Malta - UAE Double Tax Treaty |
| Written by Franco Falzon — |
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The Maltese government has recently ratified the Malta – UAE double tax treaty by way of Legal Notice 99 of 2009 with retrospective effect as from the 18th of May 2007. The treaty has been generally applicable as from the 1st of January 2008. The Malta – UAE treaty does not impose any withholding tax on certain items of passive income such as dividends interest and royalties. This is to a certain extent compatible with the domestic tax laws of both Contracting States. Accordingly, these types of income are only taxable in the residence state of the recipient and no source taxation is allowed. Dividends, interest or royalties received by a Maltese company from the UAE are only taxable in Malta. The treaty is consistent with the ‘situs’ principle which allows the Contracting State in which the immovable property is situated to tax the income and gains arising from such property. Accordingly, the UAE retains its right to tax any income arising from property situated in that country. Furthermore, the treaty does not restrict the UAE to tax any capital gains on the sales of shares in a company which owns immovable property situated therein. The treaty contains a specific article on hyrdocarbons. Whilst this article represents a major departure from the OECD Model Convention, Article 28 permits the domestic laws of both contracting states to override the application of the treaty with respect to the domestic tax treatment in connection with income and profits from hydrocarbons and its associated activities situated in these contracting States. Applications In view of Malta’s wide participation exemption regime, Malta has the right attributes to act as an intermediate holding location. An intermediate holding company is a special purpose vehicle, generally placed between the State of the investor and the State where the investment is situated to implement certain types of planning strategies and to achieve a high level of tax efficiency. Malta also grants a wide exemption at shareholders’ level on the basis that a capital gain derived on the sale of shares in a Maltese company would be completely exempted from tax unless the Maltese company directly or indirectly holds immovable property situated in Malta. A Maltese holding company may also be a suitable vehicle for UAE outbound investments. Malta’s access to the Parent Subsidiary Directive, the Interest and Royalties directive and Malta’s wide treaty network can create potential opportunities for tax efficient cash repatriation strategies to investments situated in the EU and other Non-EU countries. Moreover, Article 11 of the Protocol to the Convention specifically allows residents of the UAE to claim refunds of tax paid in Malta. In view of Malta’s tax refund system, a Maltese company may also act as a tax efficient vehicle for property management and rental income derived from the UAE. For more information, please contact: Franco Falzon |
| Last Updated on Mon, 21 September 2009 |
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