Artistic Royalties – Income Tax Exemption now in force

The Income Tax exemption announced in November 2011 by Malta’s Minister of Finance, the Economy and Investment during his budget speech has been introduced and has come in force in respect of royalties received from certain copyrightable intellectual property on books, film scripts, music and art.

The Budget Measures Implementation Act of 14 May 2012 amended the Income Tax Act to reflect this exemption. Article 12(1)(v) of the said Act exempts royalties, advances and similar income derived from copyright. This will apply whether the royalties were received in the course of a trade, business, profession or vocation or otherwise.

Intellectual Property Companies in Malta

Your Intellectual Property may well be your company’s greatest asset. The introduction of this exemption is an interesting development for Intellectual Property companies that are tax resident in or relocating to Malta – as well as for individuals who receive royalties for their work.

Royalties from qualifying patents and royalties from qualifying copyright are exempt from income tax, while non-qualifying royalties may still benefit from low effective tax rates.

Copyrightable material

Royalties deriving from copyright are not defined by The Income Tax Act to date but the Copyright Act, Chapter 415 of the Laws of Malta, lists the following work as eligible for copyright, subject to certain conditions and exclusions:

• Artistic works
• Audiovisual works
• Databases
• Literary works
• Musical works

The Act also defines artistic work as including, irrespective of the artistic quality, any of the following:

• paintings, drawings, etchings, lithographs, woodcuts, engravings and prints
• maps, plans, diagrams and three-dimensional works relative to geography, science or topography, but excluding semiconductor
• product topographies
• works of sculpture
• photographs not comprised in an audiovisual work
• works of architecture in the form of buildings or models
• works of artistic craftsmanship, including pictorial woven tissues and articles of applied handicraft and industrial art

Conditions

A Legal Notice is expected to be published shortly to set out conditions that need to be met in order to benefit from the Income tax exemption.

TAXtalk: www.taxtalkblog.com