Double Tax Treaty Network

Throughout the past 40 years Malta has endeavoured to expand its tax treaty network. Malta’s economic development, and particularly the growth in its financial services sector, increased the importance as well as the scope for the conclusion of tax treaties. Malta’s tax treaty network, consisting of 63 tax treaties, has seen a considerable leap forward over the past months. New tax treaties with Bahrain, Hong Kong, Saudi Arabia, Switzerland, and Uruguay became generally applicable as of 1 January 2013 (1 April 2013 in the case of Hong Kong). Moreover, with effect from 1 January 2014, a new treaty concluded with Guernsey and Macau, will come into force as will a revised treaty with Norway. New tax treaties were negotiated with Armenia and Mexico during 2012 and 2013 as well as a protocol to the existing treaty with South Africa was signed. We have experienced an important development in relation to the Malta – Russia double tax treaty. To this end, the treaty previously negotiated with Russia has been approved for signature. Malta is also placing increased emphasis on tax information exchange agreements, having concluded a number of these agreements with the Bahamas, Bermuda and Gibraltar.

The majority of Malta’s treaties are based on the OECD model although. Nevertheless, several treaties, particularly the earlier ones, contain significant differences from those based on the OECD model, enshrining provisions which cater for special tax incentives for foreign enterprises setting up manufacturing establishments in Malta. Such provisions 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 in relation to 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 take the benefit of 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 fulfilment 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

AustraliaLenanonIsle of Man
CroatiaNorwayUnited Arab Emirates
CyprusPakistanUnited Kingdon
Czech RepublicPolandUnited States of America
FinlandSan Marino
FranceSaudi Arabia
Hong KongSouth Africa

Treaties signed but not in force

LuxembourgSouth Africa

Tax Information Exchange Agreements – in force