the net tax charge to a minimum of 2.49%.

In practice it is also possible to utilise this provision where tax treaties are in place, by simply not applying the tax treaty and going for this provision if deemed more beneficial.

Worked Example:

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We can help you with:

• Advice on the tax system with regards to income from IP property in Malta
• Company incorporations
• Maltese tax compliance
• VAT compliance
• Corporate services
• Application for a hedge fund license in Malta
• Application for an investment service license
• Application for a QROPS license
• Application for on line gaming license
• Trustee services
• Fiduciary (nominee) services
• Accounting
• Auditing
• Payroll
• Secreterial and back office work
• Rent of office space
• International tax advise (through our international Network – AGN International –www.agn.org)
• Legal Services in Malta – (through our associated law firm).

Ciantar Associates
AUTHOR

Ciantar Associates

Biography Simon Ciantar is a qualified accountant and registered auditor with the Malta Accountancy Board . He is also a director in Sada Corporate Services a corporate services provider as well as Director and MLRO officer in CRV International LTD a licensed Fiduciary and Trustee company , licensed with the Malta Financial Services Authority. Mr Ciantar also has a Management degree from the University of Malta. Mr. Ciantar has more than 15 years experience in accounting, auditing, tax compliance and management consultancy, with a number of audit firms as well as in the industry, where in he has worked with a variety of companies in the beverages, health, and food sectors. In 2003 Mr Ciantar joined Horwath( Malta) and was trusted with leading the cost control team responsible for overseeing the construction of Malta's largest project at that time, the construction of Mater Dei Hospital. In 2007 Simon Ciantar joined the firm V. Mercieca & Co as Junior Partner. One year later he was appointed Senior Partner following the retirement of the Vincent Mercieca. Subsequently the Firm changed its name to Ciantar Associates. Ciantar associates also operate a related Licensed Trustee company namely “CRV International LTD” registered in Malta and licensed to carry out Trustee and fiduciary services in Malta. The company has three highly qualified and experienced directors, Including Mr Ciantar. The firm had been very successful in recent years with its focus on foreign investors looking to set up shop in Malta. Mr Ciantar is a member in a number of organizations including; • Malta Institute of Accountants • Institute of Financial Service Practitioners • STEP • Malta- Italian Chamber of Commerce • AGN International LTD • ANTEA * International Referral Firm Description Ciantar Associates is primarily an accounting and audit firm based in Malta targeting non resident shareholders and investors to either use Malta as part of their international structures or for using Malta as a gateway into the European Union and north Africa. Ciantar Associates ( formerly V.Mercieca and Co) have been in business since 1985 and have seen , throughout these years Malta grow into a financial centre of repute . We are proud to have contributed to this by doing our best to offer the best possible service to our clients throughout all these years. We are licensed by the Malta Institute of Accountants as Auditors and by the Malta Financial Services Authority (MFSA) as registered trustees and fiduciaries through our wholly owned subsidiary CRV International LTD ( Company Registration no C-18970) . We are also part of a number of international networks including AGN International LTD ( www.agn.org) and ANTEA (www.antea-int.com) We cater and have solutions for a variety of enterprises and we would be able to assist you in Malta company formations, bank introductions and loan facilities, personnel selection, management cost controls and audi

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