The Convention between the Government of Ukraine and the Government of the Republic of Malta for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the “Convention”) entered into force on 28th August of 2017, by virtue of Legal Notice 345 of 2017.
The Convention follows the OECD tax treaty model but includes some divergences. Below we list these divergences and outline other main provisions of the Convention.
Notable divergences from the OECD model
• Permanent establishment
The definition of a permanent establishment stipulated by the Convention follows the OECD tax treaty model. However, it adds to the list of examples of undertakings to be regarded as permanent establishments with “warehouse or other structure used as a sales outlet”.
• International transport
Building up on the OECD tax treaty model, the Convention clarifies that the profits from the operation of ships or aircraft in international traffic include:
a. income from the rental on a bareboat basis of ships or aircraft; and
b. profits from the use or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise, where such activities are incidental to the operation of ships or aircraft in international traffic.
Withholding tax rates
The Convention sets out the following withholding tax rates:
- Dividends Interest Royalties
- Basic rate 10% 10% 10%
- Reduced rate 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends. N / A N / A
Real estate income
In line with the OECD model, income derived by a resident of a contracting state from immovable property situated in the other contracting state may be taxed in that other state. If so, the jurisdiction of the taxpayer shall provide relief from double taxation, as provided for in the Convention.
Capital gains
As a general rule, capital gains derived by a resident of a contracting state from alienation of property should be taxable only in the contracting state where the alienator is resident. However, capital gains derived from:
a. alienation of movable property forming part of the business property of a permanent establishment situated in the other contracting state,
b. alienation of immovable property situated in the other contracting state or alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state may be taxed in that other contracting state, with double taxation relief available.
On the other hand, capital gains derived from the alienation of ships or aircraft operated in international traffic, boats engaged in inland waterways transport or movable property pertaining to the operation of such ships, aircraft or boats owned by the enterprise shall be taxable only in the contracting state in which the place of effective management of the enterprise is situated.
Double taxation relief
In the case of Ukraine residents, double taxation should be eliminated under the Convention by crediting Malta tax paid against any Ukrainian tax computed by reference to the same profits or income. In the case of Malta residents, the Ukrainian tax paid shall also be allowed as a credit against Malta tax liability. In the case of either jurisdiction, however, such credits shall not exceed that part of income tax, as computed before the credit is given.
