In June of this year, Malta concluded treaties with the Federal Democratic Republic of Ethiopia and the Republic of Botswana for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (DTAs). This followed the conclusion of a treaty with the Principality of Andorra as well as the coming into force of the treaties concluded with Azerbaijan and the Socialist Republic of Vietnam, earlier this year.
The tax treaty residence concept with respect to individuals in both DTAs sees no deviation from the OECD Model Convention. With respect to persons, other than individuals, the place of effective management or the place of incorporation is the key factor in determining residence. When a person is deemed to be a resident of both Malta and the other respective contracting state, the place of effective management will determine where such a person will be deemed to be resident for the purposes of the DTA. The DTA with Botswana additionally provides that when the place of effective management cannot be established, the contracting states will settle the question through mutual agreement.
With respect to the permanent establishment (PE) concept, specifically project PEs, the DTAs are broadly similar. While under both DTAs a PE is to also comprise a building site, construction or installation project if lasting longer than six months, the DTA with Botswana also includes supervisory activities linked to such projects within its scope. Moreover, the latter DTA also includes within the scope of the definition, the furnishing of services by an enterprise through employees or other personnel engaged by the enterprise for such purpose if carried out for a period aggregating more than six months within any 12-month period.
Dividends paid by an Ethiopian resident company to a Malta resident beneficial owner are to be taxed in Ethiopia at a maximum of 5% of the gross dividends. Dividends paid by a Botswana resident company to a Malta resident beneficial owner, will be taxed at (a) a maximum of 5% of the gross dividends when the beneficial owner of such dividends owns at least 25% of the company paying the dividends; or (b) a maximum of 6% in all other cases. With respect to dividends paid by a Maltese resident company in such circumstances, Malta does not generally charge withholding taxes.
Interest paid to a resident in the other contracting state that is the beneficial owner, may be taxed in the contracting state in which it arises at the maximum rates of 5% (Ethiopia DTA) or 8.5% (Botswana DTA) of the gross amount of the interest. According to the DTA with Ethiopia, royalties paid to the beneficial owner, resident in the other contracting state are taxable in the contracting state in which they arise at the maximum rate of 5% of the gross amount of the royalties. On the other hand, the Botswana DTA provides that royalties in such circumstances may be taxed at a rate of 5% of the gross amount of royalties in respect of the use or the right to use, industrial, commercial or scientific equipment, and 7.5% in all other cases.
Although the DTAs have not yet come into force they nevertheless serve as a step forward in promoting investment between Malta and the relevant jurisdictions. They also signal Malta's strong commitment to further minimising instances of double taxation in cross-border matters.
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