Malta: Double tax treaty developments
Malta-Moldova double tax treaty
Malta has recently signed a new double tax agreement (DTA) with Moldova. Entry into force of this DTA is subject to internal ratification procedures of each country being completed. The Malta and Moldova DTA is the first agreement of its kind between the two countries.
This DTA allows for withholding tax to be levied at source on dividends paid from Moldova at the rate of 5%, provided that the dividends are paid to a resident of Malta who is the beneficial owner thereof. In the case of Maltese source dividends, these will effectively not be subject to any withholding tax given that in terms of the DTA any withholding tax on dividends may not exceed the tax chargeable on the profits out of which the dividends are paid.
In the case of interest and royalty income, withholding tax may generally be levied at source at a rate capped at 5% of the gross amount of the interest or royalty income. It is pertinent to highlight that the term royalties as used in the Malta-Moldova DTA does not cover payments for the use of, or the right to use, industrial, commercial or scientific equipment, such as operating lease payments. From a Maltese perspective, subject to the satisfaction of certain statutory conditions, no withholding tax will be levied in Malta upon the payment of interest and royalties, with one of the fundamental conditions to be satisfied in this context being that the relevant income should not be effectively connected with a permanent establishment through which the non-resident carries on business in Malta.
With regard to capital gains, the Malta-Moldova DTA provides that the source state may tax gains derived by a resident of the other state from the transfer of shares or other rights deriving more than 50% of their value, directly or indirectly, from immovable property situated in the source state.
LOB and elimination of double taxation
The DTA does not contain limitation of benefits (LOB) clauses and both Malta and Moldova apply the ordinary credit method for the purposes of eliminating double taxation in terms of Article 21 of the DTA.
It is pertinent to highlight some notable provisions contained in the protocol to the DTA, including a clarification that the term person as used in the DTA also includes an investment fund as defined therein.
In addition, the protocol clarifies that where the phrase "enterprise of a contracting state" is used in cases where an enterprise operating ships and aircraft in international traffic is a resident of neither Malta nor Moldova, the right to tax will be attributed to the state under which flag the ship or aircraft operates.
Malta-Russia double tax treaty
The DTA signed between Malta and Russia on April 24 2013 has been ratified by both contracting states. The salient features of the DTA between Malta and Russia have been reported in an earlier issue.
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