Such deduction is spread equally over a number of years that should be at least three (3) years, starting from the year when the IP is first used or employed in the production of the income. Notwithstanding this, an important amendment was introduced to this provision in December 2023 such that an additional deduction may be claimed in the year in which the IP expenditure is incurred or the year in which the IP is first used or employed in producing the income, subject to such conditions as may be prescribed.
Indeed, legal notice 229 of 2024 introduces such conditions with effect from year of assessment 2024. When a person claims the additional deduction in the year the IP expenditure is incurred or the first year of use or employment, the amount deductible in respect of any year of assessment is worked out as follows:
- As an initial step there shall be claimed the deduction over the minimum period of years (minimum of three years but can be longer), and
- As a second step there shall be claimed the remaining additional part of the deduction, subject to the limitation below.
When claiming the second part of the deduction, in any year of assessment, the deduction is limited to the qualifying income in that year of assessment. Qualifying income is defined as the income produced through the use or employment of the IP or IP rights chargeable to tax in accordance with the provisions of the Income Tax Acts before claiming the IP deductions and before the notional interest deduction where applicable. Any excess of the additional IP deduction over the qualifying income cannot be claimed as a deduction in the year of assessment and moreover cannot be surrendered by group loss relief, but is carried forward to be deducted in subsequent years of assessment.
With respect to the year of assessment 2024 (the year of the introduction of the additional deduction) a claim for deduction can also be made for the IP expenditure deduction brought forward from previous years of assessment that was not previously deducted due to the minimum number of years rule, subject to the limit referred to above and being introduced by the legal notice.