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Malta: Malta concludes tax treaty with Vietnam

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Mark Galea Salomone

Kirsten Cassar

Malta and Vietnam have recently concluded an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the DTA). The DTA will apply to income tax in Malta and to personal and business income tax in Vietnam.

The tax treaty residence concept with respect to individuals sees no deviation from Article 4 of the OECD Model Convention. With respect to persons, other than individuals, the place of effective management is the key factor in determining residence for DTA purposes. The DTA adds that when the place of effective management cannot be determined or where the place of effective management is in neither state, Malta and Vietnam will reach a mutual agreement. In the absence of an agreement, the taxpayer will be denied the tax relief or exemption under the provisions of the DTA.

With respect to permanent establishments, where a person (other than an agent of an independent status) acts in one contracting state on behalf of an enterprise in the other contracting state, that enterprise will be deemed to have a permanent establishment in the first contracting state in respect of any activities that the person undertakes for the enterprise.

Borrowing from the UN Model, the DTA states that a permanent establishment would also comprise a building site, construction, assembly or installation project (or supervisory activities in connection therewith) if lasting longer than six months. A permanent establishment further include the furnishing of services, including consultancy services, by an enterprise through employees/other personnel engaged by the enterprise for such purposes if it is carried out for a period aggregating more than six months within any 12-month period.

With respect to dividends paid by a Vietnam resident to a Malta resident, these are to be taxed at:

  • No more than 5% of the gross dividends if the beneficial owner is a company directly holding at least 50% of the voting power of the company paying the dividends; and

  • 15% in all other cases.

Where the dividends are paid by a company that is a Malta resident to a Vietnam resident, who is the beneficial owner thereof, Maltese tax on the gross amount of the dividends will not exceed that chargeable on the profits out of which the dividends are paid.

Interest paid to a beneficial owner who is a resident of the other contracting state may also be taxed in the contracting state in which it arises at the maximum rates of 10% of the gross amount of the interest.

Royalties paid to a recipient who is the beneficial owner may also be taxed in the contracting state in which they arise at the maximum rates of 5% (patent/design/model/plan), 10% (trademarks) and 15% (all other cases).

The DTA has not yet come into force as both parties still need to complete the ratification procedures. Nevertheless, its signing has served as a step forward in promoting investment between Malta and Vietnam, and will serve to encourage the development of international trade and the further expansion of Malta's tax treaty network.

Mark Galea Salomone (mark.galeasalomone@camilleripreziosi.com) and Kirsten Cassar (kirsten.cassar@camilleripreziosi.com)

Camilleri Preziosi

Tel: +356 2123 8989

Website: www.camilleripreziosi.com

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