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Malta Double Tax Treaties – Summary Tables and Full Text

Commercial dealings would be severely undermined if taxable gains generated in one jurisdiction were to be taxed again in another. The imposition of double taxation on the same income poses a serious threat to an investor, and thorough tax planning is rendered necessary to circumvent and/or mitigate the effects of double taxation.

Constructive use of Malta’s Treaties’ Network has rendered considerable advantages to businesses and individuals who have chosen to establish legal entities in Malta. Tax treaties, in Malta and most countries, legally supersede local tax legislation and for this reason they are a useful tax-planning tool to protect businesses and individuals against double taxation of income earned in other countries.

Notes:

  • The main purpose of these treaties is the avoidance of double taxation of income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the tax payer resides for taxes levied in the other treaty country, and as a result the tax payer pays no more than the higher of the two rates (a number of the treaties also contain very beneficial “tax-sparing credits”).
  • The EU Parent Subsidiary and the Interest & Royalties Directives can be used to eliminate withholding taxes on payments of dividends, interest and royalties from or to EU Group Companies and the EU Merger Directive to eliminate the tax effects of EU Group reorganisations

Treaty relief is generally provided in the form of an ordinary credit, limited to the amount agreed between Malta and the relevant foreign territory. The tax suffered in a relevant foreign territory applies on the basis of the ordinary credit method (based on a source-by-source and country-by-country basis).

Double taxation relief can be applied, insofar that the following conditions are satisfied:

(i) A double taxation arrangement must be in force between Malta and the relevant foreign territory;

(ii) The person entitled to the income must be resident in Malta for the year immediately preceding the year of assessment;

(iii) The taxpayer must be able to furnish documentary evidence of the tax paid abroad;

(iv) The tax paid abroad is income tax or any tax of a similar character imposed by the laws of the relevant foreign territory.

Malta has a vast network of double tax treaties, having signed and ratified double tax treaties with over fifty jurisdictions. Most of the treaties which Malta has entered into are based on the OECD Model Convention and would typically cover income tax, inheritance taxes, real estate taxes and similar taxes. In a number of treaties concluded by Malta, certain foreign income remitted to Malta would qualify for a reduced withholding rate of foreign tax (typically to dividends, income and royalties) or is exempt from foreign tax (e.g. private pensions and capital gains).

The full text of Malta Double Tax Treaties can be downloaded here:

COUNTRY
DIVIDENDS
INTEREST
ROYALTIES
TREATY TEXT
TREATY PROTOCOL
Rate for Minor
Rate for Major
Percentage
Rates
Rates
Download PDF
Download PDF
shareholder
shareholder
required to
qualify for Major
shareholder
%
%
%
%
%
Albania
15
5
25
5
5
Australia
15
15
N/A
15
10
Austria
15
15
N/A
5
10
Barbados
15
5
5
5
5
Bahrain
N/A
0
N/A
N/A
0
Belgium
15
15
N/A
10
10
Bulgaria
0
0
N/A
N/A
10
Canada
15
15
N/A
15
10
China
10
10
N/A
10
10
Croatia
5
5
N/A
0
0
Cyprus
15
15
N/A
10
10
Czech Republic
5
5
N/A
0
5
Denmark
15
0
25
0
0
Egypt
10
10
N/A
10
12
Estonia
15
5
25
10
10
Finland
15
5
10
0
0
France
15
5
10
10
10
Georgia (i)
0
0
Germany
15
5
10
0
0
Greece
10
5
25
8
8
Guernsey
Hungary
15
5
25
10
10
Hong Kong 0 0 N/A 0 3 DTT Malta-Hong Kong
Iceland
15
5
10
0
5
India
15
10
25
10
15
Ireland
15
5
10
0
5
Isle of Man (ii)
0
0
0
0
Israel 15 0 10 5 0 DTT Malta-Israel
Italy
15
15
N/A
10
10
Jersey (iii)
0
0
0
0
Jordan
10
10
N/A
10
10
Korea
15
5
25
10
0
Kuwait
0
0
N/A
0
10
Latvia
10
5
25
10
10
Lebanon
5
5
N/A
0
5
Libya
15
15
N/A
15
15
Lithuania
15
5
25
10
10
Luxembourg
15
5
25
0
10
Malaysia
N/A
15
15
Montenegro
10
5
25
10
5 or 10
Morocco
10
6.5
25
10
10
Netherlands
15
5
25
10
10
Norway
15
15
N/A
10
10
Pakistan
15
20
10
10
Poland
15
5
20
10
10
Protocol 1
Portugal
15
10
25
10
10
Qatar
N/A
0
5
Romania
5
5
N/A
5
5
San Marino
10
5
25
0
0
Serbia
10
5
25
10
5 or 10
Singapore
0
0
7 or 10
10
Slovakia
5
5
N/A
0
5
Slovenia
15
5
25
5
5
South Africa
5
5
N/A
10
10
Spain
5
0
25
0
0
Sweden
15
0
10
0
0
Switzerland (v)
N/A
N/A
N/A
N/A
N/A
Syria
0
0
N/A
10
18
Tunisia
10
10
N/A
12
12
Turkey (vi)
15 10 25 10 10
U.K.
N/A
10
10
U.A.E (iv)
0
0
0
0
U.S. A
5
15
10
10
10

