Russia-Malta Tax Treaty is in Effect as of 1 January

17 December 2014
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Global Tax Alert
Russia-Malta Tax Treaty is in
Effect as of 1 January 2015
Executive summary
The tax treaty between Russia and Malta was signed on 24 April 2013 and entered into
force on 22 May 2014. Its provisions will apply to income derived as of 1 January 2015.
The treaty covers Russian profits tax and personal income tax, and Maltese income
tax. Some of the more significant provisions are summarized below.
Detailed discussion
Dividends, Interest and Royalties
If a Russian company pays dividends to a resident of Malta which has a shareholding
in a Russian legal entity exceeding 25% and the price of that shareholding exceeded
€100,000, the withholding tax rate should not exceed 5%. In all other cases dividend
withholding tax is capped at 10%.
If a Maltese company pays dividends to a Russian company that is its beneficial
owner, Maltese tax on the gross amount of the dividends may not exceed that
chargeable on the profits out of which the dividends are paid.
The withholding tax rate applied to interest and royalties will not exceed 5%.
Capital Gains on Real Estate Companies
The Convention provides that capital gains of a resident of a contracting state arising
from the alienation of shares or other rights deriving more than 50% of their value
directly or indirectly from immovable property situated in the other state may be
taxed in that other state. This rule is becoming standard for new agreements and
protocols concluded with Russia.
Currently, Russian domestic law lacks any mechanism for levying tax on a gain
realized by a foreign legal entity from the sale of shares in a foreign company
deriving most of their value from immovable property in Russia. Amendments to the
Tax Code are therefore required if Russia is to exercise the taxing rights granted by
treaties in such cases.
Other Income
Income of a resident of a contracting state derived
from the other contracting state may be taxed at
source unless exempt under Articles 1 to 20 of the
Permanent Establishment (PE)
The convention includes the usual OECD terms regarding
PEs. The threshold for a building site giving rise to a
PE is 12 months. It also includes specific criteria for
determining when services performed in a contracting
state give rise to a PE including active business services
performed through an individual and services performed
in relation to a single project or connected projects.
Thin Capitalization, Controlled Foreign Companies
and Other Limits on Benefits
Provisions dealing with thin capitalization and
controlled foreign companies (CFCs) are included
in the Protocol to the Convention. This stipulates
that notwithstanding any provision of the NonDiscrimination Article, contracting states are not
prohibited from applying their national tax laws
concerning thin capitalization and CFCs. Russia has
developed CFC legislation as part of a broader “deoffshorization” initiative.
1. Approved by Order No. 108n of 13 November 2007.
Global Tax Alert
Article 27 prohibits a resident of a Contracting State
from receiving the benefit of any reduction in or
exemption from tax provided for in the treaty from
the other Contracting State if the main purpose or
one of the main purposes of such resident or a person
connected to such resident was to obtain the benefits
of the treaty. An exception to this general rule applies
where a company is engaged in substantive business
operations in the Contracting State of which it is a
resident and the relief from the taxation claimed from
the other Contracting State is with respect to income
that is connected to such operations.
At the current time Malta remains on the Ministry of
Finance’s list1 of states and territories which grant
preferential tax treatment and/or do not require the
disclosure and provision of information in relation to
financial operations carried out (offshore zones). Malta
may be removed from this list in the near future as a
result of the treaty coming into effect.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (CIS) B.V., Moscow
• Vladimir Zheltonogov +7 495 705 9737
• Alexei Ryabov
+7 495 641 2913
• Marina Belyakova
+7 495 755 9948
[email protected]
[email protected]
[email protected]
Ernst & Young LLP, Russian Tax Desk, New York
• Julia Samoletova
+1 212 773 8088
[email protected]
Global Tax Alert
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EYG No. CM5024
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