What Is A Tax Treaty?
Tax treaties protect taxpayers from getting taxed twice when money passes between countries. The Malta Tax Treaty is important to be aware of, for people with investments outside of the country. They protect investors when they bring their money into Malta. They also apply if you build up some investments in Malta during your stay, and intend to leave them there after you have left. There is a network of tax treaties in force with over 60 countries worldwide.
What Is In a Tax Treaty?
Tax treaties usually conform with the OECD Model Treaty. They almost always state how various forms of income get taxed. They state which incomes get taxed in-country, only in your home country, and in both countries. It may state what rate of tax is applicable based on other factors. It will contain a definition of residence for its own purposes. This definition is not the same thing as a tax-residence in tax law.
The incomes covered by the Malta tax treaty can include, but are not limited to:
- income from property
- business income
- capital gain
- employment income, wage, or salary
- directors fees
- sports and entertainment income
- state pensions, private pensions, alimony and child support
- education money for full-time students
- teaching income
Recognize that tax treaties operate on money flow into and out of the applicable countries. You will not have to pay withholding tax on income from dividends. Royalties and interest earned get paid to residents and non-residents alike. The treaties usually restrict the withholding tax the countries can charge. Generally between 10% – 15% when it comes to dividends and interest. And 5% – 10% with royalties. If you wish to understand the rules and rates, you must read the treaty. The sections on dividends, interest, and royalties are usually found half way through the document. Near the end of the treaty you’ll find sections dealing with income from artistic or sporting activities. Followed by this is the treatment of students and teachers.
How Do I Make The Most Of the Malta Tax Treaty?
There is usually a section on pensions, as well. Before you arrive in Malta, you might be able to rearrange your investments so that you’re at the greatest possible advantage. Reading the treaty will help to do this. You may need to move investments from one non-Maltese country to one with a better treaty. In this way you can reduce the taxes paid. If your home country has a higher tax rate, you can benefit from becoming a local tax resident. There is a Global Residence Scheme for people with a high net worth. It allows early residence, and it offers a lower income tax. When at the end of your residency, you may arrange your affairs to ensure you continue to reap the lowest tax rates from any income earned in investments or employment.