DOUBLE TAX TREATY NETWORK

Throughout the past 40 years, Malta has endeavoured to expand its tax treaty network. Malta’s economic development, particularly the growth in its financial services sector, increased the importance and scope for the conclusion of tax treaties. Malta’s tax treaty network, consisting of tax treaties with 81 different jurisdictions, has seen a considerable leap forward over the past months – with new tax treaties with Andorra, Armenia, Botswana, Kosovo, Monaco, and the Ukraine having come into force in recent years.

The majority of Malta’s treaties are based on the OECD model. Nevertheless, several treaties, particularly the earlier ones, contain significant differences from those based on the OECD model, enshrining provisions that cater for special tax incentives for foreign enterprises setting up manufacturing establishments in Malta. Such conditions included low tax rates on dividends arising in Malta and tax sparing articles. Tax sparing is usually granted to Malta by the other Contracting state (often about dividends, and/or interest, and/or royalties), binding the other contracting state to give relief for taxes suffered in Malta (or at a specified rate of tax), even when these taxes would have not been so suffered (waiver), or would have been suffered at a lower rate than the relevant rate (reduced), via the application of legislation that gives tax incentives to attract investment. The idea is to allow the taxpayer to benefit from the tax foregone in Malta, rather than the other contracting state (adopting the credit method).

Maltese domestic law also provides for a Malta tax exemption afforded to non-residents on interest and royalties arising in Malta, subject to the fulfillment of specific conditions, which rule overrides the treaty provision on withholding taxes on these categories of income. Likewise, no tax is payable by non-residents on capital gains arising on transfers of company shares or securities except where such gains are derived from the transfer of shares or securities in companies whose assets consist wholly or principally of immovable property situated in Malta.

Double Tax Treaties in Force

Tax Information Exchange Agreements – in Force