On 4th September 2013 Malta and Ukraine signed the Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with respect to Taxes on Income. This is the first legal toll regulating taxation matters between the two countries; so far bilateral relations were supported by agreements in fields of law enforcement and promotion of tourism. Now the Convention awaits ratification.
Ukraine-Malta double tax treaty definitions
Generally speaking, the Convention follows the OECD’s Model, however with some alterations. It extends the definition of a permanent establishment, which now includes also an installation or structure for the exploration of natural resources and a warehouse or other structure used as a sales outlet. Special attention should be paid to tailor-made provision on international transport; it explicitly mentions income from the rental on a bareboat basis of ships or aircraft and profits from the use or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise, as being subject to tax solely in the state of the enterprise. However, it should be noted that the protocol to the Ukraine-Malta double tax treaty excludes from this provision persons who are entitled to an exemption or any other special tax benefit under the provisions of the law in force in Malta regulating merchant shipping.
Taxation of particular types of income
Majority of provisions of the Ukraine-Malta double tax treaty allocate taxing rights to both countries. In case of dividends Ukrainian withholding tax rate is 5% or 15% (with built-in limitation of the benefit), and in case of interest and royalties – 10%. The treaty does not cover with the “royalties” definition payments for the use of, or the right to use, industrial, commercial, or scientific equipment. The OECD removed the leasing of industrial, commercial, or scientific equipment from that provision, suggesting that income generated on such transactions is not of “royalty” nature and therefore should fall under business income. It should be noted that the in case of shares in a property company (with 50% threshold of income) the treaty allocates taxing rights to both states. Potential double taxation shall be avoided with the credit method.
Exchange of information between Malta and Ukraine and anti-avoidance measures
The Convention regulates an exchange of information in a way which follows the OECD’s Model. Moreover, as of 1st September 2013 in both states the amended Convention on Mutual Administrative Assistance in Tax Matters is in force.
It is important to notice that the treaty contain limitation of benefits clause, which limits treaty benefits in case of arrangements made solely for the purpose of obtaining treaty benefits; however, this limitation shall not apply in case a company is engaged in substantive business operation 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 with such operations.
On 4th September 2013 Malta and Ukraine signed the Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with respect to Taxes on Income. This is the first legal toll regulating taxation matters between the two countries; so far bilateral relations were supported by agreements in fields of law enforcement and promotion of tourism. Now the Convention awaits ratification.
Ukraine-Malta double tax treaty definitions
Generally speaking, the Convention follows the OECD’s Model, however with some alterations. It extends the definition of a permanent establishment, which now includes also an installation or structure for the exploration of natural resources and a warehouse or other structure used as a sales outlet. Special attention should be paid to tailor-made provision on international transport; it explicitly mentions income from the rental on a bareboat basis of ships or aircraft and profits from the use or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise, as being subject to tax solely in the state of the enterprise. However, it should be noted that the protocol to the Ukraine-Malta double tax treaty excludes from this provision persons who are entitled to an exemption or any other special tax benefit under the provisions of the law in force in Malta regulating merchant shipping.
Taxation of particular types of income
Majority of provisions of the Ukraine-Malta double tax treaty allocate taxing rights to both countries. In case of dividends Ukrainian withholding tax rate is 5% or 15% (with built-in limitation of the benefit), and in case of interest and royalties – 10%. The treaty does not cover with the “royalties” definition payments for the use of, or the right to use, industrial, commercial, or scientific equipment. The OECD removed the leasing of industrial, commercial, or scientific equipment from that provision, suggesting that income generated on such transactions is not of “royalty” nature and therefore should fall under business income. It should be noted that the in case of shares in a property company (with 50% threshold of income) the treaty allocates taxing rights to both states. Potential double taxation shall be avoided with the credit method.
Exchange of information between Malta and Ukraine and anti-avoidance measures
The Convention regulates an exchange of information in a way which follows the OECD’s Model. Moreover, as of 1st September 2013 in both states the amended Convention on Mutual Administrative Assistance in Tax Matters is in force.
It is important to notice that the treaty contain limitation of benefits clause, which limits treaty benefits in case of arrangements made solely for the purpose of obtaining treaty benefits; however, this limitation shall not apply in case a company is engaged in substantive business operation 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 with such operations.