The Double Taxation Relief (Taxes on Income) (Malta) Order 1995

Made: 15th March 1995

At the Court at Buckingham Palace, the 15th day of March 1995 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Malta) Order 1995.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of Malta with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Malta;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Malta concerning taxes covered by the arrangements; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND MALTA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Malta;

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

CHAPTER I — SCOPE OF THE CONVENTION

ARTICLE 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2 — Taxes covered

CHAPTER II — DEFINITIONS

ARTICLE 3 — General definitions

ARTICLE 4 — Resident

ARTICLE 5 — Permanent establishment

CHAPTER III — TAXATION OF INCOME

ARTICLE 6 — Income from immovable property

ARTICLE 7 — Business profits

ARTICLE 8 — Shipping and air transport

ARTICLE 9 — Associated enterprises

ARTICLE 10 — Dividends

ARTICLE 11 — Interest

ARTICLE 12 — Royalties

ARTICLE 13 — Alienation of property

ARTICLE 14 — Independent personal services

ARTICLE 15 — Dependent personal services

ARTICLE 16 — Directors' fees

Directors' fees and other similar payments derived by a resident of one of the Contracting States in his capacity as a member of the board of directors, or other comparable body however described, of a company which is a resident of the other Contracting State may be taxed in that other State.

ARTICLE 17 — Artistes and sportsmen

ARTICLE 18 — Pensions

ARTICLE 19 — Government service

ARTICLE 20 — Students and trainees

An individual who is or was a resident of a Contracting State immediately before making a visit to the other Contracting State and is present in the other State solely:

• (a) as a student at a recognised university, college, school or other similar recognised educational institution in that other State; or

• (b) as a business or technical apprentice; or

• (c) as a recipient of a grant, allowance or award for the primary purpose of study, research or training from the Government of either State or from a scientific, educational, religious, or charitable organisation or under a technical assistance programme entered into by the Government of either State;

shall be exempt from tax in that other State on:

• (i) all remittances from abroad for the purposes of his maintenance, education, study, research or training; and

• (ii) the amount of such grant, allowance or award.

ARTICLE 21 — Other income

CHAPTER IV — ELIMINATION OF DOUBLE TAXATION

ARTICLE 22 — Elimination of double taxation

ARTICLE 23 — Limitation of relief

ARTICLE 24 — Partnerships

CHAPTER V — SPECIAL PROVISIONS

ARTICLE 25 — Non–discrimination

ARTICLE 26 — Mutual agreement procedure

ARTICLE 27 — Exchange of information

ARTICLE 28 — Diplomatic and Consular Officials

Nothing in this Convention shall affect the fiscal privileges of diplomatic agents or consular officials under the general rules of international law or under the provisions of special agreements.

ARTICLE 29 — Entry into force

ARTICLE 30 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year. In such event, the Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in Malta:

• in respect of income tax, for any year of assessment beginning on or after the first day of January in the calendar year next following that in which the notice is given.

In witness whereof the undersigned, being duly authorised thereto by their respective Governments, have signed this Convention.

Done at London this 12th day of May 1994 in the English language.

PART II — EXCHANGE OF NOTES

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland that:

• (a) with reference to Articles 7 and 9, it is understood that nothing contained therein shall affect the application of any law of a Contracting State relating to the determination of the tax liability of a person, including the determination of such liability by the exercise of discretion or the making of an estimate by the competent authority of that State in cases in which, from the information available to the competent authority of that State, it is not possible or practicable to ascertain the profits to be attributed to a permanent establishment, provided that that law shall be applied, so far as the information available to the competent authority permits, consistently with the principles of the said two Articles;

• (b) with reference to paragraph (9) of Article 11, it is understood that the relevant institution, agency or instrumentality shall in the case of the United Kingdom be the Export Credits Guarantee Department and shall in the case of Malta be the Export Credit Guarantee Company Ltd;

• (c) with reference to paragraph 6 of Article 22, it is understood that at the request of one competent authority both Contracting States shall enter into discussions about extending the period referred to in paragraph (5) at any time so that, in the event of an agreement to extend that period being reached, there should be no discontinuity in the application of the Article.