Note: This schedule is only intended to give a general outline of the maximum rates of tax applicable to dividend, interest and royalty payments under Malta’s tax treaties. It is advisable to consult the relevant tax treaty for more detailed information.

(i) Only residence state of the recipient is allowed to tax repatriation of dividend, income and royalties
(ii) As above
(iii) As above
(iv) As above
(v) Limited to tax relief on ship and aircraft (new treaty signed March 2011 and awaiting ratification)
(vi) Signed on July 2011 and awaiting ratification

If you have difficulty in downloading the Tax Treaties, please contact us. We will send them to you.

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors. For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Unilateral and Commonwealth Relief – Essential Information and Facts

Unilateral Relief

Relief from double taxation is also possible on a unilateral basis where tax is suffered  outside Malta on income received from a country with which Malta has not concluded a treaty, irrespective of whether or not that income is remitted to Malta.  Any tax suffered outside Malta, would, limitedly to the Malta tax charge on the income, be allowed as a credit against tax chargeable in Malta.

Unilateral Tax Relief operates very much in the same way as treaty relief, except that it only applies outside a restricted tax treaty context.  Unilateral Tax Relief allows relief by allowing, in defined scenarios, relief from foreign tax when such foreign tax includes tax paid in respect of a dividend indirectly.

Unilateral Tax Relief can be applied, insofar that the following conditions are satisfied:

  • It is availed of in respect of income which arises outside Malta;
  • Foreign source income relieved by Unilateral Relief must have been subject to tax, similar in nature to that imposed under the Income Tax Acts under the laws of a territory outside Malta;
  • The individual or body corporate claiming the credit must be resident in Malta;
  • The individual or body corporate claiming Unilateral Tax Relief, must be able to furnish documentary evidence that the income to by relieved by Unilateral Tax Relief suffered tax of a similar character to that imposed in Malta under the Income Tax Act.

Commonwealth Tax Relief

Commonwealth Tax Relief is available in respect of income tax or tax of a similar nature charged under any law in any country of the Commonwealth, if the law of such Commonwealth country has provided for relief in respect of tax charged on income both in that Country and in Malta.

Commonwealth Tax Relief can be applied, insofar that the following conditions are satisfied:

(i) If any person resident in Malta, can furnish documentary evidence, attesting that he/she has suffered Commonwealth income tax in respect of any part of his/her income, he/she shall be relieved from tax in Malta paid on that part of his/her income at a rate, determined as follows-

  • If the Commonwealth rate of tax appropriate to his/her case does not exceed the rate appropriate to his /her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be one-half of the Commonwealth rate of tax;
  • In any other case, the rate at which relief is to be given shall be half the rate of tax appropriate under the Maltese Income Tax Act.

