Double taxation often occurs as an unintended consequence of tax legislation, whereby international businesses are burdened with income tax arising from the country where the income was earned, and taxed once more when the income is repatriated in the home country of the business. This is an issue which tax authorities all over the world seek to avoid. Therefore, several countries, including Malta, seek to enter into double tax treaties with important trading partners in an effort to resolve the issue of double taxation.
With a view to encouragnig growth in international trade and the development of Malta's connectivity in the financial services world, successive Maltese governments have concluded over 80 double tax treaties with important trading partners and emerging countries around the world and continue to seek more trading partners worldwide. Malta's bilateral double tax treaties resolve issues involving double taxation of passive and active income.
In addition to its extensive network of double tax treaties, Malta vaunts an effective system for relief of double taxation which also includes the granting of unilateral relief, including credit system for relief of underlying tax, as well as a Flat Rate Foreign Tax Credit system.
OECD based Tax Treaty Network
The majority of Malta’s double tax treaties are based on the OECD model, including the double tax treaties signed with other EU member states.
The Double Tax Treaties- the refund mechanism
Double tax relief on income which arises outside of Malta, but which was also included in one’s taxable income may be claimed by taxpayers who satisfy certain conditions.
Taxpayers will receive compensation for the foreign tax incurred which will be given in the form of credit against the tax chargeable in Malta on the gross chargeable income, provided that such credit does not exceed the total tax liability in Malta on the foreign source income. Where a treaty has not been established yet, relief from double taxation may still be obtained through the granting of unilateral relief.
Companies that satisfy a number of conditions may elect to claim double tax relief in the form of the flat rate foreign tax credit instead of other forms of double tax relief. This may be the most advantageous option for companies whose foreign income has been exempt from tax or is taxed at a reduced rate.
Withholding taxes
Generally, the treaty rate on dividends which is due to be paid by Maltese Companies is the company tax rate of 35%. Thanks to Malta’s full imputation system in respect of dividends paid, shareholders may benefit from a credit with regards to the tax paid by the company. Thus, company profits are taxed once and no more taxes will need to be paid by the shareholders on distributions.
Dividends which are paid to non-residents are not subject to withholding tax under Malta’s taxation laws. Moreover, interest and royalties paid to non-residents are exempt from tax in Malta, provided that such non-residents are not connected with a permanent establishment in Malta through which they engage in trade or business. Therefore, residents of non-treaty and non-treaty countries will enjoy a withholding tax of 0% on dividends, interests and royalties paid to them.
Furthermore, non-residents enjoy 0% tax on capital gains which arise on transfers of company shares or securities, excluding gains which arise from the transfer of shares and securities of companies whose assets mainly consist of immovable property situated in Malta.
Malta Double Tax Treaties and Tax Information Exchange Agreements
- In force: Albania, Andorra, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Botswana, Bulgaria, Canada, China, Croatia, Cyprus, Czech Rep., Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea, Kosovo, Kuwait, Latvia, Lebanon, Libya, Liechtenstein, Lithuania, Luxembourg, Malaysia, Mauritius, Mexico, Moldova, Monaco, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, UAE, UK, Ukraine, Uruguay, USA, Vietnam.
- Treaties signed but not yet in force: Belgium, Curaçao
- Tax Information Exchange Agreements in Force: Bahamas, Bermuda, Cayman Islands, Gibraltar, USA.
- Tax Information Exchange Agreements – signed but not in force: Macao
For the official list of double tax treaties, refer to the website of the Commissioner for Revenue's website CfR.
