On April 29, 2016 the Government of the Republic of Malta and the Government of the Republic of Azerbaijan signed a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the DTA).
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”), the existing taxes to which the DTA shall apply are in particular:
(a) in the Republic of Azerbaijan:
(i) the tax on income of physical persons; and
(ii) the tax on profit of legal persons
(b) in Malta:
the income tax
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that the term "permanent establishment" shall also be deemed to include:
(a) a building site, a construction or installation project, or supervisory activities in connection therewith, but only if such site, project or activities continue for more than 12 (twelve) months;
(b) the furnishing of services, including consultancy services, by an enterprise through its employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) for a period or periods aggregating more than 6 (six) months within any 12 (twelve) month period.
Article 5, Paragraph 6 subsequently arranges that notwithstanding the preceding provisions of Article 5, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom Article 5, Paragraph 7 applies.
Immovable property
Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the DTA subsequently arranges that Gains derived by a resident of a Contracting State from the alienation of shares or other corporate rights deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
Article 10, Paragraph 2 of the DTA (“DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividends to:
(a) where the dividends are paid by a company which is a resident of Azerbaijan to a resident of Malta who is the beneficial owner thereof, the tax so charged in Azerbaijan shall not exceed 8 per cent of the gross amount of the dividends;
(b) where the dividends are paid by a company which is a resident of Malta to a resident of Azerbaijan who is the beneficial owner thereof, Malta tax on the gross amount of the dividends shall not exceed that chargeable on the profits out of which the dividends are paid.
Interest
If the beneficial owner of the interest is a resident of the other Contracting Party, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 8 per cent of the gross amount of the interest.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting Party, Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to 8 per cent of the gross amount of royalties.
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 24) and regarding the Exchange of Information (Article 25).
Click here to be forwarded to the text of the DTA as available on the website of the Maltese Government.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
Copyright – internationaltaxplaza.info
and
Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!
