The treaty for the avoidance of double taxation between Israel and Malta became effective in Israel on January 1 2014. The full name of the treaty is – "The Convention between the Government of Malta and the Government of the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income".
The Israeli Minister of Finance issued a Decree based on his authority under Section 196 of the Income Tax Ordinance to ratify the Israel and Malta tax treaty.
See also: Israel Tax Treaties with Malta and Panama
Malta is attractive for businesses and investors for various reasons, mainly:
1 - Malta is an EU member state;
2 - Malta is a modern country in the Mediterranean;
3 - Malta has a full imputation tax system;
4 - Malta has an attractive participation exemption regime.
The Tax Treaty
The new Israel and Malta tax treaty applies to residents of both countries, including trusts (see below). According to the Israel and Malta tax treaty special withholding tax rates apply to payments from one country to a beneficial owner in the other country. Royalties are in general exempt from withholding tax under the treaty.
In the case of a company that is resident in both countries (Israel and Malta) under domestic tax laws, the treaty provides as other OECD tax treaties that the place of effective management shall prevail.
According to the Israel and Malta tax treaty, where an individual is a resident of both states, then his status shall be determined as follows:
(a) he shall be deemed to be a resident only of the State in which he
has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
Taxation of Trusts
The term "person" in the Israel and Malta tax treaty includes an individual, a company, a trust and any other body of persons. According tothe Israel and Malta tax treaty the residency of a trust is to be determined, inter alia, by the residency of the trustees, the governing law, the location of assets of the trust, and more.
There are various interesting provisions in the Israel and Malta tax treaty. For example, the treaty shall not prevent any of the states from applying provisions in its domestic law on the prevention of tax evasion or tax avoidance where those provisions are used to challenge arrangements which constitute an abuse of the treaty.
Dr. Avi Nov Law Offices, Israeli & international tax law
*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion