Malta and Russia sign a double taxation avoidance agreement

Source: Ms Donna Bonello & Dr Marilyn Mifsud¸ PKF Malta¸ April 2013

On April 24th 2013¸ Malta and Russia have signed a double taxation avoidance agreement¸ which is expected to be ratified shortly.

The agreement was signed at the Russian Finance Ministry today by Maltese ambassador Raymond Sarsero¸ and the Deputy Minister of Finance¸ Sergey Dmitrievich Shatalov.

Foreign Minister George Vella stated that the signing of this agreement reflected his ministry’s commitment to promote direct investment to Malta and facilitate trade exchanges.

The signing of this double taxation agreement continues the drive to conclude tax treaties with important trading partners as well as emerging nations.

Salient Points Addressed by the new Malta-Russia Double Tax Treaty:

1. Treaty to benefit persons residents of only one Contracting State at any given time;

2. Dividends: Russian resident company payor to a Malta resident and beneficial owner thereof¸ tax so charged in Russia shall not exceed:

  • 5 per cent of gross amount of dividends if the BO is a company (other than a partnership) holding directly at least 25 per cent of the capital of the company paying the dividends where holding amounts to at least 100¸000 Euro;
  • 10 per cent of gross amount of the dividends in all other cases.

3. Interest & Royalties: Maximum WH Tax on payment of Interest and Gross Royalties
from Russia is 5%.

4. Russia uses the ordinary credit method (similar to Malta) and contains a tax sparing provision requiring both Contracting States to give relief by crediting foreign taxes against the domestic ones¸ regardless of the actual tax paid.

5. Definition of Permanent Establishment includes profits from services as follows:

6. Where a Maltese enterprise performs services in Russia:

  • through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any twelve month period¸ and more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
  • for a period or periods exceeding in the aggregate 183 days in any twelvemonth period¸ and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State¸ the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State¸ unless these services are limited to those mentioned in paragraph 5 which¸ if performed through a fixed place of business¸ would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

7. This Convention shall apply in respect of income derived during the taxable years beginning on or after the first day of