Malta and the Grand Duchy of Luxembourg have a lot in common. They are both the smallest member states of the European Union—Malta is the smallest member state followed by Luxembourg. In order to avoid double taxation as well as prevent fiscal evasion in regards to taxes on capital and income, the two nations signed a Double taxation agreement on the 29th of April 1994. The treaty was signed by the plenipotentiaries of the two countries, Guido de Marco(Former Deputy Prime Minister for Foreigh Affairs) and Jacques F. Poos(Former Deputy Prime Minister of Foreigh Affairs, Foreign Trade and Cooperation). It came into effect in 1996.
What are the provisions of the Ireland-Malta DTA?
It is important to know that the provisions offered by the double taxation treaty between Luxembourg and Malta are generally built on the 2008 OECD Model Tax Convention. Nonetheless, there are a few differences you would find compared to the Model Convention.
From a geographical perspective, the double tax treaty between Malta and Luxembourg applies to Maltese Islands, Gozo included and all the other Islands in the Maltese archipelego.
Malta Tax Regime
- The income tax
Income tax is charged on the gross income earned by an entity from its business activities within Malta
Luxembourg Tax Regime
- The income tax
Income tax is charged on the gross income earned by an entity from its business activities within Luxembourg
- The corporation tax
Businesses resident in Luxembourg will be taxed on trading profits they receive from their activities.
- tax on fees of directors of companies
This tax is charged on director’s fees and respective payments. The tax goes to the country in which the company where the director works is a resident.
- the capital tax
Capital gains tax is applicable on the revenue gained from asset disposal.
- the communal trade tax on profits and capital
The provisions of the double taxation treaty between Luxembourg and Malta will still continue to be relevant even if the two countries introduce new tax regimes. As a general rule, Luxembourgian and Maltese authorities will notify each other each year about any changes that may have transpired in their respective taxation regulations during the year.
7 facts you should know about the Ireland-Malta Double tax treaty
- Profits derived from immovable property should be taxed in the country in which the property is located.
- Income derived from the operation of aircraft, ships, and road transport vehicles shall only be taxed in the respective resident country.
- A company or business shall only be considered a Maltese resident, provided that it’s influential management is located in Malta.
- A business entity can only be considered as a Luxemborgian resident if its business operations are conducted and managed in the territory of the Grand Duchy of Luxembourg.
- If a company is conducting business activities in either Luxembourg or Malta through an agent of independent statuses such as a broker or commission agent—it does not automatically become a permanent establishment in the state in which it is operating. The same applies to an entity which is controlled or controls a resident of either the two countries—it does not automatically become a permanent establishment in the state where it is controlling or in the state from which it is controlled.
- The profits of a Luxembourg or Malta business are only taxable in the respective countries unless the business conducts business operations either of the two countries through a permanent establishment situated therein. The tax charged in the country where the permanent establishment is located should only be limited to the profits acquired from the establishment.
The signing of the Double taxation treaty between Malta and Luxembourg has made doing business easier for companies operating in the two countries. For a deeper and more detailed explanation of the double taxation treaty between Malta and theLuxembourg, feel free to get in touch with SIGTAX Agents. Our expert team of lawyers, accountants and consultants is ready to assist you in each step. Our lawyers can provide you with finer details on the legal aspects pertaining to the double taxation system in Malta so that you don’t skip any necessary steps.