Malta: The new Malta-Ukraine and Malta-Russia double tax agreements

Donald Vella

Malta has recently signed double tax agreements (DTAs) with Russia and Ukraine. Entry into force of both DTAs is subject to internal ratification procedures of each country being completed.

The Malta and Ukraine DTA is the first agreement of its kind between the two countries.

This DTA allows a withholding tax on dividends to be levied at source, which however cannot exceed the following rates:

• 5% on dividends paid to a company (other than a partnership) that holds directly at least 20% of the capital of the distributing company; and

• 15% in all other cases.

In the case of interest and royalty income, withholding tax may generally be levied at source at a rate capped at 10%. The term royalty in the Malta-Ukraine DTA does not cover payments for the use of, or the right to use, industrial, commercial or scientific equipment, such as operating lease payments.

Malta also signed a DTA with Russia in 2013, which is generally in line with the model tax treaty adopted by Russia in 2010.

This DTA provides for a withholding tax in Russia of 10% on dividends distributed by a company resident in Russia to a company resident in Malta, where the latter holds at least 25% of the share capital of the company resident in Russia and such holding amounts to at least €100,000 ($135,000). In all other cases, Russia may levy a withholding tax on dividend income of 10%, with the exception that dividends will not be taxed in Russia if the beneficial owner is a pension fund that is resident in Malta.

In the case of interest and royalty income, withholding tax in Russia may generally be levied at source at a rate capped at 5% of the gross amount of interest or royalties.

From a Maltese perspective, subject to the satisfaction of certain statutory conditions, no withholding tax will be imposed in Malta on dividends paid to Ukrainian or Russian residents. Also, no withholding tax is levied in Malta upon the payment of interest and royalties, with one of the fundamental conditions to be satisfied in this context being that the relevant income should not be effectively connected with a permanent establishment through which the non-resident carries on business in Malta.

With regard to capital gains, both DTAs provide that the source state may tax gains derived by a resident of the other state from the transfer of shares or other rights deriving more than 50% of their value, directly or indirectly, from immovable property situated in the source state.

Both DTAs contain a general limitation of benefits clause which disallows benefits to residents of a contracting state if the main purpose of such resident is to obtain benefits.

Donald Vella (donald.vella@camilleripreziosi.com)

Camilleri Preziosi

Tel: +356 21238989

Fax: +356 21223048

Website: www.camilleripreziosi.com