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Malta Double Tax Treaties – Summary Tables and Full Text

Commercial dealings would be severely undermined if taxable gains generated in one jurisdiction were to be taxed again in another. The imposition of double taxation on the same income poses a serious threat to an investor, and thorough tax planning is rendered necessary to circumvent and/or mitigate the effects of double taxation.

Constructive use of Malta’s Treaties’ Network has rendered considerable advantages to businesses and individuals who have chosen to establish legal entities in Malta. Tax treaties, in Malta and most countries, legally supersede local tax legislation and for this reason they are a useful tax-planning tool to protect businesses and individuals against double taxation of income earned in other countries.

Notes:

The full text of Malta Double Tax Treaties can be downloaded here:

Note: This schedule is only intended to give a general outline of the maximum rates of tax applicable to dividend, interest and royalty payments under Malta’s tax treaties. It is advisable to consult the relevant tax treaty for more detailed information.

(i) Only residence state of the recipient is allowed to tax repatriation of dividend, income and royalties
(ii) As above
(iii) As above
(iv) As above
(v) Limited to tax relief on ship and aircraft (new treaty signed March 2011 and awaiting ratification)
(vi) Signed on July 2011 and awaiting ratification

If you have difficulty in downloading the Tax Treaties, please contact us. We will send them to you.

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors. For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Unilateral and Commonwealth Relief – Essential Information and Facts

Unilateral Relief

Relief from double taxation is also possible on a unilateral basis where tax is suffered  outside Malta on income received from a country with which Malta has not concluded a treaty, irrespective of whether or not that income is remitted to Malta.  Any tax suffered outside Malta, would, limitedly to the Malta tax charge on the income, be allowed as a credit against tax chargeable in Malta.

Unilateral Tax Relief operates very much in the same way as treaty relief, except that it only applies outside a restricted tax treaty context.  Unilateral Tax Relief allows relief by allowing, in defined scenarios, relief from foreign tax when such foreign tax includes tax paid in respect of a dividend indirectly.

Unilateral Tax Relief can be applied, insofar that the following conditions are satisfied:

• It is availed of in respect of income which arises outside Malta;
• Foreign source income relieved by Unilateral Relief must have been subject to tax, similar in nature to that imposed under the Income Tax Acts under the laws of a territory outside Malta;
• The individual or body corporate claiming the credit must be resident in Malta;
• The individual or body corporate claiming Unilateral Tax Relief, must be able to furnish documentary evidence that the income to by relieved by Unilateral Tax Relief suffered tax of a similar character to that imposed in Malta under the Income Tax Act.

Commonwealth Tax Relief

Commonwealth Tax Relief is available in respect of income tax or tax of a similar nature charged under any law in any country of the Commonwealth, if the law of such Commonwealth country has provided for relief in respect of tax charged on income both in that Country and in Malta.

Commonwealth Tax Relief can be applied, insofar that the following conditions are satisfied:

(i) If any person resident in Malta, can furnish documentary evidence, attesting that he/she has suffered Commonwealth income tax in respect of any part of his/her income, he/she shall be relieved from tax in Malta paid on that part of his/her income at a rate, determined as follows-

• If the Commonwealth rate of tax appropriate to his/her case does not exceed the rate appropriate to his /her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be one-half of the Commonwealth rate of tax;
• In any other case, the rate at which relief is to be given shall be half the rate of tax appropriate under the Maltese Income Tax Act.

(ii) If any person not resident in Malta who has paid, by deduction or otherwise, or is liable to pay, tax under the Maltese Income Tax Act, tax under the Maltese Income Tax Act for any year of assessment on any part of his/her income, proves that he/she has paid, by deduction or otherwise, or is liable to pay, Commonwealth income tax for that year of assessment in respect of the same part of his/her income, he/she shall be entitled to relief from tax paid or payable by him/her under the Income Tax Act on that part of his/her income at a rate to be determined as follows-

• If the Commonwealth rate of tax appropriate to his/her case does not exceed the rate appropriate to his/her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be one-half of the Commonwealth rate of tax;
• If the Commonwealth rate of tax appropriate to his/her case exceeds the rate of tax appropriate to his/her case under the Maltese Income Tax Act, the rate at which relief is to be given shall be equal to the amount by which the rate of tax under the Maltese Income Tax Act, exceeds one-half of the Commonwealth rate of tax.

List of Commonwealth Countries

	Antigua and Barbuda		Namibia
	Australia		Nauru
	Bahamas		New Zealand
	Bangladesh		Nigeria
	Barbados		Pakistan
	Belize		Papau New Guinea
	Botswana		Rwanda
	Brunei		Saint Kitts and Nevis
	Cameroon		Saint Lucia
	Canada		Saint Vincent and the Grenadines
	Cyprus		Samoa
	Dominica		Seychelles
	Gambia		Sierra Leone
	Ghana		Singapore
	Grenada		Solomon Islands
	Guyana		South Africa
	India		Sri Lanka
	Jamaica		Swaziland
	Kenya		Tanzania
	Kiribati		Tonga
	Lesotho		Trinidad and Tobago
	Malawi		Tuvalu
	Malaysia		Uganda
	Maldives		United Kingdom
	Malta		Vanuatu
	Mauritius		Zambia
	Mozambique

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.  For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

Malta Flat Rate Foreign Tax Credit  (FRFTC)  is another form of unilateral relief that is available only to corporate entities.

Flat Rate Foreign Tax Credit (FRFTC) can be applied, insofar that the following conditions are satisfied:

(i) The company making use of such relief is registered in Malta;

(ii)  The company is specifically empowered to receive foreign source income or gains in accordance with its constitutive documents, which fall to be allocated to their foreign income account;

(iii) The company is able to produce the necessary documentary evidence (typically a certificate issued by a certified public accountant and auditor), that such income or gains, fall to be allocated in the foreign income account.

The Flat Rate Foreign Tax Credit (FRFTC) constitutes a credit for notional tax paid at 25% of the overseas income or gain received in Malta and is to be added to such amount. The resultant income less expenses is taxed at 35%. A tax credit equivalent to the amount by which the foreign source income is increased is available for set-off against the tax due on the chargeable income. However, the FRFTC claimed as a credit cannot exceed 85% of the Malta Tax payable on the foreign income.

The methodology for the application of the FRFTC may be illustrated by means of the following examples:

Computation 1 (no deductible expenses)

Computation 2 (deductible expenses)

Computation 3 (application of 85% limitation)

No evidence of actual foreign tax is required for FRFTC to apply (the only proof needed is an audit certificate confirming that the income is foreign source income).

This makes the FRFTC  particularly suitable in scenarios where the company does not have the required documentary evidence to attest the amount of tax paid abroad and would, therefore, not qualify for other forms of relief which require this proof.

Likewise, the FRFTC may be beneficial when the company, for tax planning purposes, does not wish to indicate the country of origin of the foreign income  or the company has not paid any tax abroad on its foreign source income, or further still, the company has paid tax abroad but at a rate that is less than 25% of the net income received.

Any company wishing to avail itself of FRFTC must make a claim within two (2) years from the time when all such assessments, adjustment and other determination have been made, whether in Malta or elsewhere, as are material in determining whether any, and if so what, credit falls to be given.

Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.  For bespoke tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com