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Malta Ratifies Pending Tax Treaty with Botswana

On 19 June 2018, Malta published the Double Taxation Relief (Taxes on Income) (The Republic of Botswana) Order, 2018 in the Official Gazette, which provides for the ratification of the pending income tax treaty with Botswana. The treaty, signed 2 October 2017, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Botswana income tax and Malta income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends -
    • For dividends paid by a resident of Botswana to a resident of Malta, 5% if the beneficial owner is a company holding at least 25% of the paying company's capital, or 6% in other cases
    • For dividends paid by a resident of Malta to a resident of Botswana, limited to the amount of Malta tax on the profits out of which the dividends are paid, or 15% if the dividends are paid out of gains or profits earned in any year in respect of which the company is in receipt of any tax benefit under provisions regulating aids to industries in Malta, and the shareholder submits returns and accounts to the taxation authorities of Malta in respect of his income liable to Malta tax for the relative year of assessment (15% rate will apply for ten years, but may be extended)
  • Interest – 8.5%
  • Royalties – 5% for royalties paid for the use of or the right to use industrial, commercial, or scientific equipment, and 7.5% in other cases
  • Technical fees for services of an administrative, technical, managerial or consultancy nature – 7.5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Arbitration

Article 24 (Mutual Agreement Procedure) includes the provision that if any case is not resolved within three years from the presentation of the case to the competent authority of the other Contracting State, any unresolved issues arising from the case will be submitted to arbitration if either competent authority so requests.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Botswana 30 days after its entry into force in respect of withholding taxes and from 1 July of the year following its entry into force in respect of other taxes. In Malta, the treaty will apply from 1 January of the year following its entry into force.

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