Serbia-Malta Double Tax Convention

Justine Bielik | 31 Jul 2013

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On 9th September 2009 Malta and Serbia signed the Convention for the Avoidance of Double Taxation with respect to Taxes on Income (L.N. 431 of 2010). This is the first double tax treaty between the two countries, which furnish co-operation in political, economic, and cultural areas. Moreover, soon after Serbia-Malta double tax treaty our relations were supported by the Agreement on the Reciprocal Promotion and Protection of Investments.

Serbia-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 allocates taxing rights in cross-border situations and provides for some definitions, such as a “resident”, a “permanent establishment” or definitions of certain income for treaty purposes. In general, they follow the OECD’s Model. However, the Convention with Serbia extends the definition of a permanent establishment by adding a “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 also waves a traditional time threshold of 12 months for a construction PE and sets it as 9 months. The Convention keeps, abandoned by the OECD Model, the provision on independent personal services, which completes the system of taxation of individuals.

Taxation of Particular Types of Income

In case of dividends, interest and royalties the Convention prescribes shared taxing rights. As a result, withholding tax rates were set as follows. Dividends paid by a Serbia resident to Maltese company being a beneficial owner and holding at least 25% of the payer’s capital carry 5% withholding tax, while in remaining cases the rate is 10%. Interest carries 10% withholding. In case of royalties the rate depends on their type - 5% for copyrights and, in general, media related royalties, and 10% for patents, trademarks, know-how etc. It should be noted that the Convention includes the leasing of industrial, commercial, or scientific equipment into the definition of “royalties” with 10% withholding tax rate. Any potential double taxation is avoided by the credit method.

It is worth noticing that the provision on capital gains applies shared taxing rights in case of shares in so-called property companies – companies which property consists, in this case, directly or indirectly principally of immovable property. In case of alienation of other types of shares the right to tax was granted solely to the state of the residency of the alienator.

Exchange of Information & Anti-avoidance Measures

The Convention regulates exchange of information. This provision is especially important since Serbia has not concluded with Malta any bilateral Agreement on Tax Information Exchange, based on the OECD model (TIEA); moreover, Serbia has not joined the Convention on Mutual Administrative Assistance in Tax Matters and, as a non-EU state, is not bound by EU directives which regulate these matters. 

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