Tax Agreement Signed between Hong Kong and Malta

On November 8, 2011, a comprehensive agreement for the avoidance of double taxation (DTA) was signed between the Hong Kong special administrative region government and the Maltese government. It will come into force after both governments finalize their respective ratification procedures.

The treaty eliminates the dual taxation of income in both jurisdictions. Absent the agreement, income earned by a Maltese national residing in HK would be subject to both Hong Kong and Maltese income tax, while Maltese enterprises operating through a branch in Hong Kong would also be taxed with both jurisdictions’ corporate tax. Under the agreement, taxes paid by companies on their profits in Hong Kong can be credited against their tax payable in Malta.

The agreement precludes taxation on dividends and interest by the source State, and clarifies that a 3 percent-withholding tax applies to royalties remitted from HK to Malta. The non-treaty rate in Hong Kong is 0 percent for dividends and interests, and 3 percent for royalties. The non-treaty rate for dividends, interests and royalties is 15 percent for each of the three categories in Malta, however, according to Maltese law, no taxes are withheld on payments involving dividends, royalties or income to Hong Kong residents.

The DTA provides that Hong Kong airlines operating flights to Malta will be taxed at HK’s corporate tax rate, which is lower than that of Malta.

The most recent tax exchange information standards issued by the Organization for Economic Co-operation and Development (OECD) were also included in the DTA.

The DTA aims to provide investors from both sides more certainty with regard to their potential tax liabilities before they embark on cross-border investment activities. In addition, by providing businesses with tax incentives, authorities hope that more firms will choose to expand their presence in the other’s jurisdiction.

This is the 22nd double taxation agreement concluded by Hong Kong with its trading partners.

Click here to see the full version of the HK-Malta DTA.

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