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TAX NEWS - January 2010

Malta: Tax Treaties with Ireland, Singapore and Montenegro become effective

On 1 January 2010, the provisions of the Malta-Ireland, Malta-Singapore and Malta-Montenegro income tax treaties became applicable. All three tax treaties are an important addition to Malta's existing tax treaty network. The treaty with Ireland completes Malta's bilateral tax treaty network with all EU Member States. Tax treaties that have been signed and are awaiting ratification include those with Georgia, Isle of Man, Jordan, Qatar, Russia, Serbia, Switzerland and the U.S.

Pursuant to its domestic law, Malta does not withhold taxes on dividends paid to nonresidents. However, as Malta operates a full imputation system, the treaties provide for a special provision with regard to dividends paid by a resident of Malta to a resident of the other contracting state. Such dividends are taxable in Malta at a rate not to exceed that chargeable on the profits out of which the dividends are paid. Due to the full imputation system also used in Singapore, the Malta-Singapore treaty includes a similar provision for dividends paid from Singapore.

The treaties also provide for beneficial tax rates on outgoing interest and royalty payments although Malta does not, under its domestic law, withhold tax on interest and royalty payments made to nonresidents.

Malta - Ireland Tax Treaty: Dividends paid by a resident of Ireland to a resident of Malta are taxable at a tax rate not to exceed 5% if the beneficial owner is a company that holds directly at least 10% of the voting power of the company paying the dividends; otherwise, dividends are taxable at a rate not to exceed 15%. Interest income only may be taxed by the state of residence of the recipient. For royalties, the residence state of the payer may tax the outgoing royalty payment at a rate not to exceed 5%. As both Malta and Ireland are EU Member States, the relevant EC directives should be considered in bilateral situations.

Malta - Montenegro Tax Treaty: The Malta-Montenegro treaty provides that dividends are taxable at a tax rate not to exceed 5% if the beneficial owner is a company that holds directly at least 25% of the capital of the company paying the dividends. In all other cases, dividends are taxable at a rate not to exceed 10%. Interest and royalties may be taxed at a rate not to exceed 10%.

Malta - Singapore Tax Treaty: As noted above, in view of the adoption of a full imputation tax system in the tax laws of both Malta and Singapore, no withholding tax is imposed on dividends paid by a resident of either contracting state. The tax treaty provides that interest received by a bank is taxable at a tax rate not to exceed 7%; in all other cases, interest is taxable at a rate not to exceed 10%. Royalties are taxable at a rate not to exceed 10%. Separately, a protocol signed between Malta and Singapore on 20 November 2021 amending the exchange of information provisions in the current treaty tax treaty and updating the provisions to the 2008 OECD Model Treaty standard is awaiting ratification. The protocol will enter into force 30 days after the date on which notification of the completion of the ratification process is exchanged between Malta and Singapore.
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