Source: Marilyn Mifsud¸ PKF Malta¸ November 2013

The Legal Notice amends the definition of the term ‘resident’ to require the applicant to be ‘liable to tax’ under the law of the pertaining State and no longer simply ‘resident for tax purposes’ and ‘ordinarily resident’ or having a ‘place of effective management’ in such State as the 1998 original treaty read.  What this amendment effectively does is to bring in line the residence Article in this Tax Treaty with the provisions of the OECD model convention article on residence¸ which the new provision reproduces verbatim.  In this way the new provision excludes persons such as diplomatic and consular staff serving in the territory and includes all those persons liable to tax¸ although not necessarily subject thereto.

The Legal Notice also introduces an amendment to Article 10 of the DTA on dividends. Departing from the OECD model¸ Malta’s DTA with South Africa always differentiated tax treatment of dividends depending on whether the dividend was being paid by a Company resident in SA to a resident of Malta or by a Company resident in Malta to a resident of SA. In the latter case the DTA provided that the Malta tax paid shall not exceed that chargeable on the profits out of which the dividends are paid. This has remained unchanged.

IIn the former case (that is dividend being paid by a Company resident in SA to a resident of Malta) the DTA provided that the tax payable shall generically not exceed 5%. The new provisions provide that a 5% rate will be applicable if the beneficial owner of such dividends is a company which holds at least 10% of the capital of the company paying the dividend while a rate of 10% shall be applicable in all other cases. It is noteworthy that this differs from the OECD model articles in the following ways: the model articles provide for a 5% rate where the beneficial owner of such dividends is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividend while a rate of 15% shall be applicable in all other cases.

Changes are also introduced into the interest provision governed by Article 11. Here the third sub-paragraph covering instances exempting interest from tax is substituted with