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Treaty between Spain and Malta – details

The first-time income tax treaty and protocol, signed by Spain and Malta on 8 November 2005, entered into force on 12 September 2006. The treaty will generally apply from 1 January 2007. The treaty was concluded in the Spanish and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model Convention (2005)

The maximum rates of withholding tax are:

-   in respect of dividends paid by a company which is a resident of Spain to a resident of Malta who is the beneficial owner of the dividends, 5% in general and 0% if dividends are paid to a company the capital of which is wholly or partly divided into shares and which is a resident of Malta as long as it holds directly at least 25% of the capital of the company paying the dividends;
-   in respect of dividends paid by a company that is a resident of Malta to a resident of Spain who is the beneficial owner of the dividends, the Maltese tax on the dividends cannot exceed that chargeable on the profits out of which the dividends are paid;
-   0% on interest; and
-   0% on royalties

Deviations from the OECD Model include that capital gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other state may be taxed in that other state.

Both states generally provide for the ordinary credit method to avoid double taxation. If, in accordance with the treaty, income derived by a resident of Spain is exempt from tax in Spain, Spain may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempt income (exemption with progression).

There is a limitation of benefits article, under which the provisions of Arts. 6 to 21 of the treaty shall not apply to (i) persons enjoying a special fiscal treatment by virtue of the laws or the administrative practice of either one of the states which are identified in the protocol, (ii) persons enjoying a special fiscal treatment of either state which has been identified as such by mutual agreement between competent authorities. Neither shall they apply to income derived from such persons by a resident of the other state, nor to shares or other rights in such persons owned by such a resident. In addition, notwithstanding any other provisions of the treaty, a resident of one of the states will not receive the benefit of any reduction in, or exemption from, taxes provided for in the treaty by the other state if the main purpose or one of the main purposes of the creation or existence of the resident or any person connected with the resident is to obtain treaty benefits that would not otherwise be available.

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