By means of Legal Notice 229 of 2024, the Maltese tax authorities have amended the Income Tax Deductions Rules.
In terms of Article 14(1)(m) of the Income Tax Act, any expenditure of a capital nature on intellectual property or any intellectual property rights incurred by a person which have been used or employed in the production of the income of such person can be deducted for tax purposes. With effect from year of assessment 2024, any such expenditure may be deducted in the year in which the said expenditure has been incurred or the year in which the intellectual property or intellectual property rights were first used or employed in producing the income of such person, subject to such conditions as may be prescribed. Prior to year of assessment 2024, such expenditure was equally spread over a number of years which shall not be less than a minimum period of three consecutive years.
In terms of LN 229 of 2024, the following new rules were introduced with effect from year of assessment 2024.
The amount deductible in respect of year of assessment 2024 and subsequent years of assessment shall be computed as follows:
- The part of the said expenditure which would otherwise have been deductible by reference to the period chosen in the preceding years of assessment which had not been so deducted in the years immediately preceding year of assessment 2024; and
- That part of the said expenditure remaining after computing the deduction in accordance with (a) above.
Provided that if the deduction under (b) above, cannot be deducted in full because there is no or insufficient qualifying income in that year of assessment, such a deduction cannot be deducted against any other income for the said year, and shall furthermore not be available for surrender to other companies within the same group in terms of the ‘Group Relief Provisions’ found in Articles 16 to 22 of the Income Tax Act. Such amounts shall be carried forward indefinitely.
Qualifying income has been defined in terms of these rules to be the chargeable income to tax, produced through the use or employment of the intellectual property or intellectual property rights, before claiming the above-mentioned deductions in terms of (a) and (b) above as well as any deductions in respect of risk capital which are aimed at approximating neutrality between debt and equity financing (notional interest deductions).
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