Russia-Malta Double Taxation Agreement

Justine Bielik | 01 Jun 2013

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On 26th April Malta and Russia signed Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Although both countries already have a long history of bilateral agreements (e.g. regarding trade matters) this is their first double tax convention. The Minister of Foreign Affairs, Dr George Vella underlined that this agreement reflected the commitment to attract foreign direct investment to Malta and facilitate and enhance further trade and investment in the signatory countries to the economic benefit of both parties. The Convention is now waiting for ratification.

The objective of double tax agreements is to structure the relation between two countries regarding taxation, and, in consequence, to facilitate economic co-operation and exchange. There are already more than 250 companies with Russian shareholding in Malta and the intensity of investments is supposed to be growing.

The Convention defines a resident, a permanent establishment and allocates taxing rights for, i.a. business profits, dividends, interest, royalties and employment income. In general, provisions follow the OECD’s Model with very few alterations; among others, a permanent establishment’s definition encompasses also so-called “service PE”, which constitutes permanent establishment and therefore triggers taxation of business income in case of providing of services is the other country. Majority of provisions allocate taxing rights to both countries, stipulating withholding tax rates in case of dividends, interest and royalties between 5 and 10%, and potential double taxation will be avoided by the credit method. Moreover, the Convention regulates an exchange of information, which importance is strengthen by the fact that Russia has not concluded any bilateral Agreement on Tax Information Exchange, based on the OECD model (TIEA); however, in 2011 it joined OECD’s Convention on Mutual Assistance in Tax Matters and so did Malta in 2012.     

Following the latest trends and developments in the field of tracking tax evasion and tax avoidance, it contains limitation of benefits clause, however of a general character.

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