Malta-Singapore Treaty Enters into Force

The Malta - Singapore double tax treaty signed on 21 March 2006 has entered into force on 29 February 2008. The treaty was implemented into Maltese law by way of Legal Notice 194 of 2008 which forms part of the subsidiary legislation of the Income Tax Act. This is the first time that a double tax treaty has been signed between Malta and Singapore.

The Malta - Singapore Treaty is largely based on the (2005) OECD Model Convention. It provided for reduces withholding tax rates on cross-border payments of interest and royalties. Interest arising Singapore and paid to a resident of Malta is subject to a withholding tax of 7% provided that the recipient of the interest is a bank. A withholding tax of 10% applies if the recipient of the interest is Maltese resident other than a bank. The 10% withholding tax rate also applies for cross-border payments of royalties to Maltese residents.

Although the withholding tax rates contemplated above, apply to cross-border payments to a resident of Singapore, Malta does not levy any withholding tax on outbound payments of interest and royalties. These exemptions are provided under Maltese domestic tax law, subject to certain conditions. Accordingly, any interest and royalties arising on Malta are free from withholding tax if these are paid to residents of Singapore.

The treaty does to stipulate any withholding tax on cross-border dividends. Both Malta and Singapore apply an imputation system for the taxation of dividends. Under the Maltese full imputation system, the corporation tax paid by a company may be credited against the tax payable by the shareholder on the dividend received. This results in no further tax being levied in the hands of the shareholder.

Both Contracting States have obliged themselves in Article 22 of the Treaty to eliminate double taxation by using the credit method.

The provisions of the Malta-Singapore Treaty will apply as from 1^st January 2009.

For further information kindly contact Franco Falzon.