Income tax exemption for artistic royalties
The Minister of Finance, the Economy and Investment had announced in his November 2011 budget speech that an Income Tax exemption was to be introduced in respect of royalties received from certain copyrightable intellectual property on books, film scripts, music and art. This exemption is now in force.
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 now exempts royalties, advances and similar income derived from copyright, whether in the course of a trade, business, profession or vocation or otherwise.
What constitutes copyrightable material?
The Income Tax Act to date does not define royalties that derived from copyright, 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;
· Literary works; and
· Musical works.
The Copyright Act further 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; and
· works of artistic craftsmanship, including pictorial woven tissues and articles of applied handicraft and industrial art.
It is expected that a Legal Notice will be published shortly to set out the conditions that need to be met in order to benefit from the Income tax exemption, but the exemption appears to be considerably wide.
Intellectual property companies
Whilst this is undoubtedly good news for artists who receive royalties for their work, this is also a very positive development for Intellectual Property companies that are tax resident in Malta or that are looking to re-locate to Malta. Indeed in Malta both royalties from qualifying patents and royalties from qualifying copyright are exempt from income tax, whilst non-qualifying royalties may still benefit from low effective tax rates.
Further, in an international context, such measures, together with Malta’s network of double taxation treaties and access to the various EU directives, present interesting opportunities for taxpayers owning copyright and patents.