Malta Double Taxation Agreements

This article presents information about the double taxation treaties (DTTs) signed by Malta with countries worldwide. Our Maltese lawyers can assist company owners with a wide range of tax-related matters linked to business.

What are the key features of DTTs signed by Malta?

Here are some of the key features of double taxation treaties signed by Malta:

• the OECD Model Convention stands at the base of the 80 double taxation agreements signed by Malta with countries worldwide.
• most agreements involve reduced withholding rates for royalties, interests, and dividends;
• there are also exceptions to the withholding tax on interest and dividends paid from a Maltese company;
• the corporate tax is incorporated with the shareholder’s personal income tax with respect to the dividend, under Malta’s full-charge tax system of dividends;
• royalty and interest income received by non-residents is tax exempt in Malta as long as specific conditions are fulfilled, for instance, they are not actually linked to a permanent establishment of the recipient located in Malta;
• dividends are not subject to additional tax when distributed by a company incorporated in Malta to a non-Maltese resident, based on the fact that Malta operates the full imputation system of dividends;
• Malta mainly uses the credit method for double tax breaks. This method allows Maltese residents to claim a credit for foreign tax paid and reduce Maltese tax payable on the same income. The credit cannot be higher than the Maltese tax liability on that income.

Permanent establishments under Malta’s double tax conventions

The following entities are considered permanent establishments according to the conventions on double taxation in Malta:

•  fixed business places, such as branches, offices, or management places;
•  factories, construction sites, workshops, and other facilities of this type;
•  gas and oil wells, mines, and quarries can also be deemed as permanent establishments;
•  land plots used for agricultural and pastoral activities are also considered permanent establishments.

What are the tax rates under Maltese double taxation treaties?

Most of Malta’s double taxation agreements employ similar tax rates and exemptions. Also, all double taxation treaties cover the same taxes. Under Maltese double taxation treaties, foreign investors from countries that have concluded such agreements will benefit from:

•  reduced tax rates when repatriating profits,
•  tax exemptions on certain incomes when distributed by Maltese subsidiaries or branches.

Under most Maltese double taxation agreements, the following reduced tax rates apply:

•   the taxation of dividends ranges from 0% to 15% depending on the agreement signed,
•   the taxation of royalties ranges between 0% and 10%, however certain exemptions apply;
•   the taxation of interests ranges from 0% to 15%, just like in the case of dividend payments;
•   other types of incomes can also be subject to reduced tax rates.

What are Tax Information Exchange Agreements (TIEAs)?

In addition to the double taxation treaties signed by Malta, the country also has several Tax Information Exchange Agreements (TIEAs). These treaties are signed with special jurisdictions like the following (the USA is covered by a full double tax treaty and a FATCA agreement, not a TIEA):

• the Cayman Islands,
• The Bahamas,
• Gibraltar,
• Bermuda,
• the USA.

What is the Flat Rate Foreign Tax Credit (FRFTC)?

Malta offers a Flat Rate Foreign Tax Credit (FRFTC) system under certain conditions. As such, the system allows companies to claim about 25% foreign tax credit on total foreign revenue before adding Maltese tax, making the system highly attractive for international groups of companies.

With which countries has Malta signed double taxation treaties?

Among the countries Malta has signed double tax treaties with are:

• in Europe: Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Finland, France, Germany, Greece, Italy, Latvia, Luxembourg, Netherlands (in case you need an accounting firm in the Netherlands, our partners from Dutch-Accountants.com are at your disposal), Switzerland;
• in the Middle East and Asia: Bahrain, Hong Kong, Singapore, Qatar, Saudi Arabia, and the United Arab Emirates.

Malta has also signed double taxation agreements with Russia, China, the United States of America, Canada, Australia, and a few African and South American countries.

What is the content of the US-Malta tax treaty?

The US-Malta tax treaty was signed in 2008 to improve international tax compliance and to facilitate the exchange of information on taxes imposed in various areas in these countries. Thus, this agreement is intended to avoid double taxation and tax evasion; FATCA (Foreign Account Tax Compliance) reporting is governed by a separate US-Malta intergovernmental agreement signed in 2013. Let’s review the following provisions mentioned by the US-Malta tax treaty:

• Reciprocity is mentioned in the US-Malta FATCA agreement and refers to the US government, which recognizes the need for an automatic reciprocal exchange of information with the Maltese government. The United States will also work in full transparency to improve the exchange relationship with Malta, to be able to adopt various regulations, and to promote the relevant legislation.
• The agreement is addressed to individuals and entities in the two countries, Malta and the United States. You can discuss more about Malta’s double tax treaties with our specialists.
• The double tax treaty between Malta and the USA covers the income tax in the case of Malta and federal income taxes in the case of the USA.
• Place of permanent establishment refers to the place where the company is registered, either in Malta or in the USA. This is where the branch, factory, place of management, workshop, office, and mine enter discussion.
• A resident of a contracting state referred to in the double taxation agreement who is liable to tax on income in immovable property situated in the other contracting state may choose to calculate the tax on that income on a net basis.
• 5% is the tax on dividends if they are paid by a company resident in the USA to a company resident in Malta.
• Interest tax is set at 10% and imposed in the contracting state in which it arises. The same is available for royalties.

What are the provisions of the Canada-Malta tax treaty?

The Canada-Malta tax treaty is another important agreement signed in order to avoid tax evasion and extra taxation of profits. Signed in 1986, the Canada-Malta tax treaty covers income taxes and the manner in which those taxes are applied in each country, for companies operating in the market, but also for individuals earning money in one of these countries. Here are some features of the Canada-Malta tax treaty:

• Malta tax refers to the income tax applied to Canadian companies with establishments in Malta.
• Canadian tax applies to Maltese companies with establishments in Canada.
• The double tax treaty between Malta and Canada covers various taxes, and countries are required to announce any changes in legislation.
• The contract between the two countries also defines the term “permanent establishment,” which can be a branch, factory, office, place of management, mine, workshop, etc.
• Canada-Malta tax treaty stipulates that the profits of a company are taxed in the country where the company is registered or where it has a permanent establishment. Therefore, a Canadian company established in Malta will be taxed in Malta.
• Dividends are taxed in the country where the company pays, and the tax is 15%.
• Interest and royalties are levied in the contracting state in which they arise, and the tax cannot exceed 15% for interest and 10% for royalties (0% for certain copyright/software royalties).

If you want to know more details about the double taxation treaties signed by Malta, you can contact our Maltese law firm. Our lawyers can also help you start an LLC (Private Limited Company) in Malta.