Malta – Belgium Protocol Signed

Overview of the Treaty

The Malta-Belgium Double Tax Agreement which is modelled on the OECD Model Convention provides for a reduction of withholding tax to 15% on dividends paid from a company resident in Belgium to a resident of Malta. The effect of this provision has been reduced significantly due to Malta’s accession to the European Union in 2004 and thus the application of the Parent-Subsidiary Directive. Article 11 of the treaty reduces withholding tax on cross-border payments of interest to 10%. Again, in many cases this provision is superseded by the application of the Interest and Royalties Directive which provides for an exemption from withholding tax on cross-border payments of interest. Finally, Article 12 of the treaty exempts from withholding tax any royalties arising in one of the Contracting States and paid to a resident of the other Contracting State. It is to be noted that by virtue of its domestic law, Malta does not levy any withholding tax on dividends, interest and royalties paid to non-resident persons. It is expected that further exemptions on royalties sourced in Malta will come into force later this year.

The amendment of the original treaty in 2003 extended the scope of Article 16 to include a person who may not be referred to as a director but, who has functions of a similar nature as those performed by a director. In such case, the Residence State of the Company which has engaged such person maintains exclusive rights to tax any fees or similar payments made to such person.  Furthermore, the treaty allows the taxation in the Residence State of the Company on remuneration derived by a director or person who is resident in the Other Contracting State and has similar functions as those of a director but such remuneration is paid in respect of his day-to-day managerial or technical duties. Article 16 also allows the taxation on the remuneration of a partner in the Residence State of the Company which is derived from his personal activity as a partner of that company, when such person is resident in the Other Contracting State and such Company is a Company other than a Company with share capital. The taxing rights must be exercised in conjunction with the conditions stipulated under Article 15 of the Treaty.

Details of the Protocol

The protocol revamps Article 26 of the original treaty on exchange of information to bring it in line with Article 26 of the 2008 OECD Model Convention. Article 26 which seeks to strengthen the measures by which Contracting States may exchange of information to prevent fiscal evasion, now permits the Contracting States to request information from each other, even if the Contracting States do not have any domestic interest in such information and may not need such information for their own domestic tax purposes.

Furthermore, Contracting States may oblige each other to supply information even if such information is held in confidentiality with private institutions including, banks, other financial institutions, trusts, fiduciaries, nominees or persons acting in an agency or fiduciary capacity.  

For more information, kindly contact:

Neville Cutajar - Managing Partner: neville.cutajar@3a.com.mt