Generally, royalties can be defined as payments made by one company (the licensee) to another company (the licensor) in exchange for the right to use intellectual property or physical assets owned by the licensor. There are three main types of royalty structures as outlined below;

  • Active Royalties; are generally considered as active when the income is derived from the company’s trade or business or when royalty income has suffered at least 5% tax from overseas;
  • Passive Royalties; are generally considered as passive when the royalty income does not derive, directly or indirectly, from the trade or business of the company or when royalty income has suffered less than 5% tax from overseas; and
  • Exempt Royalty Company; Malta has a number of incentives to encourage companies to exploit intellectual property through the licensing of patented knowledge. A tax exemption has therefore been introduced resulting in royalty income being exempt of income tax provided a number of conditions are met.

At GMX we can help you establish the Maltese royalty structure and further explain how the said structure works while also providing a tailor-made structure for your needs. We also provide clients with ongoing corporate services related to the royalties structure.