The Netherlands-Malta Double Tax Agreement

Justine Bielik | 24 Jul 2013

The NetherlandsMalta Double Tax Agreement

On 18th May 1977, Malta and the Netherlands signed the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. The treaty came into force by Legal Notice 90 of 1980 and was subsequently amended by the Protocol in 1995. Moreover, relations between our states are facilitated by the convention on automatic exchange of information regarding interest payments in respect of the Netherlands Antilles (in force since 1st July 2005).

The Netherlands-Malta Double Tax Agreement 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 Agreement 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, it should be noted that the Netherlands and Malta agreed on that SICAVs are not the treaty beneficiaries and as a result distributions made to such entities cannot benefit from preferential tax rates (Mutual Agreement of 18th July 1995). The Agreement 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 allocate taxing rights to both countries. In case of dividends paid from Dutch company withholding tax rate is 5% in case of company shareholding threshold of at least 25% and 15% in remaining cases. In case of taxation of interest withholding tax rate is 10%. Taxation of royalties depends on their type: payments received in respect of copyrights are taxed solely in the state of the resident, while royalties received in respect of e.g. know-how, patents or leasing of equipment may carry 10% withholding tax. It is worth to mention that the capital gains provision does not differentiate the alienation of shares in a property 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; however the treaty benefits are limited in this case by 5 years residency time threshold – if an individual was for the 5 years preceding the sale of the shares a resident of the same state where the company is a resident then shared taxing rights apply. In any case, any potential double taxation will be avoided by the credit method.

Exchange of Information & Anti-avoidance Measures

The Agreement regulates exchange of information. This procedure is supported by the OECD’s Mutual Administrative Assistance in Tax Matters which was signed by, both, Malta and the Netherlands and enters into force September 2013. 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. On the other hand, the treaty applies “remittance-base clause” which limits treaty reliefs to the amount of income actually remitted.

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