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Tax Treaty Considerations for Expats in Malta

Submitted: April 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Malta, and intend bring money earned from them into Malta during your stay. They also apply if you build up some investments in Malta during your stay, and intend to leave them there after you have left Malta. Malta has a network of tax treaties in force with over 60 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in Malta, only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

Malta does not charge withholding tax on income from dividends, royalties or interest arising in Malta and paid to residents or non-residents.

Malta’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Malta residents to between 10% and 15% on dividends and interest, and on royalties to between 5% and 10%.

For the complete rules and rates, it is necessary to read the treaty itself. A link to each Malta treaty in force can be found here. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document. Towards the end of the tax treaty are sections dealing with income from artistic or sporting activities, followed by the treatment of students and teachers. There is also usually a section of the treatment of pensions.

Prior to arriving in Malta, you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Maltese country to one with a more favourable tax treaty, or even to Malta itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Malta, you may benefit by becoming tax-resident in Malta as early as possible. Malta offers a Global Residence Scheme for high net worth individuals which allows early residence to be achieved, and offers special low rate of income tax, a guide to this programme can be found here. At the end of your stay in Malta, you can also rearrange your affairs to ensure that any ongoing income from Malta employment or investments is also taxed at the lowest rate possible in the future.

 

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