Malta-Ireland Tax Treaty |
| Written by Franco Falzon — Thu, 19 February 2009 |
After tough negotiations, on the 14th of November 2008, Malta has signed its first convention on the avoidance of double taxation with Ireland. The treaty has been ratified by the Contracting States on the 15th of January 2009 which implies that it shall become effective as of the 1st of January 2010. Malta has transposed the treaty into domestic legislation by way of Legal Notice 502 of 2008.GeneralThe provisions of the treaty are generally structured on the 2008 OECD Model Convention however, the text of the treaty contains minor deviations from the Model Convention. The definition of permanent establishment in Article 5 of the treaty has been extended to include offshore activities in connection with the exploration or exploitation of the sea-bed and sub-soil and their natural resources situation in one of the Contracting States.InterestIt is interesting to note that the Malta-Ireland treaty imposes exclusive tax jurisdiction to the residence state of the payee in the case of cross-border payments of interest. This feature which implies a 0% withholding tax in the state of source creates interesting opportunities for financing structures.RoyaltiesThe Malta-Ireland treaty also imposes a low withholding tax on royalties paid to a resident of a Contracting State. The treaty provides for a withholding tax rate of 5% of the gross amount of the royalties paid.DividendsWith regards to dividend payments, the treaty restricts Ireland to withholding a maximum tax of 5% provided that the voting power of the Maltese shareholder in the Irish subsidiary is at least 10%. Furthermore it is worth noting that, the Irish government has recently extended the domestic dividend withholding exemption to qualifying shareholders which are tax resident in an EU Member State or a country which has signed a double tax treaty with Ireland. The treaty and the amendment to the Irish domestic tax rules certainly create interesting opportunities for Malta to be used as holding location particularly on the basis of Maltas wide participation exemption regime and its exemption from dividend withholding tax to non-resident shareholders.Independent ServicesThe treaty contains a specific Article on independent personal services. In general, the provisions contemplate that the professional services of an independent contractor are taxable in the source state provided that the contractor has a fixed base for the purpose of performing his services or is present in that state for a period which exceeds six (6) months in a calendar year. The Article contains a wide and non-exhaustive definition on what is deemed to constitute a professional service.Avoidance of Double TaxationBoth Contracting states have agreed to apply the credit method to relieve that tax levied in the other Contacting State.Other provisionsThe Malta-Ireland Treaty contains the standard OECD provisions on the exchange of information and mutual agreement provisions. It is also interesting to note that the treaty does not contain any limitation of benefits provisions.For more information, kindly contact:Neville Cutajar - Managing Partner: neville.cutajar@3a.com.mt
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| Last Updated on Thu, 30 December 2010 |
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