On 21th March 2006 Malta and the Republic of Singapore concluded the Agreement for the Avoidance of Double Taxation and the Prevention of Tax Evasion with respect to Taxes on Income. In November 2009, the Singapore-Malta Double Tax Treaty was amended by introducing new wording of the exchange of information provision, which is now more compliant with the OECD Model. The treaty is in force by L.N. 194 of 2008 and the Protocol is still waiting for ratification.
Singapore-Malta Double Tax Treaty: Definitions
Bilateral double tax treaties regulate tax matters between the parties and, as a result, furnish economic co-operation and exchange. To facilitate this objective, the Agreement provides for some definitions, like a “resident”, a “permanent establishment” or definitions of certain income for treaty purposes. In general, they follow the OECD’s Model. However, it extends the definition of a permanent establishment for so-called “service PE”, which arises when furnishing of services in the other state continues for a period or periods aggregating more than 6 months within any 12-month period. The Convention keeps, abandoned by the OECD Model, provision on independent personal services, which completes the system of taxation of individuals.
Taxation of particular types of income
Majority of provisions allocate taxing rights to both countries. In case of dividends both states recognized their imputation systems provisions and, as a result, although these payments may be taxed in both states no final withholding is imposed. Interest payments carry 7% withholding tax in case the recipient is a bank and 10% in remaining cases. In case of taxation of royalties, withholding tax rate is 10%. The treaty includes the leasing of industrial, commercial, or scientific equipment into the term “royalties”, although the OECD suggested that income generated on such transactions is not of a “royalty” nature and therefore should fall under business income. Nevertheless, many Maltese double tax treaties still apply the old approach (e.g. with Syria, Poland and Belgium). Any potential double taxation will be avoided by the credit method.
It is worth to mention that the Capital Gains provision differentiates the alienation of shares which derive at least 75% of their value – what is a relatively high threshold – from immovable property (a property company); the sale of such shares may be taxed in both, Malta and Singapore, while in other cases taxing rights are granted to the state of a residency of the alienator.
Exchange of Information & Anti-avoidance Measures
The exchange of information in tax matters is dealt with by the Agreement and, moreover, enhanced by the fact that in May 2013 Singapore signed the OECD’s amended Convention on Mutual Administrative Assistance in Tax Matters.
Despite the latest trends and developments in the field of tracking tax evasion and tax avoidance, the treaty does not contain limitation of benefits clause, even of a general character. What is interesting, the treaty does not contain any provision which would limit its benefits in case of non-remitted income.
