07Nov

Malta – Mexico Tax Treaty – Now In Force

7 November 2015 Acumum Legal & Advisory 11

Malta – Mexico Tax Treaty In Force

9th August 2014

The Malta-Mexico double tax treat provides for double taxation relief in relation to:

Mexico’s federal income tax and the business flat rate tax; and
Malta income tax.

The main features of this treaty are as follows:

Dividends – 0% withholding tax.
Interest arising in one Contracting States and paid to a resident of the other may be taxed in that other state and may also be taxed in the Contracting State in accordance with the laws of that State.

If the beneficial owner of the interest is a resident of the other Contracting State, the tax charged shall not exceed:

5% of the gross amount of the interest from loans granted by a bank;
10% of the gross amount of the interest in all other cases.

Royalties – the same rules apply as for interest, however if the beneficial owner of the interest is a resident of the other Contracting State, the tax charged shall not exceed: 10% gross of the royalties.

The Malta – Mexico double tax treaty with Mexico, following the Malta – Uruguay double tax treaty, signals Malta’s intention to strengthen economic relations with Latin American Countries, with the aim of concluding other similar agreements with countries of the same region.

About Acumum – Legal & Advisory

Acumum Legal & Advisory is a well-established set of multidisciplinary legal, tax and accounting firms located and managed in the tax efficient EU jurisdiction of Malta. It operates as a full service law firm with services including aviation, corporate formation, accounting, estate & wealth planning, taxation, intellectual property and more. The firm is overseen by Geraldine Noel, a British barrister – registered in Malta, working alongside an expert team of lawyers and accountants with extensive specialist commercial and private client expertise, particularly to an individual, corporate and family office clientele.

07Nov

RUSSIA – MALTA TAX TREATY

7 November 2015 Acumum Legal & Advisory 10

Malta-Russia Tax Treaty

It is expected that the new tax treaty will be in force much quicker then its predecessor.

Following the Cyprus crises, Malta has remained a tax compliant and tax efficient jurisdiction for legitimate businesses.

Fitch has recently confirmed that Malta’s banking system is stable: Fitch Report: Malta Bank’s Stable – with the World Economic Forum stating that Malta is 13th in respect of sound banking systems – globally.

Added to which, French President Francois Hollande’s has recently endorsed the legitimacy and integrity of Malta’s banking sector, stating that Malta is ‘not a tax haven’ – but a legitimate low tax EU jurisdiction.

The terms of the Russian – Malta tax treaty allows for the following benefits:

5% for interest and royalties
5 to 10% on dividends
Business profits to be taxed at normal state tax

Malta, unlike the other contenders, provides unique tax benefits, which international groups with interests in Russia will be able to fully explore when the treaty becomes law in both countries.

Namely:

Malta allows for an effective 5% rate of corporation tax on business income
Companies, which are resident but not domiciled in Malta are taxed on the remittance basis of taxation

The Malta-Russia tax treaty provides generous exemptions for royalties and a quasi-full exemption from tax on foreign dividends. The absence of CFCs, little TP regulation and access to the EU tax directives also help. These combined factors make Malta an ideal jurisdiction to locate a group holding company, as well as a financing or an IPR holding SPV.

More importantly, Malta allows for the continuation of non-Maltese companies, for example a BVI holding entity subject to various restrictions can easily re-domicile (migrate) to Malta without losing its corporate personality.

Notably, on becoming Malta-resident the company can achieve a tax-free step-up in the base cost of its assets effectively avoiding tax on future disposals.

To see the text of the Russia – Malta Tax Treaty please go here.

07Jan

USA – Malta Tax Treaty

7 January 2011 Acumum Legal & Advisory 18

USA – Malta Tax Treaty: In Force – 1st January 2011

The Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income between the USA and Malta (‘Tax Treaty’) was signed by both countries in August 2008. Instruments of ratification were exchanged on 23 November 2010, following which it came into force on 1st January, 2011.

To read the Tax Treaty, please go here

Mainly based on the Organisation for Economic Cooperation and Development (‘OECD’) Model Tax Convention and the US Model Treaty, the Tax Treaty is intended to eliminate barriers to cross border trade and investment while preventing tax avoidance.

It is designed to ensure that US and Maltese citizens are taxed only once on their profits and income, and to limit withholding payments on dividends, royalties and other unearned income.

With respect to active income, generally in line with the OECD model articles, the US and Maltese authorities shall not tax business profits derived from sources within their countries by residents of the other country unless business activities by the foreign person or business constitute a permanent establishment. Furthermore, residents of one country providing services in the other also are not subject to tax in that country as long as their activities do not exceed specific minimums.

With respect to passive income, the Double Tax Agreement contains provisions dealing with reduced source-country withholding tax on dividend, interest, and royalty payments:

Cross-Border Dividend Payments: dividends paid by a resident of the United States which are beneficially owned by a resident of Malta are subject to source country taxation at a maximum rate of 15%. However, where the beneficial owner of the dividend directly owns 10% or more of the voting power of the payor, such rate is reduced to 5%. With respect to dividends paid by a resident of Malta which are beneficially owned by a resident of the United States, the tax charged by Malta on the gross amount of the dividends shall not exceed that Malta tax chargeable on the profits out of which the dividends are paid (there is generally no withholding tax on Malta-source dividends as a matter of Maltese domestic law). Furthermore, dividends paid by a resident of one Contracting State which are beneficially owned by a pension fund that is a resident of the other Contracting State are exempt from source country taxation, so long as such dividends are not derived from a trade or business carried on by the pension fund or through an associated enterprise.
Cross-Border Interest Payments: under the USA – Malta Tax Treaty, interest paid by a resident of one Contracting State which is beneficially owned by a resident of the other cntracting State is generally subject to source country taxation at a maximum rate of 10%. However, interest arising in the United States that is contingent interest which does not qualify as “portfolio interest” for U.S. federal income tax purposes may be subject to U.S. tax at a rate of 15%. In addition, interest that is an excess inclusion with respect to a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) may be taxed by each Contracting State in accordance with its domestic law.
Cross-Border Royalty payments: the USA – Malta Tax Treaty limits the source country taxation of royalties arising in one Contracting State which are beneficially owned by a resident of the other Contracting State to 10%. The royalty concept extends to gains on alienation of qualifying intangible property to the extent that “such gain is contingent on the productivity, use or disposition of the property”.

Under the USA – Malta Tax Treaty, pensions and similar payments are generally taxable only in the residence state. Furthermore, the residence country generally has exclusive entitlement to tax gains on alienation of property. However, special rules apply in the case of for instance, transfers of immovable property, business property of a Permanent Establishment, containers or ships or aircraft used in international traffic.

For a company to qualify for treaty benefits, it must satisfy one of the Limitation of Benefit article tests, including a publicly traded test, an active trade or business test and an ownership and base erosion test.

The Double Tax Agreement also includes comprehensive and far reaching provisions allowing for full exchange of information between the US and Maltese revenue authorities.