Morocco-Malta Double Tax Convention

Justine Bielik | 31 Jul 2013

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On 26th October 2001 Malta and Morocco concluded the Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with respect to Taxes on Income. The double tax treaty facilitates rich economic and political relations between our states which were further enhanced by Memorandum of Understanding on Political Consultation signed in 2011. The Morocco-Malta double tax convention is in force by L.N. 189 of 2007.

Morocco-Malta Double Tax Convention 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 a sales outlet, a warehouse and 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. It is also worth noticing that the construction permanent establishment (a building site or an installation) is created in a shorter, 6-month time than the general OECD’s rule of 12 months. The Convention keeps, abandoned by the OECD Model, provision on independent personal services, which completes the system of taxation of individuals.

Taxation of Particular Types of Income

Majority of provisions of the Morocco-Malta double tax treaty allocate taxing rights to both countries. In case of dividends, these paid by Moroccan resident carry withholding tax of 6,5% in case their beneficial owner is a Malta company with at least 25% shareholding threshold, and 10% in remaining cases. What is interesting, Morocco imposes withholding tax on profits distributed by permanent establishments of non-residents, which thanks to the Convention was lowered from 10% to 6.5%. Interest payments and royalties carry 10% withholding tax. The treaty 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 and Belgium). Any potential double taxation will be avoided by the credit method.

It is worth to mention that the Capital Gains provision differentiates the alienation of shares of the company in which assets consist principally of immovable property located in the other state (a property company); sale of such shares may be taxed in both in Malta and in Morocco, while in other cases taxing rights are granted to the state of residency of the alienator.

Exchange of Information & Anti-avoidance Measures

The exchange of information in tax matters is dealt with by the Convention and, moreover, enhanced by the fact that in May 2013 Morocco signed the OECD’s amended 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. What is interesting, the treaty does not contain any provision which would limit its benefits in case of non-remitted income.

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