Lebanon-Malta Double Tax Treaty

Justine Bielik | 18 Jun 2013

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On 23th February 1999 Malta and the Republic of Lebanon concluded the Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with respect to Taxes on Income. This was the first legal toll regulating taxation matters between the two countries, which furnish long-lasting co-operation in political, economic, and cultural relations, established in 1975. In April 2009 the treaty was amended by introducing some minor wording correction. The treaty is in force by L.N. 119 of 2000 and the Protocol – L.N. 242 of 2010.

Lebanon-Malta Treaty Definitions

Bilateral double tax treaties regulate tax matters between the parties and, as a result, furnish economic co-operation and exchange. To facilitate this objective, the Convention provides for some definitions, like a “resident”, a “permanent establishment” or definitions of certain income for treaty purposes. In general, they follow the OECD’s Model.  However, it extends the definition of a permanent establishment for so-called “service PE”, which arises when furnishing of services in the other state continues for a period or periods aggregating more than 6 months within any 12-month period. The Convention keeps, abandoned by the OECD Model, provision on independent personal services, which completes the system of taxation of individuals.

2. Taxation of Particular Types of Income

Majority of provisions allocate taxing rights to both countries. In case of dividends Lebanese withholding tax rate is 5% but in case of Malta is limited by tax chargeable on underlying profits.  In case of taxation of royalties, withholding tax rate is 5%. The Convention includes the leasing of industrial, commercial, or scientific equipment into the term “royalties”, although the OECD suggested that income generated on such transactions is not of a “royalty” nature and therefore should fall under business income. Nevertheless, many Maltese double tax treaties still apply the old approach (e.g. with Syria, Poland, Singapore, Belgium). Taxation of interest payments was granted exclusively to the residency state of the recipient, so no withholding tax emerges.  Any potential double taxation will be avoided by the credit method.

It is worth to mention that the Capital Gains provision does not differentiate the alienation of shares forming substantial interest in the capital of a company from any ordinary alienation of shares. As a result, in any case of such alienation of shares capital gains will be taxed solely in the state where the alienator is a resident.

3. Treaty Exchange of Information & Anti-Avoidance

The Convention regulates an exchange of information, however within a limited scope (e.g. the provision does not include the extension which excludes bank secrecy).  This provision is especially important since Lebanon has not concluded with Malta any bilateral Agreement on Tax Information Exchange, based on the OECD model (TIEA); moreover, Lebanon has not joined the Convention on Mutual Administrative Assistance in Tax Matters.  

Despite the latest trends and developments in the field of tracking tax evasion and tax avoidance, the treaty does not contain limitation of benefits clause, even of a general character.

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