S.L. 123.194 Art. 3Entitlement to the deduction. Cap. 372.

(1) Entitlement to the deduction set out in article

14(1)(p) of the Act shall be subject to the satisfaction of all the following conditions:

(a) subject to the provisions of rule 5, the research, planning, processing, experimenting, testing, devising, designing, development or similar activity leading to the creation, development, improvement or protection of the qualifying IP, shall be carried out wholly or in part by the beneficiary, solely or together with any other person or persons or in terms of cost sharing arrangements with other persons, whether these are resident in Malta or otherwise:

For the avoidance of doubt, any activity leading to the creation, development, improvement or protection of the qualifying IP or its improvement include among others:

(i) functions carried out in the course and as part of the above-mentioned activities which are performed by employees of other enterprises, which employees are acting under the specific directions of the beneficiary in a manner equivalent to that of employees of such beneficiary;

(ii) functions carried out through a permanent establishment (including a branch) situated in a jurisdiction other than the jurisdiction of residence of the beneficiary, where such permanent establishment derives income which is subject to tax in the jurisdiction of residence of the beneficiary;

(b) the beneficiary shall be the owner of the qualifying IP or the holder of an exclusive license in respect of the qualifying IP. For the avoidance of doubt, even where the beneficiary creates, develops, improves or protects the qualifying IP together with any other person or persons or in terms of cost sharing arrangements with other persons, the beneficiary must own or share in the ownership of the qualifying IP or be the holder of an exclusive license in respect thereof in order to satisfy this condition;

(c) the qualifying IP is granted legal protection in at least one jurisdiction;

(d) the beneficiary maintains sufficient substance in terms of physical presence, personnel, assets or other relevant indicators, as is commensurate with the type and extent of activity being carried out in the relevant jurisdiction in respect of the qualifying IP;

(e) where the beneficiary is a body of persons, such beneficiary is specifically empowered to receive such income; and

(f) the beneficiary requests the Patent Box Regime deduction in computing his income or gains in the return made pursuant to article 10 of the Income Tax Management Act.

(2) Where a benefit under these rules has been claimed in respect of a patent that is still pending, and the application in respect of such patent is eventually rejected, any such benefit claimed shall be reversed by making the appropriate adjustment in the year in which it is ascertained that the particular patent is not being issued.