On July 15, 2016 the Government of the Republic of Malta and the Government of the Socialist Republic of Viet Nam signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the DTA). The text of the DTA has been made available via the website of the Malta Financial Services Authority.

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 Agreement shall apply are in particular:

(a)   in Viet Nam:

(i)    the personal income tax; and

(ii)   the business income tax;

(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 Agreement 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" likewise encompasses:

(a)   a building site, construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months;

(b)   the furnishing of services, including consultancy services, by an enterprise through 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) within a Contracting State for a period or periods aggregating more than six months within any twelve-month period; and

(c)   a person conducting in a Contracting State activities (including offshore activities) which relate to the exploration for and exploitation of natural resources located in that Contracting State shall be considered as carrying on business through a permanent establishment in that Contracting State.

 

Article 5, Paragraph 5 subsequently arranges that notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person:

(a)   has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or

(b)   has no such authority, but habitually maintains in the firstmentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.

 

With respect to business profits to be attributed to a permanent establishments we feel that also Article 7 of the DTA (“BUSINESS PROFITS”) contains a few interesting paragraphs.

 

Article 7, Pargaraph 1

The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to:

(a)   that permanent establishment;

(b)   sales in that other Contracting State of goods or merchandise of the same or similar kind as those sold through that permanent establishment. It is understood that the profits of an enterprise shall include profits attributable to sales of goods and merchandise referred to in this subparagraph only when the competent authority of the Contracting State in which a permanent establishment of the enterprise is situated considers that the enterprise has entered into an arrangement in relation to the sales of those goods or merchandise to avoid taxation of those profits in that Contracting State.

 

Article 7, Paragraph 3

In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of banking enterprise by way of interest on moneys lent to the head office of the enterprise or any of its other offices.

 

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 14, Paragraph 1 of the DTA (“GAINS FROM THE ALIENATION OF PROPERTY”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of the DTA and situated in the other Contracting State may be taxed in that other State.

 

Article 14, Paragraph 4 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares of the capital stock of a company, or of an interest in a partnership, trust or estate 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 Viet Nam to a resident of Malta:

(i)    5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 50 per cent of the voting power in the company paying the dividends; and

(ii)  15 per cent of the gross amount of the dividends in all other cases;

(b)   where the dividends are paid by a company which is a resident of Malta to a resident of Viet Nam 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 10 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:

(a)   5 per cent of the gross amount of the royalties if they are paid as consideration for the use of, or the right to use, any patent, design or model, plan, secret formula or process, or for information concerning industrial or scientific experience;

(b)   10 per cent of the gross amount of the royalties if they are paid as consideration for the use of, or the right to use, a trade mark or for information concerning commercial experience;

(c)   15 per cent of the gross amount of the royalties in all other cases.

 

Technical fees

The DTA also contains an article applying to technical fees (Article 13).

 

Article 13, Paragraph 3 of the DTA (“TECHNICAL FEES”) arranges that the term "technical fees" as used in Article 13 of the DTA means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature.

 

If the beneficial owner of the technical fees  is a resident of the other Contracting Party, Article 13, Paragraph 2 of the DTA maximizes the withholding tax a Source State is allowed to withhold over such technical fees to 7.5 per cent of the gross amounts of the technical fees.

 

Alienation of property

Another interesting paragraph is Article 14, Paragraph 5 of the DTA (“GAINS FROM THE ALIENATION OF PROPERTY”) which arranges that gains from the alienation of shares other than those mentioned in Article 14, Paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State if the alienator, at any time during the twelve month period preceding such alienation, held directly or indirectly at least 15 per cent of the capital of that company.

 

Other

Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 25) and regarding the Exchange of Information (Article 26).

 

Click here to download the text of the DTA from the website of the Malta Financial Services Authority (The document is a downloadable Pdf document).

 

Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.

 

 

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