On the 8th of November 2011, Malta and the administrative regional government of Hong Kong signed an agreement for the avoidance of double taxation and the prevention of the fiscal evasion of taxes on income.
The Hong Kong/Malta CDTA incorporates the latest Organisation for Economic Co-operation and Development standard on the exchange of information and contains a comprehensive Exchange of Information clause based on the latest OECD article.
The Hong Kong/Malta CDTA will come into force after completion of the ratification procedures on both sides.
The CDTA clearly sets out the allocation of taxing rights between the two jurisdictions and the relief on tax rates on different types of passive income, thus helping investors to better assess their potential tax liabilities from cross-border economic activities. The agreement will boost closer economic and trade ties between the two jurisdictions, and provide added incentives for companies in Malta to do business or invest in Hong Kong, and vice versa.
In the absence of a CDTA, income earned by Maltese residents in Hong Kong would be subject to both Hong Kong and Maltese income tax. Profits of Maltese companies doing business through a branch in Hong Kong are fully taxed in both places. Under the CDTA, tax paid in Hong Kong will be allowed as a credit against tax payable in Malta.
The CDTA does not prescribe withholding tax capping on Malta bound dividends and interest, but provides for a 3% cap on Malta bound royalties. In other words, the CDTA excludes taxation by the source state on dividends and interest. However, tax may be withheld in the source state on outbound royalty payments; albeit at a rate not exceeding 3%. Under Maltese law, no withholding taxes are due on payments of dividends, royalties and income to Hong Kong residents.
Under the CDTA, Hong Kong airlines that operate flights to Malta will be taxed at Hong Kong's corporation tax rate (which is lower than that of Malta). Profits from international shipping transport that is earned by Hong Kong residents that arise in Malta, and are currently subject to Maltese tax, will, under the CDTA, no longer be taxed in Malta.
This is the 22nd comprehensive agreement for the avoidance of double taxation (CDTA) concluded by Hong Kong with its trading partners, coming after those with Belgium, Thailand, the Mainland of China, Luxembourg, Vietnam, Brunei, the Netherlands, Indonesia, Hungary, Kuwait, Austria, the United Kingdom, Ireland, Liechtenstein, France, Japan, New Zealand, Switzerland, Portugal, Spain and the Czech Republic.