(ii) If any person not resident in Malta who has paid, by deduction or otherwise, or is liable to pay, tax under the Maltese Income Tax Act, tax under the Maltese Income Tax Act for any year of assessment on any part of his/her income, proves that he/she has paid, by deduction or otherwise, or is liable to pay, Commonwealth income tax for that year of assessment in respect of the same part of his/her income, he/she shall be entitled to relief from tax paid or payable by him/her under the Income Tax Act on that part of his/her income at a rate to be determined as follows-

  • If the Commonwealth rate of tax appropriate to his/her case does not exceed the rate appropriate to his/her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be one-half of the Commonwealth rate of tax;
  • If the Commonwealth rate of tax appropriate to his/her case exceeds the rate of tax appropriate to his/her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be equal to the amount by which the rate of tax under the Maltese Income Tax Act, exceeds one-half of the Commonwealth rate of tax.

List of Commonwealth Countries

Antigua and Barbuda Namibia
Australia Nauru
Bahamas New Zealand
Bangladesh Nigeria
Barbados Pakistan
Belize Papau New Guinea
Botswana Rwanda
Brunei Saint Kitts and Nevis
Cameroon Saint Lucia
Canada Saint Vincent and the Grenadines
Cyprus Samoa
Dominica Seychelles
Gambia Sierra Leone
Ghana Singapore
Grenada Solomon Islands
Guyana South Africa
India Sri Lanka
Jamaica Swaziland
Kenya Tanzania
Kiribati Tonga
Lesotho Trinidad and Tobago
Malawi Tuvalu
Malaysia Uganda
Maldives United Kingdom
Malta Vanuatu
Mauritius Zambia
Mozambique

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.  For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

Malta Flat Rate Foreign Tax Credit  (FRFTC)  is another form of unilateral relief that is available only to corporate entities.

Flat Rate Foreign Tax Credit (FRFTC) can be applied, insofar that the following conditions are satisfied:

(i) The company making use of such relief is registered in Malta;

(ii)  The company is specifically empowered to receive foreign source income or gains in accordance with its constitutive documents, which fall to be allocated to their foreign income account;

(iii) The company is able to produce the necessary documentary evidence (typically a certificate issued by a certified public accountant and auditor), that such income or gains, fall to be allocated in the foreign income account.

The Flat Rate Foreign Tax Credit (FRFTC) constitutes a credit for notional tax paid at 25% of the overseas income or gain received in Malta and is to be added to such amount. The resultant income less expenses is taxed at 35%. A tax credit equivalent to the amount by which the foreign source income is increased is available for set-off against the tax due on the chargeable income. However, the FRFTC claimed as a credit cannot exceed 85% of the Malta Tax payable on the foreign income.

The methodology for the application of the FRFTC may be illustrated by means of the following examples:

Computation 1 (no deductible expenses)

Foreign source income 1000
FRFTC @ 25% 250
Grossed up income 1250
Less expenses (0)
Chargeable income 1250
Malta Tax @ 35% 437.50
Less FRFTC (250)
Tax Payable 187.50

Computation 2 (deductible expenses)

Foreign source 1000
FRFTC @ 25% 250
Grossed up income 1250
Less expenses (400)
Chargeable income 850
Malta Tax @ 35% 297.50
Less FRFTC (250)
Tax payable 47.50

Computation 3 (application of 85% limitation)

Foreign source income 1000
FRFTC @ 25% 250
Grossed up income 1250
Less expenses (1000)
Chargeable income 250
Malta Tax @ 35% 87.5
Less FRFTC (75)
Tax payable 12.5

No evidence of actual foreign tax is required for FRFTC to apply (the only proof needed is an audit certificate confirming that the income is foreign source income).

This makes the FRFTC  particularly suitable in scenarios where the company does not have the required documentary evidence to attest the amount of tax paid abroad and would, therefore, not qualify for other forms of relief which require this proof.

Likewise, the FRFTC may be beneficial when the company, for tax planning purposes, does not wish to indicate the country of origin of the foreign income  or the company has not paid any tax abroad on its foreign source income, or further still, the company has paid tax abroad but at a rate that is less than 25% of the net income received.

Any company wishing to avail itself of FRFTC must make a claim within two (2) years from the time when all such assessments, adjustment and other determination have been made, whether in Malta or elsewhere, as are material in determining whether any, and if so what, credit falls to be given.

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.  For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

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