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Malta’s tax treaty with Russia amended

Deloitte Malta Tax Alert

12 November 2020

In terms of the Double Taxation Relief (Taxes on Income) (Russian Federation) (Amendment) Order, 2020 (Legal Notice 428 of 2020) (the ‘Protocol’), Malta has effectively implemented the revisions to the Convention between the Government of Malta and the Government of the Russian Federation for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes and capital signed on 24 April 2013 (the ‘Malta-Russia Treaty’), as contemplated in an agreement reached between Malta and Russia on 1 October 2020. The changes included in the Protocol shall become applicable from 1 January 2021.

Below is a summary of the key changes introduced by the Protocol:
 

Article 10 - Dividends

Before the coming into force of the Protocol, the Malta-Russia Treaty provided that Russia may tax dividends paid by a company resident in Russia to a company resident in Malta (being the beneficial owner thereof), provided that the tax so charged in Russia shall not exceed: 

a) 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends and this holding amounts to at least €100,000;

b) 10% of the gross amount of the dividends in all other cases.

An exception to these tax rates resulted in an exemption from tax on dividends paid by a company resident in Russia if the beneficial owner of the dividends is a pension fund resident of Malta, provided that such dividends are derived from the investments which are made out of assets of this pension fund.

As of 1 January 2021, Russia shall be allowed to tax dividends paid by a company resident in Russia to a company resident of Malta (being the beneficial owner thereof) up to a maximum of 15% of the gross amount of the dividends.

The new 15% rate shall be reduced to 5% where:

a) the beneficial owner of the dividends is a resident of Malta and is an insurance undertaking or a pension fund; or

b) the beneficial owner of the dividends is a resident of Malta and is a company whose shares are listed on a registered stock exchange, provided that no less than 15% of the voting shares of that company are in free float and which holds directly at least 15% of the capital of the company paying the dividends throughout a 365 day period that includes the day of payment of the dividends;

or

c) the beneficial owner of the dividends is a resident of Malta and is the Government of Malta or a political subdivision or a local authority thereof; or

d) the beneficial owner of the dividends is a resident of Malta is the Central Bank of Malta.

Article 11 - Interest

Similarly, before the coming into force of the Protocol, the Malta-Russia Treaty provided that Russia may tax interest arising in Russia and paid to a resident of Malta (being the beneficial owner thereof), provided that the tax so charged in Russia shall not exceed 5% of the gross amount of the interest.

As of 1 January 2021, Russia shall be allowed to tax interest arising in Russia and paid to a resident of Malta (being the beneficial owner thereof) up to a maximum of 15% of the gross amount of the interest.

The new 15% rate shall be reduced to 5% where

a) the beneficial owner is:

i. an insurance undertaking or a pension fund; or

ii. the Government of Malta or a political subdivision or a local authority thereof;

or

iii. the Central Bank of Malta; or

iv. a bank; or

v. a company whose shares are listed on a registered stock exchange, provided that no less 15% of voting shares of that company are in free float and which holds directly at least 15% of the capital of the company paying the interest throughout a 365 day period that includes the day of payment of the interest;

or

b) the interest is paid in respect of the following securities listed on a registered stock exchange:

i. government bonds;

ii. corporate bonds;

iii. Euro-bonds.

Article 25 – Exchange of information

Furthermore, the Protocol amended the article regulating the exchange of information in the Malta-Russia Treaty by providing that information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both Contracting States and the competent authority of the supplying Contracting State authorises such use.

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