• (d) with reference to paragraph (2) of Article 23, the provisions of this Convention shall not apply:

• (i) to persons who are entitled to a special tax benefit under the Malta International Business Activities Act 1988 except for those persons who opt under Section 41 of the said Act to be subject to the normal provisions of the Income Tax Act (Cap 123); or

• (ii) to persons who and to the extent to which under the provisions of the Merchant Shipping Act 1973 are not subject to tax on the profits derived from the operation of ships in international traffic; or

• (iii) to persons entitled to any special tax benefit in respect of distributions by a trust subject to the provisions of the Offshore Trusts Act 1988 given that a trust as laid down in that Act is not vested with legal personality and therefore cannot benefit under the Convention in its own right; or

• (iv) to persons entitled to any special tax benefit under any substantially similar law subsequently enacted and which is agreed by the competent authorities of the Contracting States as included within the terms of paragraph (2) of Article 23 of this Convention.

If the foregoing proposals are acceptable to the Government of Malta, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as the entry into force of this Convention.

I have the honour to acknowledge receipt of Your Excellency’s Note of today which reads as follows:

I have the honour to refer to the Convention between of the United Kingdom of Great Britain and Northern Ireland and the Government of Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland that: (a) with reference to Articles 7 and 9, it is understood that nothing contained therein shall affect the application of any law of a Contracting State relating to the determination of the tax liability of a person, including the determination of such liability by the exercise of discretion or the making of an estimate by the competent authority of that State in cases in which, from the information available to the competent authority of that State, it is not possible or practicable to ascertain the profits to be attributed to a permanent establishment, provided that that law shall be applied, so far as the information available to the competent authority permits, consistently with the principles of the said two Articles; (b) with reference to paragraph (9) of Article 11, it is understood that the relevant institution, agency or instrumentality shall in the case of the United Kingdom be the Export Credits Guarantee Department and shall in the case of Malta be the Export Credit Guarantee Company Ltd; (c) with reference to paragraph 6 of Article 22, it is understood that at the request of one competent authority both Contracting States shall enter into discussions about extending the period referred to in paragraph (5) at any time so that, in the event of an agreement to extend that period being reached, there should be no discontinuity in the application of the Article. (d) with reference to paragraph (2) of Article 23, the provisions of this Convention shall not apply: (i) to persons who are entitled to a special tax benefit under the Malta International Business Activities Act 1988 except for those persons who opt under Section 41 of the said Act to be subject to the normal provisions of the Income Tax Act (Cap 123); or (ii) to persons who and to the extent to which under the provisions of the Merchant Shipping Act 1973 are not subject to tax on the profits derived from the operation of ships in international traffic; or (iii) to persons entitled to any special tax benefit in respect of distributions by a trust subject to the provisions of the Offshore Trusts Act 1988 given that a trust as laid down in that Act is not vested with legal personality and therefore cannot benefit under the Convention in its own right; or (iv) to persons entitled to any special tax benefit under any substantially similar law subsequently enacted and which is agreed by the competent authorities of the Contracting States as included within the terms of paragraph (2) of Article 23 of this Convention. If the foregoing proposals are acceptable to the Government of Malta, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as the entry into force of this Convention.

The foregoing proposals being acceptable to the Government of Malta, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

Signed

N. H. Nicholls — Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Malta is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property and gains derived from the alienation of such property may be taxed in the country in which the property is situated (Articles 6 and 13).

Air transport and shipping profits are to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The Convention provides that where a United Kingdom company pays a dividend to an individual resident in Malta, the recipient will, subject to certain conditions, receive the tax credit to which an individual resident in the United Kingdom and in receipt of such a dividend would be entitled, less tax at a rate not exceeding 15 per cent on the aggregate of the dividend and the tax credit. In the case of a dividend paid by a Maltese company to a resident of the United Kingdom, the tax charged in Malta is not to exceed that chargeable on the profits out of which the dividends are paid (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 10 per cent of the gross amount flowing to the other country. Certain categories of interest (eg interest payable to the Government of the other country) will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the source country on royalties is limited to 10 per cent where the beneficial owner is a resident of the other country and is subject to tax in the country of residence in respect of those royalties (Article 12).

Gains arising from the alienation of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the alienation of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, only to be taxed in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are performed (Article 17). Occupational pensions (other than those paid in respect of Government service) and annuities are to be taxed only in the recipient’s country of residence (Article 18). Government service remuneration and pensions are normally to be taxed only by the paying Government (Article 19). Certain payments made to visiting students and business or technical apprentices are exempt from tax in the country visited (Article 20). Other income (with the exception of income from trusts and estates of deceased persons under administration) not specified in the Convention remain taxable only in the recipient’s country of residence (Article 21).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in Malta includes credit for tax spared under certain provisions of Maltese law. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Malta where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 22).

The Convention is not to apply to persons entitled to certain special tax benefits under Maltese law (Article 23 and Exchange of Notes).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), and for consultation (Article 26) and exchanges of information (Article 27) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).