Insights

In the latest episode of the Ganado Meets IP podcast, Paul Micallef Grimaud, partner at Ganado Advocates, speaks to Simon Schembri and Kris Bartolo, partners at Ganado Advocates and Zampa Partners, respectively, on the attractiveness of Malta to IP-centric industries and the services generated by these industries.

Tax Incentives

Bartolo explains that taxation is one of the main reasons why Malta has attracted a significant portfolio of IP companies. Malta’s tax framework ensures that companies holding intellectual property can significantly reduce their tax burden. While royalties are initially taxed at 35%, various fiscal incentives bring this rate down dramatically. For instance, passive royalty income can qualify for a 5/7 tax refund, resulting in a 10% effective tax rate. For trading royalty income, the refund increases to 6/7, lowering the effective rate to just 5%.

Bartolo further emphasises the benefits of Malta’s full imputation tax system, which prevents double taxation on dividends for shareholders. He adds that Malta also doesn’t withhold tax on dividends or transfers of IP within group entities, highlighting the jurisdiction’s attractiveness for companies managing high-value IP assets.

Strategic Location and Regulatory Strength

Schembri credits Malta’s geographical position as a major advantage. He explains that Malta’s location between Africa and Europe has made it a linchpin for international businesses. Over recent years, Malta has also expanded its reach to Asian markets. Its English-speaking workforce and historical ties with the UK reinforce its appeal to global investors, even post-Brexit.

“Regulation plays a key role too,” Schembri notes, citing Malta’s strong governance in gaming, digital innovation, and financial services. He explains that there has been a shift toward compliance-driven policies in the wake of grey-listing concerns, ensuring that only high-quality businesses set up operations here.

Value Creation Through IP

Discussing the intrinsic value of IP, Bartolo explains that IP is often the most valuable asset of a company, yet it’s not always reflected on the balance sheet. Malta allows businesses to restructure and transfer IP assets within a group without incurring capital gains tax. Moreover, recent legislative changes now permit immediate deductions on capital expenditure for IP acquisitions in their first year.

Micallef Grimaud elaborates on the role of IP, stating that intellectual property generates value, not just through its use but as an asset itself, creating additional opportunities for businesses that capitalise on it.

Challenges in IP Valuation and Usage

Despite its potential, IP remains underutilised as collateral in Malta. Schembri observes that we rarely think of IP as security for transactions. In this regard, he states that there is a need for a centralised register, similar to the one for pledging shares. Bartolo adds that lenders are hesitant because of valuation complexities and the challenges in redeploying intangible assets in case of default.

Bartolo also outlines the difficulties in valuing IP. Unlike tangible assets, IP lacks a physical market, making valuation dependent on assumptions and methodologies. He describes three main approaches to valuation: cost-based, market-based, and income-based, with the latter being the most common. He explains that the income approach relies on future earnings, but it is fraught with assumptions, which can vary widely between valuers.

Conclusion: Future Prospects – Staying Ahead in a Competitive Market

Looking ahead, Bartolo emphasises the importance of keeping pace with global trends. He explains that consistency and innovation are key. From key tax reforms to sustainable incentives, Malta must remain proactive to retain its edge. Schembri agrees, highlighting the potential of IP as a growth area. He explains that if Malta adopts a unified approach and implements systems like an IP registry, it could attract even more international businesses.

As Schembri summarises, Malta’s success lies in its ability to balance fiscal incentives with robust regulation and strategic positioning. With continuous innovation and a focus on sustainability, Malta is well-placed to remain a leading hub for IP-centric industries and financial services.

To listen to the full episode head to Spotify and search ‘Ganado Meets’.

This article was first published in the ‘Times of Malta’ on 10/02/2025.