On 24 April 2013, the Governments of Malta and the Russian Federation signed a double taxation agreement.
The Agreement has entered into force on the 22nd of May 2014.
Consequent to this agreement, the Russian Finance Ministry has drafted a decree that will exclude Malta from the blacklist of offshore jurisdictions. The Russian news agency Tass has also reported on October 8, 2014, that through a decree drafted by the Russian Finance Ministry, Malta will be removed from the black list of offshore jurisdictions.
The Agreement, which is by and large based on the OECD Model Convention, applies to persons who are residents of one or both of the Contracting States. A resident of a Contracting State includes any person who under the laws of that State is liable to tax by reason of his domicile, residence, place of incorporation, place of management or any criterion of a similar nature. Under Maltese income tax legislation, a company is considered to be resident in Malta if it is incorporated under Maltese Law or incorporated under foreign laws but effectively managed and controlled in Malta.
The Treaty provides for a maximum Russian withholding tax of 5% on dividends distributed by a Russian company to a Malta resident company. Nevertheless this is subject to the condition that the Malta Company holds a minimum of 25% of the share capital of the Russian resident company. This condition is tied with a cumulative condition, in that the holding must amount to at least €100,000. In a scenario where such circumstances are not satisfied, the maximum Russian withholding tax would amount to 10%.
Noteworthy is the fact that dividends are not taxed in Russia if the dividend is received by a Malta pension fund, which is held to be the beneficial owner of such income.
With regard to interest income the withholding tax imposed in Russia on interest paid by a resident of Russia to a resident of Malta who is held to be the beneficial owner of such income, is capped at 5% of the gross amount of the interest.
Russian withholding tax on royalties paid by a Russian resident to a Malta resident who is the beneficial owner, is limited to 5 % of the gross amount of the royalties.
By virtue of Malta tax legislation, no tax is withheld on dividends distributed by Maltese resident companies to non-residents, so long as the pertinent Maltese tax provisions are satisfied. Likewise no Malta tax is withheld on interest and royalties derived by non-residents. Nevertheless the interest and royalty income ought not to be effectively connected with a permanent establishment through which the non-resident carries on business in Malta. Malta also allows for the continuation of non-Maltese companies, meaning that by way of example a Malta holding entity, subject to various conditions, can easily redomicile (migrate) to Malta without losing its corporate personality. Notably, on becoming Malta-resident the company can also achieve a tax-free step-up in the base cost of its assets.
For more information contact Dr. Jonathan De Giovanni, Director of Legal and International Tax at WDM International.