The France-Malta Tax Treaty, signed on July 25, 1977, aims to prevent double taxation and to combat tax evasion and avoidance for individuals and businesses residing in one or both countries. This agreement is essential for taxpayers with economic or fiscal ties to both nations. Here is a detailed guide to its key provisions and practical implications.
1. Objectives of the France-Malta Tax Treaty
The treaty has several main objectives:
Eliminate double taxation on income and wealth.
Facilitate economic and financial exchanges between France and Malta.
Strengthen tax cooperation to combat fraud and tax evasion.
2. Scope of the Treaty
The treaty applies to:
Individuals and legal entities who are tax residents of one or both states.
Taxes covered, including:
In France: income tax (Impôt sur le Revenu, IR), corporate tax (Impôt sur les Sociétés, IS), social contributions, and wealth tax (formerly ISF, now IFI).
In Malta: income tax, covering professional income, dividends, interest, and capital gains.
3. Key Provisions
Income is categorized and taxed based on specific rules:
A. Income from Real Estate
Income from real estate is taxable in the country where the property is located.
Example: A French resident earning rental income from property in Malta will be taxed in Malta on this income.
B. Professional Income
Salaries are taxable in the country where the activity is performed, except in cases of temporary assignments (less than 183 days per year).
Income from self-employment or business activities is taxable in the country where the activity is performed or where a permanent establishment is located.
C. Dividends, Interest, and Royalties
Dividends: Taxable in the recipient's country of residence, with a withholding tax capped at 15% in the source country.
Interest: Exclusively taxable in the recipient’s country of residence.
Royalties: Taxable in the country of residence, with certain exceptions.
D. Capital Gains
Gains from real estate are taxable in the country where the property is located.
Gains from movable property are generally taxable in the country of residence.
4. Methods to Avoid Double Taxation
The treaty provides two primary mechanisms to eliminate double taxation:
Exemption with progression: Some income exempted in one state is considered for calculating the tax rate in the other state.
Tax credit: Taxes paid in one country are credited against taxes due in the other country.
5. Combatting Tax Evasion
The treaty establishes cooperation between the tax authorities of both countries, allowing for:
Information exchange to verify taxpayers' declarations.
Detection of undeclared income.
Implementation of international standards, such as automatic exchange of tax information.
6. Notable Specificities
Pensions and Retirement Income: Private pensions are taxable in the country of residence, while public pensions remain taxable in the source country.
Businesses: Profits of businesses with a permanent establishment in one of the states are taxable in that state.
Inheritance and Gifts: These matters are not covered by this treaty but fall under respective national laws.
7. Specific Case of Expatriates
French expatriates living in Malta must clarify their tax residency status to ensure compliance with their tax obligations in both countries. Malta’s attractive tax regime offers specific incentives for new residents.
8. Conclusion
The France-Malta Tax Treaty is a crucial tool for cross-border taxpayers. It ensures fair taxation while promoting economic and financial exchanges between France and Malta. A thorough understanding of its provisions helps avoid tax disputes and optimize taxation.
For assistance or a personalized analysis of your tax situation, our firm is at your service.
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