Malta, strategically located at the crossroads of Europe, Africa, and the Middle East, is an attractive destination for foreign investors seeking to optimize their tax liabilities while benefiting from a stable business environment.
One of Malta’s tax strategies involves Double Taxation Treaties (DTTs), designed to prevent the double taxation of income and facilitate cross-border trade and investment.
In this article, we will discover the advantages they offer to businesses worldwide and potential investors.
Malta’s Extensive Double Taxation Treaties Network
Malta’s commitment to international trade and investment is evident in its network of DTTs, with agreements in place with 70 countries and jurisdictions. These treaties serve to provide clarity and certainty regarding tax obligations for businesses operating across borders, mitigating the risk of double taxation and ensuring a fair and equitable distribution of tax burdens.
You can review the existing double taxation conventions here.
Most importantly, Malta also extends unilateral relief, allowing individuals to deduct foreign taxes from Maltese tax liabilities even in the absence of a Double Taxation Treaty (DTT). This means that regardless of the existence of a DTT, individuals can still offset foreign taxes against their Maltese tax obligations. This is often nicknamed a “Virtual DTT”.
Benefits for Foreign Investors
One of the primary benefits of Malta’s DTTs is the reduction of withholding taxes on dividends, interests, and royalties for non-resident companies engaging in business activities within the country. For instance, under certain conditions, withholding tax on dividends can be as low as 5% for entities from select jurisdictions, compared to the standard rate of 15%. Similarly, royalties derived from research and development activities are exempt from income tax, providing additional incentives for companies engaged in innovation and intellectual property development.
For investors operating through a company, such as a Maltese limited liability company, a DTT often has even more attractive benefits, such as the complete lack of withholding tax for dividends paid by a company in another country to a Maltese company. For instance, a qualifying Maltese company receiving dividends from a Norwegian company – such as is often the case in the shipping world – can apply to Skattetaten for a complete exemption from Norwegian withholding tax. This compares most favourably to the 15 to 35% tax rates otherwise exacted by the Norwegian taxman.
Navigating Taxation Under Double Taxation Treaties
Businesses must understand specific provisions of Malta’s DTTs to optimize their tax positions. For instance, the residency criteria outlined in these treaties define what constitutes a Maltese resident for tax purposes, encompassing both individuals and legal entities incorporated in Malta. The treaties delineate the conditions for tax exemptions and reduced rates, such as the threshold for ownership of capital by residents of certain jurisdictions.
Maltese tax residents who hold shares in US companies or in other jurisdictions with which a DTT exists will need to document what treaty rate exists and communicate it to their broker so that the appropriate reduced rate is applied.
Tax Planning and Advice
Given the complexity of international taxation, seeking expert guidance is essential for businesses navigating Malta’s DTTs. Professional advisors can offer customized tax planning solutions, considering the advantages afforded by these treaties to minimize tax liabilities and maximize returns on investment.
If you have a business and need to make informed decisions that align with your strategic objectives, we suggest you consider expert advice.
Case Studies: UK and US DTTs
Two notable examples of Malta’s DTTs are those signed with the United Kingdom (UK) and the United States (US). The Malta-UK DTT exempts British companies from withholding tax on dividends in Malta and imposes a 10% withholding tax rate on royalties and interests. Meanwhile, the Malta-US DTT limits the taxation of royalties to 10% and expands to gains on immovable property, providing clarity and predictability for businesses engaged in cross-border transactions between the two countries.
Conclusion
Malta’s extensive network of Double Taxation Treaties represents a cornerstone of its tax strategy, offering numerous benefits for businesses engaged in international trade and investment. By providing clarity, certainty, and favourable tax treatment, these treaties enhance Malta’s appeal as a premier destination for foreign investors seeking to optimize their tax positions while capitalizing on the country’s dynamic business environment.
