New Malta – China Double Tax Agreement

A new double tax agreement between Malta and China entered into force. The new agreement replaces the previous long-standing double tax treaty between the two States and applies in respect of income or gains derived on or subsequent to 1 January, 2012.

The new agreement halves the maximum China withholding rate which may be levied on dividends distributed by a Chinese company to a Maltese company (holding, directly, at least 25% of the capital of the China company) from 10% applicable under the prevuious treaty to 5% – Malta does not levy any tax on outbound dividends.

Likewise, the new agreement fixes a maximum effective withohlding rate of 7% in respect of royalties paid by way of consideration for the use of, or the right to use, industrial, commercial or scientific equipment. Maximum withholding rates otherwise levied in respect of outbound royalties and interest remain unchanged at 10%.

The new agreement broadens the scope for exchange of information between the comptent authorities of the two States. In fact, the new agreement replicates the provisions of Article 26 of the OECD model tax convention. In addition, the new agreement introduces means for mutual assistance in the collection of taxes.

However, the new agreement makes no provision for tax sparing and, accordingly, the tax sparing mechanism provided for in the previous treaty is no longer available.

Contact us here should you require any legal assistance on tax in Malta.